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The coronavirus pandemic has exposed the shaky financial foundations of the not-for-profit (NFP) sector. But there is a way to create a more sustainable future, according to Menzies Foundation director Harvey Kalman.

The not-for-profit sector supports individuals, fosters communities, and champions Australia’s democratic society. But without a laser-like focus on finances, this crucial work isn’t sustainable.

The majority of NFPs expect to make a loss in the 2020-21 financial year after struggling through the pandemic, according to a recent Australian Institute of Company Directors (AICD) Not-for-Profit Study1. It continues a concerning longer-term trend: almost 40% of NFPs made a loss in the previous three years.

Historical profitability and budgeted expectations vs actual performance for FY20


Source: AICD 2020 Not-for-Profit Governance and Performance Study.

Regular fundraising will continue to play a central role for most NFPs. But better capital management remains a missed opportunity. It doesn’t have to be: with the right knowledge and strategy, NFPs can build up a capital base that can help produce sustainable income each year.

This is a journey we have been on at the Menzies Foundation, which I joined in late-2017 as a director and chair of the board’s audit and investment committee. During that time, we have strengthened and expanded our investment activities, which put us in a strong position to weather last year’s coronavirus downturn.

Three lessons we learned along the way can benefit other NFPs who are also facing similar challenges. 

Create greater alignment between the board and investment activities

The way a NFP manages its funds underpins its future, which is why there needs to be strong, direct alignment between the board and the organisation’s investment activities.

One of the reasons I was appointed to the Menzies Foundation board (along with treasurer Chris Butler who has since retired) was to bolster its financial acumen. Many NFPs acknowledge that this is an area where their boards can improve.

One of the first changes we made was to increase the number of non-executive directors on the eight-person investment committee from one to four.

We also expanded the committee’s remit to address audit and investment matters, which strengthened the link between the board, audit process, and investment outcomes. A new formal investment charter was adopted to set out the organisation’s strategic and financial goals.

These changes enhanced the board’s understanding of investment activities and began the process of aligning it with the organisation’s overall strategy.

Get specialist external financial advice

The financial landscape is now radically different in the wake of the coronavirus pandemic. A recovery is underway but the economic outlook remains uncertain. Interest rates are at historic lows – so-called ‘safe’ assets such as term deposits and government bonds won’t deliver the returns that NFPs need.

It takes a sophisticated approach to navigate this volatile environment and find the right balance between risk and return. Relying on board connections or knowledge isn’t enough.

The only way to achieve better financial outcomes is to appoint a good external asset consultant.

The Menzies Foundation appointed investment adviser Walsh Bay Partners to manage its portfolio with a total return focus in late-2017. They diversified our portfolio and began managing it with an absolute return objective that met our growth and income objectives.

Our $30 million portfolio is no longer overweight Australian equities and cash. It includes global equities, as well as investments such as private equity, infrastructure, property, and alternative assets that underpin long-term growth.

Walsh Bay’s advice also helped us maintain the course when it would have been easy to withdraw from the market through the recent downturn. Staying invested proved the right decision as markets rebounded strongly in the months ahead.

Impact investing can align with strategic purpose

Strong investment returns can do more than provide a sound future for a NFP’s activities. Investing can also align with its broader strategic purpose.

Impact investing aims to deliver financial returns as well as measurable social and environmental benefits. The sector remains in its infancy but is growing strongly.

The total value of impact investment products widely offered to Australian investors more than tripled to $19.9 billion from $5.7 billion over the two years ended December 31, 2019, according to the Responsible Investment Association of Australasia.2

Much of this growth has been driven by green bonds, which fund projects that have positive environmental benefits. Social bonds, which help the community through projects such as boosting more accessible housing, also playing a role.

The Menzies Foundation has recently been able to make some early forays into impact investing. We’ve invested in the Kilter Australian Farmlands Fund, which invests in southern Murray-Darling Basin farmland and water assets. This fund’s goal is to deliver attractive returns to investors by helping farming properties produce higher value crops while protecting the environment.

Investment such as these may not be the core of the Menzies Foundation investment portfolio, but where they can deliver an adequate return and overlap with our objectives, they make perfect sense.

Developing a deeper understanding and greater involvement in investments is crucial for NFPs to thrive in the current environment. Far from being the sole purview of major corporations, a sophisticated investment portfolio can help NFPs create a firm foundation for the future and continue to benefit those who are most in need.

Harvey Kalman chairs the Audit and Investment Committee of the Menzies Foundation, which helps foster greater leadership capabilities across society. He has held senior executive roles in financial services for more than 30 years, including at Equity Trustees.


[1] AICD 2020 Not-for-Profit Governance and Performance Study: The COVID-19 Edition. (2021, April 08). Retrieved from https://aicd.companydirectors.com.au/advocacy/research/2020-nfp-governance-and-performance-study
[2] Impact Investing Australia Pre-Budget Submission 2021-22. https://impactinvestingaustralia.com/wp-content/uploads/2021/01/Impact-Investing-Australia-2021_22-Pre-Budget-Submission.pdf