July 24, 2014
(NASDAQ: SEIC) today released the results of a survey on investment challenges and practices, completed by 150 U.S. nonprofit foundations and endowments. The survey found that more nonprofits are prioritizing the implementation of effective risk management strategies to preserve the longevity of their organizations and missions. Nearly half (46 percent) of respondents said they place greater value on positive risk-adjusted returns than on overall portfolio returns when evaluating investment success.
Despite emphasis on risk management, 44 percent of participants are not confident that sufficient time is being spent assessing the impact of potential market shocks (e.g. a 20 percent market decline) on the ability to spend/achieve mission. In addition, nearly half (49 percent) lack confidence that the investment committee has identified all key portfolio risks.
"Nonprofits today face an increasingly challenging investment landscape. Many are taking steps to improve their risk-return balance through risk analysis and portfolio diversification," said
Mary Jane Bobyock
, Director of Nonprofit Advisory Team, SEI's
. "An increased level of due diligence and risk assessment is needed in managing these more complex investments. Our survey found that 48 percent of nonprofits are currently using or considering the use of an outsourcing provider to help manage the portfolio. The top two reasons given for using an outsourced approach are the ability to 'more promptly take advantage of market changes' and 'improve overall risk management.'"
The survey also found that many nonprofits are looking to utilize the investment committee in a more strategic manner. Areas of focus include:
- Better aligning the portfolio with organizational spending needs (40 percent)
- Better leveraging the committee in the organization's financial planning (21 percent)
- Building donor confidence in investment strategies (23 percent)
Adding to the need for increased fiduciary oversight is the continued use of alternative investments by nonprofits. More than half (58 percent) reported having 11 percent or greater of the portfolio allocated to alternatives. Less than one-quarter (24 percent) had 10 percent or less, and 18 percent had none.