Thoughts on the non-profit space
Many smaller non-profits suffer from a lack of adequate investment resources, and can benefit greatly from the expertise of a financial advisor. I recently sat down with Heather Myers, managing director, non-profits for Russell Investments, to talk about some trends she’s seeing in the large non-profit space.
Heather is responsible for Russell’s business growth in the non-profit market segment and for providing leadership on strategy development and advice to institutional clients and prospects.
Q. How has the world of non-profit investing changed in recent years?
A. Since the fall of 2008 and the Global Financial Crisis, non-profits have become more attuned to the importance of their investment portfolios and they better understand that a “one size fits all” asset allocation approach isn’t appropriate in today’s world. More customized asset allocation coupled with an increased focus on liquidity and volatility management in portfolios have been prevalent.
One of the biggest changes I have seen is greater recognition of the challenges involved in managing a non-profit portfolio from a fiduciary perspective. This has been partly driven by regulations such as the Uniform Prudent Management of Institutional Funds Act (UPMIFA)1, but also by the complexities of the markets themselves.
Q. What are some of the top trends that you are seeing in the non-profit space?
A. Outsourcing, or as Russell calls it “fiduciary solutions,” is one of the largest trends we are seeing. Because of the sizeable assets that are expected to flow to outsourcing in the next few years, we believe the competitive landscape has mushroomed, as a lot of organizations are looking to capitalize on this business opportunity.
Endowments and foundations may be interested in outsourcing for a number of reasons, including the fact that they don’t typically have very deep staff to manage their investments. They don’t have the time to adequately research direct investment and private placement opportunities and to keep up with the rapidly changing—and volatile—markets.
Secondly, non-profits have always been active and significant investors in the alternatives space, but their allocations to alternatives have become more dynamic. They appear to be shifting and finessing hedge fund allocations, moving from broad non-directional hedge fund allocations to a segmentation approach, exploring commodities and adding private equity.
We are also seeing a number of chief investment officers moving from roles at public and corporate defined benefit plans to positions at non-profits because the corporate and public defined benefit plans are pressured to allocate a greater portion of their portfolios to liability-driven investment strategies. These CIOs like the appeal of mission-driven work and see it as more of an opportunity to spread their wings in exploring unique and interesting kinds of investment work.
Let us know if sharing Heather’s thoughts with clients who are passionate about this topic has given you a fresh approach to having a conversation about charitable giving. Do any of these trends get you thinking about ideas you can apply to your endowment and foundation clients? Leave us a comment!
Natalie Miller is a consulting director for Russell Investments in U.S. Private Client Consulting Services. View Natalie’s bio »
1 Prudent Management of Institutional Funds Act summary, www.uniformlaws.org
Series: Thoughts on the non-profit space