Research reveals investment priorities in the non-profit segment
Non-profit institutional investors are still taking on risk despite challenging market conditions, with 53% saying they are increasing allocations to private equity as a means of generating much-needed returns.
This is according to a new study on endowments, foundations, and healthcare systems investment priorities by BlackRock. Done in collaboration with Coalition Greenwich, the research surveyed 87 US-based investors on how they’ve been navigating the challenges presented by today’s volatile macroeconomic climate.
“In 2022, mitigating macroeconomic risk has been a top priority for non-profit investors – even more so than interest rate risk,” said BlackRock’s head of US endowments and foundations Lili Forouraghi. “We’ve been working closely with clients who are increasingly looking to implement more diversified private assets into their asset allocation programs while managing costs.”
BlackRock’s study was conducted over a ten-week period between early February and early April, overlapping with Russia’s invasion of Ukraine. In this time, investors saw inflation, rising interest rates, and drawdown risks as primary risk factors, with some also indicating that the invasion had amplified these particular concerns.
According to BlackRock, the number of investors that said their top priority was to mitigate inflation spiked by 11 percentage points after the invasion, while those that considered rising rates a primary concern increased by eight.
Additionally, while the war in Ukraine had heightened concerns about the potential for outsized losses, fears of major drawdown have not caused non-profit investors to abandon risk. Almost half of the study’s participants said they are focused on generating idiosyncratic returns and maintaining a risk-on view.
In this regard, private equity was identified as the alternative asset class of choice for over three-quarters of participants, and more than half said they are increasing allocations to private equity. Meanwhile, about a third of participants indicated an intention to increase their private equity allocations by up to 10%, and nearly a fifth said they have plans to boost exposure between 10% and 20%.
The BlackRock study also found that ESG adoption has gained traction across the non-profit segment, with 49% of participants saying they’ve incorporated ESG standards or goals in their portfolios. Among these institutions, over three quarters preferred to incorporate ESG factors into their overall investment process, while a quarter of participants that haven’t yet employed ESG said they have plans to adopt responsible investment practices within the next five years.
Among investors without ESG practices in place, four in 10 respondents said they currently have no plans ESG due to challenges with implementation and incorporation, with 40% revealing they were unsure whether they will implement ESG in the next five years.
