While 2020 was a tumultuous year, a recent benchmarking report indicates that association leaders remained steady in their investment philosophies and decisions. ASAE’s 2020-2021 Investment Policies, Practices, and Performance was updated and expanded to include insights into decisions leaders made while navigating the pandemic, in addition to annual investment benchmarks.

The report combines ASAE Research Foundation survey data collected in September and October of 2020 and expert analysis from Ahmed Farruk and Bill Fisher of Fiducient Advisors. Highlights from the findings reveal changes association leaders made—or didn’t make—as they dealt with the financial effects of the pandemic.

Portfolio Performance

Across all respondents, just over half said that, at the height of market volatility in the first quarter of 2020, their portfolio’s performance was in line with their expectations. However, nearly 28 percent reported that portfolio performance at that time was worse than expected. Associations with more than $10 million in reserves were particularly hard hit, with nearly 44 percent of leaders saying their portfolio performance was worse than expected. Those with less than $1 million in reserves were most likely to say that first-quarter 2020 performance was in line with their expectations.

Reserve Asset Allocation and Strategy

As Farruk and Fisher note in the report, asset allocation is critical to investment performance. Most respondent associations maintained a specific, long-term target asset allocation strategy for their investment reserves. Though this was more likely among larger associations, the percentage of associations with reserves of less than $1 million using a target asset allocation grew in 2020. Responses to the survey indicate that 2020 asset allocation remained consistent with previous years, while the trend toward declining cash allocations continued.

Most leaders had not made major adjustments to their investments in response to the pandemic at the time of the survey. A large majority (86.7 percent) said they would not change their overall philosophy on investing reserve assets in the face of the pandemic. A majority (62.7 percent) did not rebalance their portfolio in response to the economic downturn, and this number was higher (75 percent) among those without an external investment advisor.

According to Farruk and Fisher, the decision against rebalancing affected many associations’ ability to fully benefit from the subsequent market recovery, though they acknowledge that economic uncertainty may have made rebalancing less appealing.

Use of Reserves for Operations

The majority of associations with more than $1 million in reserves rely on their ability to draw on those funds to support operations, even if they don’t always choose to do so. Among leaders of associations with more than $10 million in reserves,

• 56.3 percent said they draw from reserves from time to time as needed.
• 12.5 percent said they draw from reserves every year to supplement operations.
• 14.6 percent said they draw on reserves every year for other reasons.

Smaller organizations tap their reserves less often. Among leaders of associations with between $1 million and $10 million in reserves,

• 48.1 percent said they draw from reserves from time to time as needed.
• 3.8 percent said they draw from reserves every year to supplement operations.
• 2.5 percent said they draw on reserves every year for other reasons.

Only 38.7 percent of leaders at associations with less than $1 million in reserves said they draw on reserves as needed, and just 3.2 percent said they draw on reserves every year to supplement operations.

But 2020 was an unusual year. In response to the early effects of the COVID pandemic, 20.6 percent of survey respondents drew from their reserves, while another 9.7 percent borrowed against their reserves. Associations with more than $10 million in reserves were most likely to draw from and borrow against their reserves to support operations, though they were also most likely not to require additional operational funding. Associations with less than $1 million in reserves were most likely to have sought alternate sources to support operational funding, though 22.6 percent drew from reserves.