Running a nonprofit is a tall order. The missions that these organizations tackle— helping vulnerable families, advancing health care, and protecting the environment, just to name a few—are incredibly challenging. And in parallel with their program work, nonprofit leaders must also build the financial and organizational infrastructure to sustain those programs. A common pattern has emerged in our relationships with endowments and foundations over the years. Our work typically begins with a tight focus on the organization’s investment portfolio. But more often than not, we become involved in a much broader palette of issues that affect the organization’s long-term success. When we are able to offer sound strategic advice on topics beyond investing—balance sheet management, donor engagement strategy, mission-related investing, leadership development, succession planning and many other issues—it can be as impactful for our clients as the work we do managing their investment assets. In these three case studies, we hope to highlight the broad range of strategic issues that our clients encounter as they pursue their missions over the long term. Our primary job is to deliver robust investment performance to clients, but our relationships with them go far beyond investing. // CASE STUDY #1 client: SMALL PRIVATE REGIONAL COLLEGE challenge: STRATEGIC PLANNING/DEBT MANAGEMENT BACKGROUND Recently, a new client—a small private college—asked us for broader financial guidance as it considered a set of short-term and long-term objectives. As is often the case, its strategic and investment choices are intertwined, because the college needs to allocate its precious capital across several competing options. The college is fairly liquid and self-sustaining—its budget of approximately $35 million is nearly 90% funded each year by tuition, and it has roughly a year of cash on hand at any given time. It is seeking to expand, specifically with regard to housing and athletic facilities, to keep up with a desired growth in enrollment. It will need additional resources to carry out its plan; it recently took on $25 million in debt, and it is about to embark on a capital campaign with a goal of raising $40 million. The question posed to our team was one of balancing priorities: How can the college best use its resources to pay off debt, seed an unrestricted endowment, maintain a cash reserve and expand its facilities? APPROACH This question required us to review a broader set of information and to marshal resources from across the firm to analyze that information. We brought in a colleague who provides specialized municipal finance advice to a number of our clients, to help us drill down on the college’s debt structure. In addition to looking at rates and term length, we looked at covenants, liquidity requirements and other factors; our primary goal was to understand whether better terms might be achievable through refinancing. We did a close review of the college’s strategic plan and its capital campaign plan, to better understand goals and associated costs, and to assess the likelihood of the college achieving its fundraising targets. Our senior team members have meaningful experience as executives or board members of nonprofits themselves, and were able to leverage their experiences in this due diligence exercise. With this additional information, we were better equipped to help the college review potential scenarios going forward. We have a proprietary analytical model that merges investment and operational assumptions, and we use it to help clients see how asset allocation, spending and other decisions might impact their future plans. In this case, we reviewed several “what if” scenarios with the college’s trustees and senior staff to understand different combinations of fundraising, debt reduction and savings/investment and capital expenditures. OUTCOME Guided by our team’s analysis, the college is pursuing a strategy in which it will largely maintain its debt balances and use its available capital to support expansion and further seed its endowment. This strategy is supported by the favorable terms of its existing debt, and growing confidence in its development team’s approach to the capital campaign. There is never a “right” answer in complex situations like this—financial decision making for nonprofits is as much art as it is science, and is influenced heavily by the circumstances of the organization, the preferences of key stakeholders and the wider set of risks the institution may face. // CASE STUDY #2 client: NATIONAL HEALTH ADVOCACY ORGANIZATION challenge: DONOR DEVELOPMENT/PLANNED GIVING PROGRAM SUPPORT BACKGROUND Our client is a national organization that advocates for and supports those who suffer from a specific medical condition. The central organization is primarily a coordinating arm for a network of hundreds of state and local chapters. While these chapters are staffed by talented and energetic leaders, few of them have the resources or expertise to conduct sophisticated fundraising. The organization wants to enable and support them in their fundraising efforts, with a particular emphasis on helping them roll out planned-giving programs. The question posed to our team: What could we do to help the client enable and support its chapters in their fundraising efforts, with a particular emphasis on helping them roll out planned-giving programs? APPROACH In this situation, we are providing guidance that could be scaled across our client’s many small chapters. This is taking several forms: Active educational role at the client’s annual conference: This has proven to be an ideal opportunity to reach the client’s entire chapter network. We are able to connect one-on-one and in small groups with many of the larger chapters to share high-level thinking about donor development. At the most recent conference, we helped to host a roundtable breakfast focusing on planned giving, to help chapters begin the long process of building this fundraising channel. Content creation: The national organization creates a monthly newsletter, which reaches the extended networks of each local chapter. It is an excellent way to engage with this decentralized donor community. We regularly provide development-related content to the client for inclusion in the newsletter, authored by our colleagues from our Strategic Advisory team and leveraging their expertise in tax and estate planning and the use of trusts. Topics so far have included gifts of appreciated stock, working with donor-advised funds, “bunching” charitable gifts to maximize deductions and options for creating trusts for the benefit of the chronically ill or disabled. All of these articles are designed to educate each chapter’s donor base, and to create context for engaging those donors in planned giving conversations. Introduction of chapters to local community foundations: We serve as advisors to a number of community foundations across the country, and we have relationships with the leaders of many others. We have connected several of this client’s chapters to community foundations to explore philanthropic strategies. While those relationships are still embryonic, we are hopeful that these partnerships might bear fruit for the client down the road. OUTCOME Establishing a planned-giving program is a long-term investment—it takes many years to create the deep relationships with donors that are a prerequisite for planned giving, and many years beyond that for those gifts to materialize. Partnering with our client has produced promising results so far, as the organization’s chapters are becoming better armed with knowledge and more energized and confident about starting these conversations with their donors. // CASE STUDY #3 client: COUNTY-FOCUSED COMMUNITY FOUNDATION challenge: BOARD/LEADERSHIP DEVELOPMENT BACKGROUND Our client is a mature community foundation that experienced a number of retirements from its board, investment committee and staff over a relatively short period of time. For this client (and for most nonprofits), institutional knowledge is imperative to maintain consistently excellent program work, to build relationships with donors and community stakeholders, and—most relevant for our engagement with the client—to ensure that investment and financial matters are supporting the organization’s strategy and that the board and staff are in a strong position to provide oversight. The question posed to our team: Could we play a role during the client’s transitional period, with the aim of helping incoming staff and board members rapidly come up to speed? APPROACH During the transition, we took on a number of additional roles for this client—some of these were one-time initiatives, while others have become a permanent part of our ongoing relationship. Education/Training: Alongside the foundation’s CEO, we provided new investment committee members with a comprehensive orientation covering community foundation basics, the client’s specific mission and a deep review of the foundation’s investment policy and resulting portfolio. We also provided coaching to new staff members, and connected the client with local professionals to serve in interim roles until several staff vacancies are filled. Accounting: The client has outsourced its accounting infrastructure, and we now maintain a more direct day-to-day communication channel with the client's accountants. This has minimized the amount of administrative touchpoints for the client on a given day. Consulting: We leveraged our team’s network to help the client find a qualified consultant to assist with a revamp of the foundation’s scholarship application process. Donor Advisory: One of the client’s larger donors is an affordable housing development organization, which currently receives substantial recurring income from the sale of several housing developments in recent years. We helped the foundation propose and implement a long-term investment strategy for the donor within the community foundation’s structure, including ongoing deployment of recurring income. OUTCOME Overall, this client has an engaged and supportive board; because it is a lean operation, the board was right to be wary of challenges during a transitional period. We’ve learned about the foundation over time, enough so that we were able to provide timely assistance and supplemental services that helped the client’s new staff and board members quickly step into their new roles, and the organization was able to deliver consistently to its constituents before, during and after the transition. The views expressed are those of Brown Advisory as of the date referenced and are subject to change at any time based on market or other conditions. These views are not intended to be and should not be relied upon as investment advice and are not intended to be a forecast of future events or a guarantee of future results. Past performance is not a guarantee of future performance and you may not get back the amount invested. The information provided in this material is not intended to be and should not be considered to be a recommendation or suggestion to engage in or refrain from a particular course of action or to make or hold a particular investment or pursue a particular investment strategy, including whether or not to buy, sell, or hold any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. To the extent specific securities are mentioned, they have been selected by the author on an objective basis to illustrate views expressed in the commentary and do not represent all of the securities purchased, sold or recommended for advisory clients. The information contained herein has been prepared from sources believed reliable but is not guaranteed by us as to its timeliness or accuracy, and is not a complete summary or statement of all available data. This piece is intended solely for our clients and prospective clients, is for informational purposes only, and is not individually tailored for or directed to any particular client or prospective client.