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Data & Research September 22, 2011
Nonprofits Increase Diversification to Manage Market Volatility
An SEI Quick Poll reveals nonprofits are adding new asset
classes to portfolios in an effort to protect themselves against ongoing investment
volatility.
Reported by PLANADVISER staff
Nearly three-quarters (73%) said diversification was the risk management measure they have already taken, followed by 40% who said they have increased allocations to inflation protection strategies, such as TIPS (Treasury Inflation Protection Strategies) and commodities. Results also showed that while half of the nonprofits polled have less than 10% of the portfolio in illiquid investments, nearly a third (29%) have 21% or more of the portfolio invested in illiquid assets.
The most popular alternative investments currently used are private equity and funds of hedge funds, as more than half (55%) of all respondents indicated they were investing in each. Commodities (44%) and private real estate (40%) ranked second and third. When asked which alternatives they are considering investing in this year, more than one in 10 (11%) 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%) 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%) 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 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.
For a copy of the complete survey results, e-mail seiresearch@seic.com.