NFPs Failing To Capitalise On Investments
12 May 2015 at 10:45 am
Australian Not for Profit organisations are missing out on potential investment income by allocating large proportions of their capital in cash and deposits, despite the low interest rate environment, according to a new report.
The 2015 Koda Capital Not for Profit sector review found that NFP organisations' investment income had fallen by 10.2 per cent as a result of their focus on cash and deposit investments.
Koda Capital partner and head of philanthropy and social capital, David Knowles, said the sector was "a key driver of the Australian economy", but needed to look to non-government revenue sources.
"With an ageing population and a continued reliance on the Not for Profit sector to deliver critical services, Not for 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.
"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,” the report said.
"It's important that Not for 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."
Some of the recommendations of the report include:
Not for Profits should be looking to take advantage of Australia's highly trained, highly educated workforce and Australia’s volunteer culture to build strong networks of skilled volunteers who are prepared to lend their talents as well as their time.
If charities want to attract significant philanthropic support, they should be helping wealthy Australians to structure their philanthropy and showing them how much they can get from giving.
Australian Not for Profits need to build, protect and commercialise intellectual property like never before. They need to think about the commercial and social value of their products and services in a global as well as local context.
Not for Profits should be diversifying their income streams and taking steps to reduce their overall dependence on external funding.