This month’s implosion of the Southern Poverty Law Center (last week, SPLC president Richard Cohen fired the SPLC’s legendary co-founder Morris Dees; on Friday, Cohen suddenly resigned) has been not unexpected by close observers of the SPLC for as long as a quarter of a century. So the meltdown’s potential causes, although still murky, seem overdetermined.

The SPLC’s finances have long struck outsiders as odd, although not necessarily crooked, but odd. So it wouldn’t be too surprising if financial matters somehow contributed to the suddenness of the purges.

An iSteve commenter looks through the Southern Poverty Law Center’s latest financial statement, doesn’t see any obvious red flags, but does suggest one of the more opaque areas that could use more detail.

I’m a CPA at a nonprofit which primarily does grantmaking (as opposed to running charitable programs directly); most of our assets are cash or publicly traded securities but we do have some alternative investments as well.

What’s most striking to me in looking through SPLC’s financials: of the $492 million in net assets, $412 million of that is valued based on Net Asset Value per share or equivalent (p. 13: “investments measured at net asset value”). In other words, the auditors had no way to independently confirm the value of those investments (if they had, the assets would be included in Level I or Level II) and relied on the account statements provided by the investment managers.

It’s far from certain that there’s anything amiss with the endowment, but it’s the biggest risk I can see.

Alternative investments are obviously more risky than stocks/bonds/ETFs/mutual funds; they’re less regulated, harder for the investor to understand, and inherently harder to audit because of their complexity. And of course valuation is harder to establish with illiquid assets.

For reasons like this, most of the smaller (say, <$10M in annual revenue) 501c3 organizations that I’m familiar with don’t have alternative investments at all.

Even compared to similarly-sized organizations, though, SPLC stands out.
First, that ratio of [alternative investments]/[net assets] that I mentioned is a mind-boggling 84%.

The comparable figure for Harvard (hedge fund with a university attached) is 75%; for the Heritage Foundation (close enough in revenue to SPLC, has its own substantial endowments) it’s 73%; for Institute for Justice (an actual public-interest law firm, albeit with half the staff costs of SPLC) it’s a measly 8%.

The second thing that stands out is that basically all (98%) of SPLC’s net assets don’t have donor restrictions. The comparable figures for Harvard, Heritage, and IJ are 24%, 78%, and 89% respectively; that SPLC’s is that high suggests that they aren’t dealing with many donors who are overly concerned about what their money is used for.

If, say, you want David Geffen to give your organization 9 figures, Mr. Geffen will likely demand a detailed agreement specifying that his name will appear in perpetuity on the building you will erect with his money in letters X feet tall and so forth and so on.

On the other hand, people just seem to give money to the SPLC willy-nilly on the assumption that they are Good. After all, the national media wouldn’t constantly be citing the SPLC as the unimpeachable arbiter of Hate vs. Love unless the SPLC was above suspicion, right?

Third, SPLC’s investment mix is particularly illiquid (see page 16). In the worst case interpretation, it could take them 2 months to liquidate, whereas Heritage (also see page 16) could redeem more than half of their alt investment in a day.

Summarizing all this,

1. SPLC has a huge endowment with a vague purpose that comprises the overwhelming majority.

2. The staff and board has been pushing the endowment’s growth, not the donors. (They’ve had a couple of bonanza fundraising years recently, but all of that cash could easily have been left in money market or index funds if someone wasn’t pushing the alternatives.)

3. Most of SPLC’s board and staff don’t have a background that suggests experience with alternative investments; they’re predominantly civil rights lawyers. Amazingly, they don’t even have a CFO; their highest accounting/finance person is “director of administrative services”. The notable exception to this is vice chair Bennett Grau (Goldman Sachs alum).

4. To conclude: if – and there’s no hard evidence of this – one or two members of their leadership wanted to leverage that huge endowment for personal gain at the organization’s expense, there wouldn’t be much to stop them.

Once again, this is not an accusation, just a suggestion for those looking into the SPLC as to one area that might be worth looking at.

Another possibility is that the old guard being purged may wind up looking pretty human compared to the new guard who want to get their hands on the SPLC’s half billion (assuming the SPLC really does have a half billion).

But, in general, isn’t it time for all organizations, such as Amazon, that have relied upon the SPLC’s good faith to renounce the SPLC and wipe the slate clean?