Read about the measures that foundations and charitable trusts should take to adapt and sustain their operations in the face of a protracted economic slowdown.
by Noxolo Hlongwane, Head of Philanthropy at Nedbank Private Wealth
01 December 2020
The Covid-19 pandemic and resultant global lockdowns have created a highly volatile and uncertain environment for all investors. For the trustees of charitable trusts and foundations, this environment presents an especially acute challenge. In addition to the need to assess whether they should reposition their portfolios for long-term sustainability, they also need to remain cognisant of the heightened short-term financial demands relating to the provision of vital support to beneficiaries during the immediate crisis.
We recently invited the heads of two of South Africa’s most prominent charitable organisations to participate in a webinar to discuss the challenges they and their trustees have faced during 2020 and to share the lessons they have learned. Interestingly, while Raymond Ndlovu, Chairman of the Cape Wine Auction Trust, and Dr Cleeve Robertson, CEO of the National Sea Rescue Institute (NSRI), head up two very different social support organisations, their experiences of Covid-19 proved very similar. The same also held for the valuable lessons they learnt on how to position their respective trusts effectively to survive the crisis and, just as importantly, to be on a strong footing to recover on the other side of Covid-19.
Both participants were asked their views about measures that foundations and charitable trusts should take to adapt and sustain their operations in the face of a protracted economic slowdown.
For Dr Robertson, the key lesson that Covid-19 offers all foundations is the importance of taking a long-term view of systems development. ‘The NSRI has been building resilient systems and processes for many years,’ he explained, ‘and these were vital in sustaining us through Covid-19, while giving us the necessary flexibility and agility to react quickly and survive this crisis.’
Ndlovu agreed with this sentiment, but also highlighted the importance of a foundation or charity assessing its strategy and funding model to make sure that these remained fit for purpose and effective in a fast-changing economic environment. ‘Covid-19 catalysed significant introspection and prompted us to take a step back and thoroughly and honestly assess our strategy and funding and we realised how important it was to ensure that our trustees have a good handle on financial and investment matters, and that we are willing to diversify our revenue streams as well as our mandate.’
This idea of diversification was another key point on which both participants were strongly aligned, agreeing that reliance on one or two large annual fundraising events, or big donations from corporate entities, was no longer a viable option.
‘There was a time when foundations could rely on a few very large corporate contributions to sustain their work throughout the year,’ Dr Robertson said, ‘but that paradigm has shifted, and now trusts need to recognise that their resilience and sustainability depend on their ability to diversify their income streams to allow for much higher volumes but much lower individual donation amounts.’
Ndlovu said this diversification imperative extended beyond funding sources. He argued that foundations and trusts also needed to evaluate their giving mandates honestly and realistically and to make allowance for far more diverse needs, across a much broader range of beneficiaries. ‘For example, within our education support mandate, we had to reassess how much of the money we raise needs to now go towards meeting the immediate welfare needs of children rather than focusing only on long-term education support through the provision of books and teaching aids.’
However, when faced with a crisis such as Covid-19, both agreed that even this diversification of fundraising streams took second place behind the imperative to cut costs and protect reserves. ‘When Covid-19 struck, the very first decision the NSRI took was to cut every cost we could, no matter how small or apparently insignificant,’ Dr Robertson said, ‘and this, combined with the immediate suspension of all our capital expenditure projects, allowed us to survive the hard lockdown without needing to dip into our precious reserves.’
Ndlovu had the same advice about cost cutting, pointing to the immense value that can be unlocked in this regard by having trustees with diverse skills, expertise and experience, as well as an absolute commitment to good governance. ‘As a board, you need to agree that preservation of capital is paramount, which in the current economic climate may require a shift in investment focus and mandate,’ he said. ‘And one of the keys to surviving this or any future crisis is making sure that your organisation is in a position where it can sustain itself on the returns earned by your reserves rather than on the reserves themselves.’
A final piece of advice offered by Dr Robertson had to do with the importance of reinvesting in your foundation or charitable trust constantly. ‘The sustainability of your entity is vital to its ability to keep supporting the causes it does,’ he explained. ‘So, you absolutely have to keep on investing into the development and maintenance of systems and processes that secure your future irrespective of market conditions.’
Ndlovu’s final piece of advice focused on the need for foundations and charitable trusts to have strong networks in place. ‘Surround yourself with influential and well-connected people and organisations and steadily build up a core community of valuable supporters and experts who can act as advocates for the work you do and bring in their own communities of donors.’
Fortunately, it appears that a measure of economic stability and gradual growth is being restored to many markets. However, when the webinar ended on this point, Roshini Maharaj, a portfolio manager at Nedbank Private Wealth, highlighted the importance of recognising that the recovery was likely to be very slow and that further market shocks may occur.
She therefore stressed the urgency with which trustees need to revisit their portfolios to ensure that these are aligned with their long-term funding requirements, while emphasising the importance of not reacting emotionally to any future economic events.
‘There will always be times when the markets decline,’ Maharaj said, ‘and it is at those times that a long-term view of your foundation’s investments and objectives is vital in order to prevent you from making decisions based on emotional responses. Plot your journey, set your compass and stay the course. That is the best way to ensure you can keep on doing good for many years to come.’
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