August 11, 2011

Stock Market's Gyrations Don't Cause Panic at Big Fund

The stock market's gyrations this week are giving charities of all kinds the jitters. But some nonprofits feel the effects of the stock-market roller coaster more than others because a big share of their donations comes in the form of securities.

Among those groups are Schwab Charitable, a San Francisco organization that manages some $3-billion worth of donor-advised funds, or charitable accounts from which individuals make gifts to their favorite causes. Many of those funds were created with stock, and donors often use securities to supplement them.

Even so, Kim Laughton, acting head of Schwab, says the stock-market twists don't have her overly worried.

One reason is that the downturn in the markets is occurring well ahead of the busiest giving time of the year. In 2008, when the market collapsed in the fall, it was just before the time when funds like Schwab typically see a big influx of contributions as donors make gifts in time for the end of the tax year.

“This whipsaw may normalize way before the giving season,” she said, adding that August tends to be a slow time for fund raising. “When people come back in September, we have time to recover for when people are thinking about year-end gifts.”

It's not just attracting new gifts that Schwab has to worry about. Donors invest in the fund with the idea that the amount of money they have to give away will grow. But Schwab is cautious about its investments: Fifty-three percent of its assets are conservatively invested in money markets or fixed-income investment pools, Ms. Laughton said.

Such investments “tend to be immune from volatility. The swings do not impact them quite as much,” she said. “We will be down when the market is down, but by much less.”

Looking back to the market meltdown of 2008 and 2009, Ms. Laughton said that Schwab assets dropped 10 to 15 percent, from $2.1-billion to $1.8-billion. New contributions fell by 40 percent. But by June 30 of this year, new donations were back to pre-recession levels and investment earnings also rallied, bringing Schwab's assets to $3.1-billion, or 50 percent more than before the recession hit.

Even with the big drops in 2008 and 2009, Schwab donors gave more to charities from their accounts during the recession, similar to what other donor-advised funds have reported. For example, the amount of money donors steered to charity from their Schwab funds rose by 15 percent in 2008.

Like some other experts, Ms. Laughton points to pockets of wealth throughout the country as yet another reason why some charitable fund raising could fare well in coming months, despite what the stock market and the economy at large are doing.

In California, state and local government coffers may be decimated, but “wealth creation is alive and well,” said Ms. Laughton, with many technology companies, particularly social-media enterprises, going public. “Facebook, for example, is going to have 1,500 executives who have millions of dollars in liquid wealth, and they have causes they are interested in and tax considerations,” she said. “We didn’t have this in 2008.”

Yet for all her optimism, Ms. Laughton, says the bad economy is causing her to plan for the worst.

Schwab, now at the start of its 2012 fiscal year, is now looking at 12 scenarios, based on varying outcomes resulting from economic conditions and how donors would probably respond; on Monday, when the stock market dropped sharply because of Standard and Poor's downgrade of the nation's credit status, officials added a “worst-case scenario” equal to conditions in 2008.

“I don’t think this will happen, but we need to make sure we can operate in a worst case,” Ms. Laughton said. “You can never count on things being good, especially if the year starts out as shaky as this one has.”