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This is the thirty-third in a series of informative monthly articles for North Carolina businesses from PNC in collaboration with BUSINESS NORTH CAROLINA magazine.
With school back in session at North Carolina’s colleges and universities, alumni and donor relations activities are in full swing and year-end fundraising efforts are fast approaching for nonprofits of all types. And as summer turns to fall, nonprofit institutional investors are navigating their own season of change in the form of portfolio and risk management complexities inherent in today’s environment.
“As nonprofit organizations, including colleges and universities, continue to be tasked to do more with less against the backdrop of inflation and economic uncertainty, PNC’s support for these institutional investors is rooted in delivering solutions that are innovative, efficient and customizable,” says Raleigh-based Barb Harsha, PNC Institutional Asset Management® market leader for the Carolinas.
Bringing additional depth to PNC Institutional Asset Management’s local presence and commitment are the capabilities of such discipline-focused specialty groups as Nonprofit Solutions and Insurance Solutions, led nationally by Winston-Salem-based Henri Cancio-Fitzgerald and Charlotte-based Wade Meadows, respectively.
This comprehensive scope of advice and solutions, says Harsha, allows the local PNC team of advisors and analysts to deliver on the full breadth of opportunities available to higher education and nonprofit financial decision makers. And no discussion these days is complete, she says, without addressing three ongoing trends in institutional asset management: Outsourced Chief Investment Officer (OCIO) services, planned giving and captive insurance companies.
OCIO 101
At the most basic level, an OCIO model enables an organization to delegate responsibility for the day-to-day management of its investment program by shifting discretionary investment responsibility for some or all investment functions from the asset owner to an investment advisor, says Harsha.
As an alternative to in-house asset management and traditional consultant models, OCIO services can provide an effective vehicle for institutions looking to enhance their investment capabilities and gain fiduciary support, while allowing the organization to focus on the investment policy and oversee overall performance.
“OCIO services are ultimately designed to help an organization reduce costs, better allocate resources, participate in more sophisticated investment strategies, take on greater agility and timeliness in their actions and more accurately report on results,” says Cancio-Fitzgerald. “As a result of PNC’s focus on scaling and growing this service in recent years, we have helped clients – including nonprofit organizations – realize cost savings and risk controls that were previously only available to much larger organizations.”
PLANNED GIVING 101
While a nonprofit’s primary focus is delivering on its mission – and raising the necessary funds to achieve that mission, a successful development office takes this focus one step further by incorporating gift planning and planned giving to advance or exceed fundraising goals, says Cancio-Fitzgerald. “A planned giving program targets funds that will benefit an organization for years to come,” he says. “It can be used as broadly as endowment-building or can be targeted to fund future projects.”
Establishing a planned giving program requires additional time and a strong acumen in administration, compliance, investment and donor relations. For many organizations, a planned giving program can begin as a reasonable in-house operation, but with growth and over time, the program can become burdensome as financial decision-makers balance day-to-day administration with managing relationships with this important donor set.
To help nonprofits address these challenges and maintain planned giving programs in a more passive manner, PNC Institutional Asset Management enables organizations to outsource the investment and back office functions of their planned giving program. “We also offer assistance with education, training and gift planning consultation to help organizations offer their donors a more thorough understanding of the organization’s charitable mission and articulate the many methods available to make an impact through gift planning and blended giving strategies,” says Cancio-Fitzgerald.
CAPTIVES 101
In recent years, a hardening commercial insurance market has generated increased interest in captive insurance companies, which function as direct insurers or reinsurers for an organization’s parent company or affiliates.
As the third-largest domicile for captive insurers in the U.S., North Carolina is known within the industry for its captive-friendly environment. Since the passage of the North Carolina Captive Insurance Act more than 10 years ago, the state has become home to more than 1,500 such licensed risk-bearing entities, according to the North Carolina Department of Insurance.
The potential benefits of a captive, says Harsha, include the ability to tailor coverage to the needs of the organization, better take advantage of often predictable insurance market cycles, offer creative risk solutions, provide coverage that the commercial markets do not and consolidate risk management.
“Typically, the primary reason for organizations, including nonprofits, to create a captive is to provide improved risk management, as captives can make financing risk more cost-effective and ultimately reduce an organization’s total cost of risk,” explains Meadows. “As a platform for an organization’s risk management, captives also can help improve cash flow management and provide investment returns which, through proper captive management, can offer overall insurance premium cost savings.”
Because organizations have different needs, says Meadows, every captive should be structured differently. “Maximizing the benefits of a captive means understanding and responding to the various risk lines and concerns within the organization,” he says. Because a captive entity is subject to complex regulations, Meadows recommends that interested organizations conduct a feasibility study and analysis before making the decision to form a captive.
BRINGING IT ALL TOGETHER
While the above-referenced strategies represent important considerations for nonprofit institutional investors in today’s market, Harsha is quick to note that each organization has its own unique set of opportunities and challenges to consider
when it comes to managing assets, risks and fundraising.
“As a philanthropically minded and community-centric organization, we recognize the intrinsic value that the higher education ecosystem and nonprofit space create for the health of North Carolina’s economy and communities,” she says. “That reality is never far from our minds as we work alongside these organizations to deliver on their investment and risk management goals.”
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