First of all a confession – I’m not an economist. But I’ve been around long enough to predict with certainty that recessions and recoveries are cyclical and there will be another recession in the not too distant future. They are the natural order of our economic system. The last recession, starting in 2008, was severe with many community college foundations experiencing investment losses of up to 40%. The recovery, by most standards, has been relatively weak with between 1 ½ to 2% annual economic growth. This is not unusual as severe recessions are often followed by weak recoveries. This gives us some optimism that the next recession will be relatively weak as well.
When will we experience the next recession? No one can predict this with certainty, but given the average seven to ten year recession/recovery cycles, we could see the start of another recession during 2017, or about a year or so into the term of the next president.
Even though we know that recessions always eventually follow recoveries like night follows day, many community college foundations do not plan for one. We tend to expect (or hope) that what we experience during economic good times will last. While I can’t keep a recession from impacting your foundation bottom line, I will give you three tips to consider in anticipation of a future recession. By the way, it’s good to plan ahead.
- Review and refresh your foundation investment policy.
How are you investing your funds? Do you have an external investment firm handling this for you? How did they perform during the last recession? Do some research and see what firms and what investment strategies performed best. Generally, those foundations or investment firms tend to perform better when switching between conservative and aggressive investment strategies depending on where we’re at in the economic cycle.
- Focus on cash rather than endowments while in a recession.
Many potential donors will not be as anxious to establish an endowment during a recession as earnings will be much lower. Instead, demonstrate how they can have a greater impact on the college through a cash donation that can be used immediately. Talk about the need for spendable cash to help the college weather the recession. If you establish a positive relationship with the donor, then you can come back to them during better times to discuss and endowment.
- Remember that corporations have more cash available during a recession
Just like many other investors, corporations tend to limit their investments during economic downturns. This gives you an opportunity to focus on cash gifts with corporations who may be looking for ways to write off some of their cash holdings.