Thomas J. Kearney, chief financial officer of the American Frozen Food Institute (AFFI), has made some adjustments to how the association handles its reserves investments. The spike in interest rates since the pandemic, for instance, has prompted it to shift some funds to vehicles with more favorable interest rates. “We’ve moved a significant amount of additional funds to a money market account because they’re making five percent interest,” Kearney says. “Before, we weren’t interested in doing that because they were at zero interest.”
Taking advantage of some of the short-term benefits around interest rates is a wise medium-range reserves investment policy, says Dennis Gogarty, president of Raffa Investment Advisers. “Across the board, most associations have taken the opportunity to think about their reserves policies in terms of not just investing for the long term but also more current cash reserves,” he says. “There’s a golden opportunity to take advantage of the current interest-rate environment.”
But while the vehicles for investments may change, the overarching philosophy behind reserves at AFFI has stayed the same. Its reserves target is 50 percent of the association’s annual operating budget, and its breakdown of investments are defined by the board’s established risk tolerance. “Our organization is comfortable with a 60-40 split: 60 percent equities, 40 percent fixed income, like CDs, treasury notes, money markets, and so on,” he says.
The pandemic, supply-chain crises, and rising inflation have understandably made associations more concerned about whether they’re taking the right approach to reserves policies. But A. Michael Gellman, founder of Fiscal Strategies 4 Nonprofits, says that associations shouldn’t implement radical changes to policies out of fear. “No operating reserve is built to bridge a long-term or permanent change,” he says. “The rules haven’t changed—economic conditions are constantly changing.”
