Bull Market: What Does It Mean for Nonprofits?

Happy New Year!

If you’re like me, you found yourself on January 1 surfing the Internet without much on the agenda. News of the stock market’s incredible 2013 was being heralded seemingly everywhere I looked:

  • Investors Cheer Record-Setting Year on Wall Street (USA Today)
  • Stock Market Notches Its Best Year Since 1995 (Los Angeles Times)
  • Stock Markets Count $6 Trillion in Gains (Forbes)

But not all was joyous to start 2014, for with the good news came the inevitable questions about the sustainability of such good fortune. Could the good time last?

Which just goes to show, if you look hard enough, there is always someone willing to take the wind out of your sails.

So what does the stock market’s performance in 2013 have to do with nonprofit organizations? If you’re asking that question, you aren’t likely a development professional.  Fundraising and the performance of the stock market are directly linked in many ways. Let’s take a look at the three areas of potential support – individual giving, foundation grant making and corporate support.

Individual Giving
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One of the first bits of advice I would give new interns during my time with NYC’s Manhattan Theatre Club was to read the Wall Street Journal every day (or at least the cover) to have some idea of how the market was performing. To learn this lesson, try calling a would-be donor, particularly one in the financial industry, on a day when the market has dropped precipitously and asking that person to not only renew, but INCREASE support. Once you’ve gotten an earful, you are likely to avoid making that mistake again.

The stock market’s effect on individual giving is largely psychological. Unless you are sitting down to talk to a donor prospect about a multi-year gift, the exact performance of the market on the day or week you are making your ask is likely inconsequential. What does matter is the state of mind of the prospective donor. Is the individual in a good mood? Does that person feel confident in the future performance of his/her portfolio? In my experience, a person is likely to feel more generous during a time when that individual’s financial portfolio is on the rise.

Impact on Individual Giving in 2014: My hope is that many organizations in the Carolinas benefited this past holiday season from end-of-year appeals. With such sizable investment returns, some individuals were likely looking to offset the tax impact through charitable write-offs. But even if your organization only saw modest gains from those appeals, Q1 of 2014 represents an opportunity to continue building on those good feelings… before the other shoe drops on that potential market correction.

Foundation Grant Making
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Perhaps no other charitable vehicle is as affected by the stock market as foundations, which typically consist of a mixture of financial assets heavily reliant on the stock market. Best practices call for foundations to allocate 5% of their assets annually based on a three-year rolling average of total assets at year end. That way, foundations can mitigate years with big losses against years with substantial gains.

Using the Dow as an example, 2013 represented the fifth year in a row of positive annual gains after that monster of a loss in 2008. If a foundation were to be invested entirely in assets represented by the Dow (however unlikely), that 33.84% loss in 2008 really hurt  the three-year average in 2009, 2010 and 2011. In fact, 2012 was the first year foundations were finally free and clear of 2008 in allocation calculations, and with two big years of double-digit returns in 2010 and 2011, it was a very good year for foundation giving in 2012. However, modest returns in 2011 (Dow finished at 5.5%+) and 2012 (7.26%+) would mean 2013 would need to be a big year to see that giving sustained. And luckily, it was.

Impact on Foundation Giving in 2014: It is going to be an even better year for foundation grant making in 2014. Even with the relatively modest returns in 2011 and 2012, the double-digit returns more than offset previous years in the three-year rolling average.  2014 promises to be the best year for foundation grant making since 2000.

Corporate Support/Sponsorship
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When working with nonprofits, I am often surprised by the lack of connection some staff members make between corporate support and the performance of those companies.  As if a corporation exists principally to fund nonprofit programming, and whether or not the company is making money is less important than the artfully communicated case for support.

Corporate support is dependent on a number of factors, and one can reasonably assume that if that company is publicly traded on the stock market, it likely had a pretty great 2013. Stock performance is linked to profits, and companies that saw 20%+ growth in 2013 probably posted some pretty significant profits at various points throughout last year.

When companies profit, nonprofits benefit in two ways. Corporations with foundations are more likely to pump increased dollars in, and unlike private/family foundations, they typically don’t use a three-year average and give it all away on a yearly basis. Those companies are also good targets for sponsorship requests. Under-funded marketing efforts in previous years are likely given new budget after a year like 2013, and nonprofits may hold the key to reaching target audiences.

Impact on Corporate Giving in 2014: Without a doubt, 2014 is a great year to submit requests to corporate foundations and submit thoughtful sponsorship proposals.  Most companies have some sort of funding focus in both areas, and the 2013 market performance isn’t likely to change that. However, with the future still unknown, striking while the iron is hot is essential.

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