Small and midsize charities earned more money on their
investments last year if they stuck with formal strategies and stayed on
top of how much they paid their financial advisers, according to a new
The study of 261 organizations with budgets of $25-million or less,
conducted by Raffa Wealth Management, found that overall investment
returns for charities of all sizes increased 10.8 percent. Private and
community foundations earned 11.5-percent returns.
The investment growth, while strong, trailed most investment
benchmarks for 2013, a year when broad indexes of U.S. stocks shot up at
least 30 percent.
“Performance relative to the traditional market benchmarks was really bad,” said Dennis Gogarty, Raffa’s president.
Still, the small groups did better than the big ones.
The Chronicle’s most recent survey of endowments at 209
mostly large foundations and nonprofits showed a median return of 8.4
percent for 2013.
Raffa’s figures were based on data from 77 charities, 19 private and
community foundations, and 165 other tax-exempt groups, mostly
Nearly 60 percent of the charities and foundations had budgets of $5-million or less.
The survey was intended to give small and midsize nonprofits data to compare their investment performance and practices.
The Raffa study found that more than half of the nonprofits did not
know how much they paid in fees to investment managers. Groups with
small amounts to invest typically were less aware of their fees than
wealthier organizations. Smaller nonprofits also tend to pay higher
fees, providing an additional drag on returns.
“Those that didn’t know performed worse than their colleagues that
did know,” Mr. Gogarty said. “We were surprised at how many didn’t know
how much they pay in fees.”
The survey also found that groups with formal investment strategies
for allocating their assets—nearly 60 percent of participants—increased
investments by 12.7 percent last year from 2012. Nonprofits without
formal investment strategies grew 6.3 percent. “That’s a huge
difference,” Mr. Gogarty said.
The survey found that such discipline was rewarded in another way.
Among the groups with formal investment plans, those that made changes
to their plans saw smaller gains than those that stuck with their
“Keeping it simple really helped in 2013,” he said.
Average Return on Investments of Money in Long Term Reserves for Calendar Year 2013
|Money in Reserve
|$5-million or less
|$5- to $25-million
|$25-million or more
Source: Raffa Wealth Management, "The Study on Nonprofit Investing"