Nonprofits are continuing to add new asset classes to portfolios in an effort to decrease ongoing investment volatility. Nearly three-quarters (73 percent) responded during an SEI Quick Poll that this was the risk management measure they have already taken.
The polls also showed 40 percent have increased allocations to inflation protection strategies, such as Treasury Inflation Protection Strategies (TIPS) and commodities.
While half of the nonprofits polled have less than 10 percent of the portfolio in illiquid investments, nearly a third (29 percent) have 21 percent or more of the portfolio invested in illiquid assets.
According to poll respondents, the most popular alternative investments currently used are private equity and funds of hedge funds, as more than half (55 percent) of all respondents indicated they were investing in each. Commodities (44 percent) and private real estate (40 percent) ranked second and third. When asked which alternatives they are considering investing in this year, more than one in ten (11 percent) ranked private equity and commodities the highest.
“Over the past year, nonprofits have been turning to risk management measures as a way to protect their portfolios from the continuing market turbulence,” said Chris LaMarca, nonprofit and healthcare investment director for SEI’s Institutional Group. “But no single technique is a quick fix. Uncertainty regarding how to best support spending policies and how to offset the impact of inflation are just a couple of concerns that support the increased interest in outsourcing. Investment management is becoming increasingly complex and nonprofits are recognizing the need for expanded resources and expertise.”
The majority of poll participants (59 percent) reported that when a change to their investment management approach is next considered, their organization will evaluate an outsourced approach — defined as an implemented consultant, outsourced-CIO or a fiduciary management model. Only one in six (16 percent) respondents managing endowments said their investment committee would ever consider managing their portfolio internally, without any outside support.
The poll was completed by 135 U.S. nonprofit executives and investment committee members who are responsible for overseeing endowments and foundations ranging in size from $25 million to more than $1 billion. None of the respondents were institutional clients of SEI.