Just over half of endowment and foundation investment executives plan to increase allocations to alternatives in the next year, according to a survey from investment consultant Graystone Consulting.
According to the results released on Nov. 1, 52% of surveyed executives plan to increase their allocations to alternatives, while 64% of executives at institutions with less than $1 billion in assets also plan to do so.
When asked what alternatives products they use, 81% of respondents said private equity and 66% said private credit, and 39% and 40%, respectively, said they plan to raise their allocations to those specific asset classes.
When asked why they are pursuing alternatives, 88% of respondents said to "enhance portfolio performance" and 38% said it was the most important reason. Diversification was cited by 83% (19% gave it as the most important reason); 75% said accessing idiosyncratic return sources (18%); 68% said to manage inflation risk (6%); 54%, manage interest rate risk (5%); 34%, support impact/ESG goals (7%); 29%, manage climate risk (4%); and 17%, tax benefits (1%).
When asked what their top financial concerns were, the highest percentage – 69% - cited market volatility. Another 68% cited generation of adequate investment returns, while 65% said an economic slowdown/recession and 60% said risk management.
"Market headwinds and geopolitical uncertainty loom large, and the data suggest endowment and foundation investors are not immune from these concerns—from both investment and fundraising perspectives," said Jeremy France, head of Graystone Consulting, in a Nov. 1 news release. "Further, amid a market seemingly in search of direction, it's no surprise to see these investors seeking alpha in alternatives like private equity. Likewise, the positive impact that working through these challenges with a consultant has on investor confidence is clear, which is something we see every day in the work we do with clients."
Graystone Consulting surveyed investment decision-makers at 100 endowments, foundations and other nonprofit organizations in May, each with more than $100 million in assets. Of the 100 organizations, 56 have more than $1 billion in AUM.