Nonprofits Lose Big in Market Fall-off and Madoff Scandal
Apr 01, 2009
How charities invest donations may be as important as how they spend them. Nonprofit organizations, along with anyone else that holds investments, have in the past year been swept up in the cascading financial markets. Nonprofits, like private investors, have also fallen prey to investment scams, most notably Bernard Madoff's alleged $50 billion Ponzi scheme. Some charities that lost money invested directly with Madoff, but by far most of the lost charitable resources were squandered by private foundations and other donors who had entrusted them with Madoff. The following are some major nonprofits and the amounts that they have allegedly put at risk from investing directly or indirectly with Madoff, according to information compiled by The Wall Street Journal:
Elie Wiesel Foundation for Humanity ($15,200,000)
International Olympic Committee ($4,800,000)
Jewish Community Foundation of Los Angeles ($18,000,000)
New York University ($24,000,000)
Yeshiva University ($14,500,000)
The private charitable foundations or trusts of U.S. Senator Frank Lautenberg, Steven Spielberg, Mortimer B. Zuckerman and hundreds of other foundations and individual charitable donors have also allegedly lost funds by investing with Madoff.
AIP encourages donors to find out if their favorite charities are being strong fiduciaries over their investments. Charities with significant asset reserves need to be transparent about their investments, utilize a reputable auditor and have a clear written investment policy that does not allow them to squander charitable resources with risky investments, particularly ones with advertised returns that are too good to be true. It is important that charities have a conflict of interest policy that keeps them from investing with companies owned or primarily operated by the charities' board members or officers.
A basic rule of prudent portfolio management is to have well-diversified investments both by asset type and by financial service companies holding the funds. Many foundation investors with Madoff allegedly lost all or nearly all of their investments by putting all of their eggs in one basket. An example of poor diversification by financial company is the YWCA of the USA, which is number three on the large asset reserve chart in AIP's Guide. It has 97.3% of its $70.7 million investment portfolio at one financial service firm, Wellington Trust Company, according to its latest available audit of fiscal 2007. Carrie Anderson, Director of Finance at YWCA, told AIP, "97.3% of our investments are not in one fund." She also said that Wellington is an investment manager and their portfolio is diversified--something investors at Bernard Madoff's firm could also have claimed.