Nonprofit Investing Survey Results: Spending policy trends in 2021

This perspective provides an overview of spending rates and methodologies that nonprofits currently use and key considerations made by investment committees to determine their future spending strategies. With the impact of the COVID-19 pandemic, revenue streams were shut down causing a higher demand for liquidity. Some organizations benefited from having PPP loans, some looked to their long-term investment pools/endowments and donors graciously stepped up to the plate. Even UPMIFA granted flexibility in what was considered prudent spending.

Our survey responses uncover organization spending strategies.

View the full poll results.

The percentage of organizations that are expecting to increase spending has doubled in the last five years.

In an effort to gauge the spending outlook, we asked each organization if they expected to increase, hold steady or reduce spending in 2021. According to the nonprofits surveyed, most organizations (48%) do not plan on making spending changes. There was a significant increase, however, in the percentage that are evaluating whether the spend rate should be higher, now 38% of the respondents, up from 19% in 2016.

Nonprofits report a broad range of current spending rates.

The range of averages varies by type of organization. Private foundations show the highest average spending rate of 5.59%. Other organizations have average spending rates between 4.08% and 4.93%.

Most nonprofit organizations use one of three strategies to determine their annual spending rate.

FAST FACT: Only one in ten (10%) of those polled said their organization is considering changing the methodology used for their spending policy.

A moving average methodology with three-year smoothing formula is the most popular among survey respondents, but does it mean that it’s the right spending approach for your nonprofit? If your organization reviews its spending policy annually, but has not made a change in more than five years, how do you know when the time is right to adjust your spending? Often, you can answer these questions through an analysis of past and future spending scenarios.

View the full poll results.

More results from the Nonprofit Investing Survey:

• Governance and investment oversight results
• ESG, SRI and sustainable investing results
• Fundraising results
• Asset allocation results

The SEI Nonprofit Management Research Panel completed a comprehensive survey of executives and investment committee members in North America to gauge their views on a numbers of critical components of their organization. The poll was completed by 102 participants, representing nonprofits with endowments ranging in size from $25 million to more than $1 billion. The poll was conducted in January 2021 and will be released in a series of chapters. No clients of SEI were polled.

This information is provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company (SEI). Investing involves risk including possible loss of principal. There can be no assurance that your investment objectives will be achieved nor that risk can be managed successfully. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Bonds and bond funds will decrease in value as interest rates rise. High yield bonds involve greater risks of default or downgrade and are more volatile than investment grade securities, due to the speculative nature of their investments.

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice. This information is for educational purposes only and should not be interpreted as legal opinion or advice.