With school back in session, alumni and donor relations activities are in full swing and year-end fundraising efforts are fast approaching for nonprofits of all types. And as summer turns to fall, nonprofit institutional investors are navigating their own season of change in the form of portfolio and risk management complexities inherent in today’s environment.
“There is no question recent economic conditions have created an environment of uncertainty for higher education institutions and nonprofit organizations,” said Henri Cancio-Fitzgerald, managing director of PNC Institutional Asset Management (IAM) Nonprofit Strategy & Solutions Group. “PNC IAM has a unique understanding of the challenges these institutional investors are facing, which enables us to provide customized, innovative solutions that meet their evolving needs.”
When addressing their most pressing needs, institutional investors most frequently come back to three ongoing trends in institutional asset management:
- Outsourced Chief Investment Officer (OCIO) services;
- Planned giving; and
- Captive insurance companies.
OCIO 101
At the most basic level, an OCIO model enables an organization to delegate responsibility for the day-to-day management of its investment program by shifting discretionary investment responsibility for some or all investment functions from the asset owner to an investment advisor.
As an alternative to in-house asset management and traditional consultant models, OCIO services can provide an effective vehicle for institutions looking to enhance their investment capabilities and gain fiduciary support, while allowing the organization to focus on the investment policy and oversee overall performance.
“OCIO services provide organizations with a number of benefits, which ultimately can help them reduce costs, allocate resources in a more effective manner, participate in sophisticated investment strategies with more ease and agility, and more accurately report on results,” said Chris McGoldrick, managing director of PNC IAM OCIO Solutions. “The benefits, cost savings and risk controls realized by an effective OCIO program can be significant for nonprofits and higher ed institutions of all sizes.”
Planned Giving 101
While a nonprofit’s primary focus is delivering on its mission – and raising the necessary funds to achieve that mission, a successful development office takes this focus one step further by incorporating gift planning and planned giving to advance or exceed fundraising goals, said Chris McGurn, director of PNC IAM Planned Giving Solutions. “A planned giving program targets funds that will benefit an organization for years to come. It can be used as broadly as endowment-building or can be targeted to fund future projects.”
Establishing a planned giving program requires additional time and a strong acumen in administration, compliance, investment and donor relations. For many organizations, a planned giving program can begin as a reasonable in-house operation, but with growth and over time, the program can become burdensome as financial decision-makers balance day-to-day administration with managing relationships with this important donor set.
To help nonprofits address these challenges and maintain planned giving programs in a more passive manner, PNC IAM enables organizations to outsource the investment and back-office functions of their planned giving program. “We also offer assistance with education, training and gift planning consultation to help organizations offer their donors a more thorough understanding of the organization’s charitable mission and articulate the many methods available to make an impact through gift planning and blended giving strategies,” said McGurn.
Captives 101
In recent years, a hardening commercial insurance market has generated increased interest in captive insurance companies, which function as direct insurers or reinsurers for an organization’s parent company or affiliates.
The potential benefits of a captive include the ability to tailor coverage to the needs of the organization, better take advantage of often predictable insurance market cycles, offer creative risk solutions, provide coverage that the commercial markets do not, and consolidate risk management.
“Typically, the primary reason for organizations, including nonprofits, to create a captive is to provide improved risk management, as captives can make financing risk more cost-effective and ultimately reduce an organization’s total cost of risk,” explained Wade Meadows, managing director of PNC IAM’s Insurance Solutions Group. “As a platform for an organization’s risk management, captives also can help improve cash flow management and provide investment returns which, through proper captive management, can offer overall insurance premium cost savings.”
Because organizations have different needs, said Meadows, every captive should be structured differently. “Maximizing the benefits of a captive means understanding and responding to the various risk lines and concerns within the organization,” he said. Because a captive entity is subject to complex regulations, Meadows recommended that interested organizations conduct a feasibility study and analysis before making the decision to form a captive.
Bringing it all together
While the above-referenced strategies represent important considerations for nonprofit institutional investors in today’s market, each organization will have its own unique set of opportunities and challenges to consider when it comes to managing assets, risks and fundraising.
“PNC IAM understands those considerations, as well as the unique goals and objectives of each client, and we take pride in helping clients chart a holistic path to achieving their missions,” said Cancio-Fitzgerald.
