Fall 2016 issue of Horizons

With 2016 stock markets opening at one of the lowest levels in history, this negatively impacted charitable giving. Early 2016 began poorly as donors were hesitant to give with uncertainty about their own financial positions. As European economies continue to experience uncertainty, there is further volatility predicted that will not improve consumers’ economic positions. As a result, charitable giving is not expected to increase in the near term. Not-for-profit organizations have responded to these recent economic challenges with various strategies. Review Investments To provide consistent and more stable funding, organizations frequently rely on earnings on endowments. Reviewing an organization’s investment policy on an annual basis provides the opportunity to adjust and react to economic changes in a timely manner. As the organization’s tolerance for risk may change from year to year, there may be the need to change and adjust an organization’s investment policy accordingly.

Endowments must nevertheless be prudently managed in consideration with the seven criteria provided by UPMIFA:

∙ Duration and preservation of the endowment fund

∙ Purposes of the organization and the endowment fund

∙ General economic conditions

∙ Effect of inflation or deflation

∙ Expected total return from income and the appreciation of investments

∙ Other resources of the organization

∙ Investment policy of the organization

In conjunction with a review of the investment policy, the organization’s endowment spending policy should also be reviewed and revised, as deemed necessary.

Uniform Prudent Management of Institutional Funds Act (UPMIFA) focuses on prudence in managing endowment funds and gives more flexibility by eliminating the historic dollar value floor. Therefore, organizations are not prohibited from spending during economic downturns.

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