Though we are unclear about the direct effects of the virus, we already know the indirect financial effects are harmful. While money should not be our only or even our primary concern, it is a concern that will eventually need to be addressed. This is not only true for individuals, households, and businesses, but also for churches, ministries, and other non-profits. Considering this, many are asking, “What can we expect, financially?” and, for those who are current or potential endowment providers or other donors to the Foundation, the question might be, “What is the Foundation doing?”
“What can we expect, financially?”
First, let’s address the great unknown, “What can we expect, financially?” The Foundation is a philanthropic organization with a mission of “helping good people do good things.” We are not experts, professionals, nor advisors with respect to finances. But the Foundation is fortunate to have a great working relationship with those who are all these things, our philanthropic asset management firm at First Citizens. They are the experts who watch all our endowment investments closely and keep us informed of the current market forecasts and conditions. The Foundation assets are invested in the same markets as everyone, but our assets are managed by proven professionals who apply our funds in a conservative mix of investments for solid growth over time while minimizing losses as much as possible.Here is what the experts are saying. All investment scenarios are subject to highs and lows, and we have had our share of both. If you follow the financial markets, you probably know this current low is officially termed a “bear” market. These are regularly occurring events for the financial markets and there have been many of them over the years. We can therefore look to these past bear markets to predict what might come next.
According to Brent Diliano, Chief Investment Officer with First Citizens, there have been 27 bear markets over the last 185 years. From these past events, we have learned there are three different types of bear markets:
Structural Bear Market
These represent 7 of the 27 historic bear markets and they were triggered by excesses, imbalances, and financial bubbles like those during the Great Depression. They average 42 months in length, 57% in losses, and 111 months for a full recovery.
Cyclical Bear Markets
These represent 15 of the 27 historic bear markets and they were typically caused by the normal economic cycles caused by rising interest rates, recession fears, and falls in profitability. They average 27 months in length, 31% in losses, and 50 months for a full recovery.
Event Driven Bear Markets
These represent 5 of the 27 historic bear markets and they were triggered by a single event ‘shock’ that did not lead to a domestic recession (such as war, viral pandemic, etc.). They average 9 months in length, 29% in losses, and 15 months for a full recovery.
Though much about our current situation is unprecedented, it seems we are in an event driven bear market today and if that remains true, the good news is such markets tend to be the shortest, least damaging, and have the fastest time to recovery. Historically, there have been four stages of recovery that we can begin to look for:
Initial Fall
The initial fall is relatively quick and represents 75% to 85% of the total decline
Bounce
The market seems to come back for a short period. Historically this occurred 15% above the bottom of the initial fall.
Re-test
This is a second, less drastic fall, that typically occurs within one to three months after the initial fall.
Recovery
On average, the recovery is fifteen months from the initial fall.
Source: First Citizens Wealth Management publication, Market Commentary,
“Anatomy of a Recovery - The 4 Stages of a Bear Market” by Brent Ciliano.
So far in this current bear market, we’ve seen Stage 1, the Initial Fall, and have begun to see Stage 2, the Bounce. Time will tell how long this current stage lasts, but hopefully not for long.
“What is the Foundation doing?”
The Foundation is doing all that is possible to continue to provide our donors and beneficiaries with the same level of quality, personal, and professional service as always. We are adjusting to observe social distancing recommendations like everyone else and we are closely watching our assets. We are anticipating a full recovery, but we realize it will take time.
For us, distributions from endowments occur in May and are always based on March 31 market values, so the Foundation’s board of directors will look at those values and do all that is possible to keep distributions as high as possible without impeding the rate of recovery for each endowment in the future.
We will get through this together and we remain committed to “helping good people do good things” regardless of the circumstances.
If we can assist you with your charitable giving questions and needs, please contact us at 919-299-4616 or visit our website at www.ncfcm.org.
