New Zealand


In environment of lower interest rates, Not-for-Profit (NFP) boards are under increasing pressure to produce higher investment returns to cover operational expenses and grant payments. This dilemma can often tempt the board to consider complex or higher risk investments.

A recent article by Philip Barker, titled “Charities run the risk of making the same GFC mistakes,” highlights the risk of NFP’s chasing higher returns without fully appreciating the associated risks. During the GFC a number of councils invested in complex debt instruments on the prospect of higher returns.  A number of these investments ultimately lost most of their value. 

The central dilemma facing NFP boards during the GFC remains today. Returns on “safe” investments such as cash and term deposits are low compared to other available investment opportunities. This creates the temptation for boards to switch from cash into riskier investments to capture higher returns.  

Barker sites a number of examples of this behaviour. An investment into corporate bonds issued by a small kitchen leasing firm look great if the company continues to do well. However, the many risks associated with a small company means income payments may be unreliable or their capital may be at risk under a worst case scenario. 

Even the capital value of the worlds “safest” investments, Government bonds, need to be closely monitored. Capital values will fall if the yield on a Government bond increases. The prospect of higher global Government bond yields remain a possibility if Donald Trump’s infrastructure policy and tax concessions gain traction. 

The bottom line is that NFP boards have a duty to fully understand what they are investing in and the associated risks of doing so. The challenge for many directors is that investment analysis and decision making is complex and not all boards have a specialisation in this area. 

A portfolio review by a specialist investment consultant can minimize investment risk by evaluating the following: 

  1. Risk profile – Are the portfolio’s risks appropriate for the NFP’s goals and objectives?
  2. Asset allocation – Where is the portfolio invested and why? Is it appropriate?  
  3. Investment strategy – Is the investment strategy aligned to the NFP mission? 
  4. Investment governance – Does the investment selection, monitoring and review process follow best practice? 

Boards are permitted to obtain and consider independent advice where it is reasonably required to ensure the prudent management of an NFP’s investment portfolio. Engaging an investment consultant to conduct a review can give the board the necessary peace of mind and ensure the mistakes of the GFC are firmly in the past. 


Estelle Pentland
Marketing Manager
William Buck
Ph :+61 3 8823 6830


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