1. A duty of perpetual care
A process to forecast the financial need for meeting perpetual obligations

2. Objectives Explain financial modeling from a 30,000 foot level
Further the conversation about what is needed ($) to ensure perpetuity
Encourage widespread adoption of forecasting

3. Definitions
Behavioral Finance – A field of finance that proposes psychology-based theories to explain market anomalies.
Discovery - The process of disclosure whereby the organization provides essential information that the analyst requires to build the model/forecast.
Real Rate of Return – The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other external effects.
Nominal Rate of Return - The amount of money generated by investments before expenses such as taxes, investment fees and inflation are factored in.

4. Definitions – cont.
Internal Inflation Rate -The increase in the cost of doing business to the organization over a specific time period.
Rebalancing - The process of realigning the weightings of an organization’s portfolio of assets.
Duty of Perpetual Care - The obligations that an organization assumes in caring for perpetual obligations. In the conservation world these obligations typically include annual monitoring, prescriptive management requirements as provided in the deed of conservation easement, etc.

5. Obligations under law
Section 1.170A-14(a): To be eligible for a deduction under this section, the conservation purpose must be protected in perpetuity.
Section 1.170A-14(c)(1): To be considered an eligible donee under this section, an organization must be a qualified organization, have a commitment to protect the conservation purposes of the donation, and have the resources to enforce the restrictions.

6. Currently, the most common method of planning for perpetuity is…
Where we need to be as organizations and a community…

7. Why Model? To achieve… To avoid… Increase the probability of success
Increase stakeholder confidence
Increase fundraising

8. Transition to mS Slides

9. Case Study – Colorado cattlemen’s (CCALT)
Endowment: $2.45M
Goal: 7% Return
(this is a 5% real rate of return)
319 conservation easements
$16,000 contribution/easement (2014 )
$11,000 contribution/easement ( )
$160,000 in stewardship costs/year
$501/easement
Is $2.45M enough to fulfill our perpetual obligations?

10. Initial forecast Results:
2024: CCALT begins to eat into the principal of the stewardship fund
2042: CCALT would utilize its entire endowment
Investment policy may be too restrictive to achieve goals
Current portfolio has potential to underperform

11. Recommendations Have $10M in the Stewardship Fund by 2032
Increase the per transaction Stewardship Fund Contribution
Develop a plan to fundraise for potential Stewardship Fund shortfalls
Continue to track progress
Adjust Risk Profile
Consider increasing fund draw to match costs
Consider one advisor

12. CCALT’s Response
Increased per transaction stewardship fund contribution to $16,000 (up from $11K)
Developed a plan for analyzing our situation and making adjustments on a consistent basis (review annually)
Review and revise investment policy

13. Revised forecast w/ scenarios

14. Takeaways Conservation Organizations …
Must identify and understand financial metrics as they relate to meeting perpetual obligations
Should ask for help
Need to start modeling their financial needs
Modeling must be done on a consistent & regular basis
Need to develop a goal-based investment policy
Need to be transparent with stakeholders (understand and talk about our unfunded liabilities)
Need to diversify stewardship revenue streams

15. A simple way to forecast stewardship contribution needs
A perpetuity equation
Limitations
Needs:
Cost of stewardship per easement
Investment return goal
Equation:
Stewardship Contribution = Cost of stewardship per easement/investment rate of return goal
Example (CCALT):
$501 per easement/4% = $12,525
Assumes no growth in expenses
Assumes that desired rate of return is achievable
Does not necessarily factor in cost of enforcement (which is why Terrafirma and legal defense funds are so important)

16. Questions?