Investment income-reliant SPOs

Many SPOs depend on returns from investments for a portion of their incomes though it is relatively rare for such organizations to rely almost entirely on such funds. The principal exceptions are grant-making and operating foundations which are endowed with large corpuses of funds and use the financial returns on those funds to generate income for grant- making or operations. Many other SPOs have endowments of course, as well as other special purpose funds that generate financial returns. Overall, investment income is a very small part of SPO operating income though it can be a very strategic component – providing a margin of flexibility when other sources are insufficient. For reporting public charities in the U.S., for example, investment income comprises roughly 3 percent of annual revenue (Roeger et al., 2012). The connection between benefits theory and investment income is more nuanced than it is for other sources of SPO support because these funds do not derive directly from an exchange relationship with an SPO’s beneficiaries. Rather they are enhanced (or diminished) by the acumen of managers and trustees who manage the funds. Still, benefits theory provides insights into the generation and impact of investment funds in several ways. First, the sources of funds constituting the corpus for investment must come from somewhere; thus benefits theory can help address the question of how to raise the capital from which investment returns are generated (see Chapter 10). Second, investment income affects managerial incentives to connect benefits with income. This can be a positive or negative effect – investment income provides a margin for innovation and a possible cushion in difficult times but it may also undermine accountability to beneficiaries and the propensity to exploit prospective sources of support. Finally, investment income does have a beneficiary relationship with future generations because it takes the form of income dispensation over long periods of time. These connections will be addressed below.