Most nonprofits are not satisfied with their investment processes and are taking on more risk than planned. While many have investment policies, there is often a disconnect between the policies and the actual investments made. This can jeopardize the organization's mission. Additionally, most nonprofits do not fully understand the fees and investment products they use. They also struggle to find advisors who act as fiduciaries. Governance over investments needs strengthening as well, such as setting term limits for finance committees. Nonprofit boards tend to be slower to change investment strategies and adopt new tools compared to individual board members' personal investments.

1. Meritam Investment Advisors
www.meritam.org
Sharon Liebowitz
Sharon@meritam.org
(612) 888-6363
Nonprofit Investing Survey Results
August 18, 2016

2. 2
Survey Highlights
Our survey suggests that there is a real opportunity to improve investment processes - so nonprofits can better protect the capital they’ve
worked so hard to raise…
As financial advisors, we expected to see nonprofits have investment processes that worked from end to end – that is, their investment policy
/ strategy was consistent with the amount of risk they were able to take, and drove their target asset allocation and products held.
The good news is that most organizations do have an Investment Policy in place. But the picture got a little more complicated after that.
What we found was that there is often inconsistency between investment strategy and execution. Most commonly, organizations were
taking more risk than they planned, often with exposure to products they did not fully understand.
These mismatches are sometimes enough to put an organization’s mission in jeopardy - with risky products comes the potential for outsize
losses. Perhaps as a result, almost 60% of organizations are not happy with their investment process !
In considering fees, we were surprised that most nonprofits don’t actively shop for good prices. So nonprofits tend to pay high fees. Most
nonprofits could benefit by paying more attention to fees, especially when high fees due not result in over performance.
Only 40% of organizations surveyed are using passive products. So opportunity exist for nonprofits to explore efficient passive products such
as index funds, that have gained traction with retail consumers over the past decade. This is particularly true of smaller nonprofits - most of
the organizations currently using passive products are $50M + in assets.
The results also highlight that nonprofits need to strengthen governance on their investments. For example, while a majority of organizations
entrust their finance committee with their investments, almost none have term limits or constraints around committee appointments.
Finally, many nonprofits would be well served by finding financial advisors who act as fiduciaries and who can execute from end-to-end. Of
more than half of boards who acknowledged that they needed capacity in the form of more financial education or expertise, the majority
either did not use advisors who are fiduciaries or did not know whether there advisors are fiduciaries.
Clearly, boards need to take a more active role in defining their investment strategy and ensuring their investment strategy is well executed.

3. 3
Main Themes
We grouped our findings into 5 main themes:
1. Most organizations are not satisfied with their investment process.
The good news is that almost 75% of organizations have an investment policy. And of those who don’t, 75% of those
have set an asset allocation. But even those who are satisfied with their investment strategy often are not getting
what they think they are getting; investments are not clearly understood or managed. These misalignments between
needs / risks and strategy may reduce performance, jeopardize missions.
2. Organizations are losing money…..
The majority of boards (72%) do not fully understand the financial products they use, and many (42%) do not know
what they pay in fees.
3. ……And are struggling to get the right type of help with their fiduciary duties.
Nonprofits acknowledge the need for advice and education, but in terms of building this capacity, they do not always
employ fiduciaries.
4. Governance needs to be strengthened.
While there is much good practice in financial governance, we need to see more boards engaged with the specifics of
their investments – particularly ensuring that their investment strategy works from end-to-end.
5. Boards are slower to act as a group then they are as individuals. Nonprofits are slow to change, and
not first movers when it comes to their investments.
These themes are detailed in the next 5 pages.

4. 4
1. Most organizations are not satisfied with their investment process.
The good news is that almost 75% of organizations have an investment policy. And of those who don’t, 75% of those
have set an asset allocation.
However, almost 60% of organizations that have an investment policy are not satisfied with the performance of their
investment strategy.
• Poor investment strategy often leads to poor returns. Almost 30% of these organizations report low performance
• In general, these organizations are looking for more education and/or board members with investment expertise.
But even those who are satisfied with their investment strategy often are not getting what they think
they are getting; investments are not clearly understood or managed. These misalignments between
needs / risks and strategy may reduce performance, jeopardize missions.
There is often a disconnect between financial needs and risk appetite, investment policies and investment strategies
and execution. This is especially difficult as risk levels in investment strategies often do not match risk levels in assets
held.
• We found that in nonprofits with conservative risk levels-focused on capital preservation- almost half were taking
too much risk. They described their asset allocation as 50% stock or more.
• In fact, one organization with conservative risk was holding a whopping 80% stock in their account.
• In addition, 22% were invested in risky products such as hedge funds.
• Of those indicating moderate risk, half of those orgs were holding 70% or more in stocks.
Organizations need to ensure better alignment between needs and strategy and execution. An organization
that takes excessive risk exposes itself to financial losses that may jeopardize its sustainability and mission.

5. 5
2. Organizations are losing money…..
The majority of boards (72%) do not fully understand the financial products in which they invest, and many (42%)
do not know what they pay in fees.
• The good news is that 57% of organizations review how much they pay in fees, but even though they review
fees, many remain unsure of how much they pay.
• And, as in the industry at large, higher fees do not correlate to higher performance. In particular, actively
managed mutual funds are the most commonly held product, held by more than half (54% ) of nonprofits. All
organizations paying 1% or more in fees hold active funds, yet not a single one reported outperformance.
• A large number of boards (63%) do not fully or only somewhat understand the investment products they hold.
This is a significant risk as those products may be volatile and / or expensive.
An interesting note on investment consultants:
• Several large non profits use investment consultants. Of those non profits using investment consultants 75%
were aware of how much they paid in fees. All those who were aware of their fees were paying 1% - 2%.
• As each of these organizations hold more than $50M in assets, we can calculate that each of those
organizations that use investment companies and are aware their fees pay about $500,000 to $1M in fees
annually ! Those not aware of how much they pay in fees may be paying even more……..!
Boards should do more diligence around the products held to ensure they are acting as a fiduciary.
Taking a cue from the Department of Labor (DOL) ruling, boards should examine other products that yield
similar results at lower cost (i.e. index funds).

6. 6
3. ….And are struggling to get the right type of help with their fiduciary duties.
Nonprofits acknowledge the need for advice and education, but in terms of building this capacity, they do not always
employ fiduciaries.
• Organizations are starting to acknowledge their own gaps as fiduciaries - a surprisingly large number of boards
(63%) only somewhat or do not fully understand the investment products they hold.
• More than 50% of boards acknowledged that they needed more education or financial expertise. However, of
those, more than half of either did not use advisors who are fiduciaries or did not know whether their advisors
are fiduciaries.
• Nonprofits may be financially exposed when they work with advisors who are not fiduciaries – as these advisors
may recommend products that bring in more fees.
Nonprofits typically do not consider prices in choosing investment advisors. This despite little connection between
investment fees paid and investment performance. Engaging the right type of advisor is a crucial fiduciary duty.
• Organizations are not price sensitive. 80% do not want to switch financial advisors regardless of fees.
• 41% of nonprofits paid more than 1% in fees, but none is considering a switch.
• 30% of organizations currently hold expensive alternative investments such as hedge funds and at least half of
those are considering adding more alternatives. This is in contrast to many pensions and large endowments who
are reducing alternatives, as reported by Bloomberg on August 15, 2016.
Doing more diligence or acquiring more board members with expertise is one solution. Hiring advisors who
act as fiduciaries is another solution. Finally, another is to move toward simpler, inexpensive and more
transparent products.

7. 7
4. Governance needs to be strengthened.
While there is much good practice in financial governance, we need to see more boards engaged with the specifics of
their investments – particularly ensuring that their investment strategy works from end-to-end.
• 70% of organizations do have Investment Policies, most (70%), review their Asset Allocation at least once a year.
• 57% of organizations review their investment performance quarterly,
• Organizations don’t know if their investment strategy works end to end. As in our first theme, there is a
disconnect between investment policies, strategies and execution.
• Almost 50% of organizations compare their investment performance to their investment policy.
One of the least governed areas is the Finance committee. This group holds a tremendous amount of power over
investments. Yet 60% of nonprofits do not set or abide by term limits for the members, which may inhibit new
thinking, quick movements or responses to improvements in the industry.
• Finance committees are often the key decision makers but are poorly governed both in terms of how they are
selected and how long they serve.
• Board chairs, the executive board, and finance committee members themselves hold a large sway when it comes
to nominating finance committee members.
• More than 2/3 of organizations that delegate investing to their finance committee do not abide by term limits for
the members. This means that the same individuals hold the reins in perpetuity without checks and balances.
Enhance governance processes, including adding key controls around finance functions. Provide board members
with the tools to actively participate in the investment dialog. Promote open dialog during quarterly investment
reviews.

8. 8
5. Boards are slower to act as a group then they are as individuals, making nonprofits
slower to change when it comes to their investments.
• Boards are inclined to stay the course, rather than change advisors, under most circumstances. Only 21%
overall want to switch financial advisors. Of those wanting to switch, 42% report low performance. For not
wanting to switch, only 11% report low performance
• The whole moves slower than the parts. CFOs and board members are big supporters of passive investments in
own accounts, but not so for organizations. All CFO and Finance Directors used passive investments in their own
portfolio, but only 1/3 used passive products in their organization.
• A Boards hesitancy to explore new investing tools, products and techniques challenges their responsibility as
fiduciaries. Many are not considering new tools and platforms that could serve them better. And, while 15% of
staff and board members invest online, no nonprofits have adopted online investing.
High-performing organizations ask questions that challenge the status quo and compare it to what new
platforms can bring in terms of performance, cost and service.
How have our investments performed? What are we paying for advice? Do we understand products held?
Does our financial advisor act as a fiduciary? Are there any conflicts of interest?
Don’t allow any sacred cows.

9. Notes
The Nonprofit Investing Survey – June 2016 was designed to better understand the
challenges that nonprofits face in investing its endowment and financial assets. This survey
was distributed via email and shared on social media during June 2016 to reach 1000+.
Results are based on organizations of all sizes nationwide that fully completed the survey.
Thank you !
9
• Contact Sharon Liebowitz at Meritam for additional information - sharon@meritam.org.
• Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a
complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors on the date of publication and
are subject to change.
• Meritam Investment Advisors, Inc. is registered as an investment advisor with the SEC and only transacts business in states where it is
properly registered, or excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the
firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.
• Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will
be suitable or profitable for an investor’s portfolio. All investment strategies have the potential for profit or loss. Asset allocation and
diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses.