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.A num-ber of reasons were provided why target liquidity is the appropriate operationalfinancial objective for a nonprofit.We then looked at why many organizations donot set a liquidity target or do not manage toward that target.Guidance was thenprovided regarding how to go about setting the liquidity target, including back-ground information that serves as a starting point and relevant financial ratios.We find three ratios the net liquid balance, lambda, and the cash conversionperiod to be especially valuable measures.After presenting more detail on liq-uidity management in Chapter 2, in Appendix 2 C we present a hypothetical casestudy on setting the liquidity target.We concluded our chapter by looking at howproficient cash management, investment management, and risk management assistyour organization in meeting its liquidity target.Chapter 2 provides assistancein improving your organization s liquidity management and projecting its cashposition.Notes1.Kirsten A.Grønbjerg and Richard M.Clerkin, Indiana Nonprofits: Financial and HumanResource Challenges (Bloomington, IN: Indiana University School of Public and Envi-ronmental Affairs, August 2004).Copies of this report are available on the IndianaNonprofit Sector Web site (www.indiana.edu/ $100 Million to d" $100 Million 57.8 18.9 3.0 3.5 11.4 2.3 1.1 1.3 1.7> $50 Million to d" $100 Million 60.6 22.1 3.2 3.8 7.0 0.7 0.4 0.5 1.7> $25 Million to d" $50 Million 61.2 23.3 3.8 3.3 5.8 0.3 0.3 0.6 1.5Less Than or Equal to $25 Million 60.7 27.8 1.7 6.1 2.4 0.2 0.0 0.1 1.0Public 58.4 23.5 2.7 4.2 7.1 1.3 0.6 0.9 1.2Independent 58.5 20.6 3.2 3.1 9.5 1.7 0.9 1.0 1.5Equal-weighted Average 58.5 21.5 3.1 3.5 8.7 1.6 0.8 0.9 1.4Dollar-weighted Average 48.3 17.2 4.5 1.7 16.6 3.9 3.2 3.6 1.0738 institutions provided investment pool asset class data in 2005.Table data are equal-weighted unless otherwise noted.Natural resources include: Timber + Oil and Gas Partnerships + Commodities.Source: 2005 NACUBO Endowment Study.Copyright 2006 by National Association of College and University BusinessOfficers.Used by permission.EXHIBIT 8.3 ENDOWMENT ASSET ALLOCATION (PERCENT)353 Ten-Year Comparisons of Asset Class AllocationAsset Class 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996% % % % % % % % % %Equity 58.5 59.9 57.1 57.4 59.4 62.1 64.3 63.5 63.4 60.9Fixed Income 31.5 22.1 25.9 26.9 24.9 23.3 23.6 25.6 26.1 28.5Real Estate 3.1 2.8 2.8 2.7 2.4 2.0 2.0 2.1 1.9 1.9Cash 3.5 3.7 4.0 3.9 4.1 4.1 4.0 4.3 4.7 5.3Hedge Funds 8.7 7.3 6.1 5.1 4.2 3.0 3.1 2.8 2.2 1.8Private Equity 1.6 1.3 1.3 0.9 0.9 1.0 0.8 0.4 0.3 0.2Venture Capital 0.8 0.8 0.8 1.1 1.5 2.4 1.4 0.7 0.7 0.7Natural Resources 0.9 0.6 0.4 0.4 0.4 0.4 0.2 0.2 0.3 0.2Other 1.4 1.6 1.6 1.6 2.1 1.7 0.5 0.4 0.4 0.5738 institutions provided investment pool asset class data in 2005.Data for 1996 to 2004 are frompast studies.Tables data are equal-weighted.Natural resources include: Timber + Oil and GasPartnerships + Commodities.Source: 2005 NACUBO Endowment Study.Copyright 2006 by National Association of College andUniversity Business Officers.Used by permission.EXHIBIT 8.4 ENDOWMENT ASSET ALLOCATION TRENDS (PERCENT)354 Average Rate of Return by Asset ClassInvestment Greater > $600 Million > $100 Million > $50 Million > $25 Million Less Than orPool Than $1.0 to d" $1.0 to d" $600 to d" $100 to d" $550 Equal to $25Assets Billion Billion Million Million Million Million% % % % % %Equity US 9.3 9.3 9.2 8.8 8.7 7.9Equity Non-US 18.7 15.2 16.1 15.5 15.0 13.6Fixed Income US 9.8 7.3 7.1 6.5 6.1 5.4Fixed Income Non-US 18.9" 11.9" 9.3 8.6 7.0 6.9"Real Estate Public 36.4" 35.2 28.7 27.2 22.3 23.9"Real Estate Private 18.1 17.8 12.7 13.9 13.3 11.4"Cash US 2.1 2.4 2.3 2.5 1.9 2.4Cash Non-US -0.4" 4.5" Hedge Funds 10.4 8.4 9.2 8.0 6.6 5.6Private Equity 23.9 18.1 15.4 15.3 6.1" 4.0"Venture Capital 20.3 17.1 16.7 9.3 6.0" -37.9"Natural Resources 32.4 21.9 33.7 34.3" 30.5" 14.2"544 institutions completed same information regarding asset class returns.Table data are equal-weighed."Fewer than 10 institutions responding.Source: 2005 NACUBO Endowment Study.Copyright 2006 by National Association of College and University BusinessOfficers.Used by permission.EXHIBIT 8
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