Nonprofit Experts Counsel Caution as Fears of Double-Dip Recession Grow

This month nearly 400 charity leaders—worried about stock-market volatility, political deadlock over the nation’s debt, its downgraded credit rating, and other signs of a weakening economy—joined a conference call organized by Commonfund, in Wilton, Conn.

With the financial meltdown of 2008 and 2009 fresh on everyone’s mind, charity leaders had one big question for Commonfund executives, who help universities, hospitals, and other nonprofit institutions manage investments: Is the economy about to enter a “double-dip recession,” and, if so, what can charities do about it?

Another recession so soon after the last one could pummel charity endowments, make it harder for nonprofits to win foundation grants, and dampen giving by individuals worried about their investment losses or losing a job.

“We thought we were out of the woods, but we’re not,” said Eileen Heisman, president of the National Philanthropic Trust, where affluent individuals set up charitable investment accounts, or donor-advised funds, from which to make grants to their favorite causes.

Over the past few weeks, Ms. Heisman said, she has watched the value of many donors’ accounts seesaw up and down, often on a daily basis. “Panic on Wall Street is never a good sign,” she said. “When you see the market drop like it has, it is impossible to be comfortable.”

That being said, Ms. Heisman added, it’s still too early to tell if donors will withhold gifts this year because of the bad economic news. August is typically a very slow fund-raising month, she noted, and donors take time to react to economic events.

Braced for a Slowdown

Other seasoned fund raisers are bracing for a slowdown in giving.

“Nothing puts major-gift conversations on hold like uncertainty,” said Jeff Comfort, a senior fund raiser at Georgetown University. “The events of the last few weeks are sure to impact the confidence a person needs to consider voluntarily separating themselves from their assets.”

Like other fund raisers, Mr. Comfort speculated that if the rocky economy continues, bequests or other donations that allow donors to cancel some or all of a pledge if their financial situation changes will be more attractive to donors than cash gifts and irrevocable pledges.

Georgetown set a record over the past year for recruiting members into a giving society for donors who have put the university in their wills, he said. Fund raisers made aggressive efforts in recent months to remind donors that estate gifts are one way to help the university in the long run, even though the downturn might have caused more immediate money concerns for donors and their families. “We may need to do that again,” he said.

Jerry Silverman, chief executive of the Jewish Federations of North America, an umbrella organization for more than 150 federations that collectively hold more than $14-billion in endowed funds, said, “I am very concerned about what could happen if the volatility and lack of predictability continue.” His organization invited local federations to a conference call this month to share strategies for managing endowments and other investments.

The financial experts leading the call had one theme: Don’t panic, and hold off—for now—on making big changes in how such assets are invested.

No Sudden Moves

Even though some economic experts say sluggish growth in productivity and employment are among the markers that another recession could be under way, Commonfund executives predicted that the economy will probably not fall that far.

Michael Strauss, Commonfund’s chief investment strategist, and other experts believe that the stock market and overall economy may stabilize before the start of the busy year-end giving season, but they also predict continued market volatility in coming weeks as well as anemic growth in the broader economy for several years.

Yet charities with well-managed fund-raising operations can excel by taking advantage of pockets of wealth that still exist, experts say.

No matter how bad things get in the economy, some donors still have enough wealth to be generous, said Robert F. Sharpe, a Memphis fund-raising consultant. “Your theme should be notto get distracted by the macro economy.”

In fund raising, as in managing endowed assets, nonprofit leaders should hold off on making sudden moves or big changes in the short term, said Kent E. Dove, a Bloomington, Ind., consultant who previously was a top fund raiser at Indiana University.

The focus should be on the basics of maintaining strong relationships with donors, he said. “Stay the course and demonstrate to donors that they are people you really care about. Do some work with donors where you aren’t asking for gifts.”

Aside from following those basic principles of good fund raising, Mr. Dove said, “it is too soon to make a big change. See what happens by the end of this month and the end of September. Anything else you do right now is a knee-jerk reaction.”