Non-profit organisations are missing out on potential investment income by shunning fund managers and allocating large proportions of their capital in cash and deposits, despite the low interest rate environment.
The 2015 Koda Capital non-profit sector review, found not-for-profit organisations’ investment income had fallen by 10.2 per cent as a result of their focus on cash and deposit investments.
Koda Captial partner and head of philanthropy and social capital, David Knowles, said the sector was “a key diver of the Australian economy”, but needed to look to non-government revenue sources.
“With an ageing population and a continued reliance on the non-profit sector to deliver critical services, non-profits must continue to explore new ways to generate income and capital to solve social issues,” he said.
“As government funding is under significant pressure, many organisations will find themselves in a challenging financial position, and will no doubt be examining their business models closely and should be looking at the strength of their organisation’s balance sheet and ensuring there are no lazy assets.
“They need to focus on diversifying their income streams and looking for opportunities to derive self-generated revenue.”
The review found that over the period between 2006-07 and 2012-13 money held with fund managers decreased.
“Whilst this decision may have been seen as prudent during and immediately post the Global Financial Crisis, the table below demonstrates the returns of other asset classes,” Koda said.
“Australian fixed interest has returned 7.96 per cent per annum over the last five years and Australian Equities including Franking Credits has returned 17.64 per cent per annum over the last three years.
“It’s important that non-profits understand their risk-profiles, cash-flows and time-horizons and have prudent investment governance frameworks to ensure that appropriate portfolios are tailored to the unique circumstances of their organisation.”
