US endowments interested in outsourcing to multi-managers

A significant proportion of US endowments and other non-profit funds are at least “moderately interested” in outsourcing their investment management to a multi-manager model in the wake of the global financial crisis, according to a new survey by SEI Investments Company.The survey results, published last week in the US, show that the non-profit sector of the institutional investment market has some unique challenges and concerns when compared with pension funds and other institutional investors.

Most, for instance, have concrete spending programs requiring at least 4-5 per cent a year of total investment assets to maintain their sponsoring organizations’ commitments.

The survey, of 177 executives overseeing asset pools ranging between $25 million and more than $1 billion – with just over 50 per cent between $50 -300 million – showed that the major concerns going forward were:

  • making asset allocation decisions in conjunction with organizational finance decisions (62 per cent)
  • maintaining appropriate liquidity in the investment portfolio (49 per cent)
  • ongoing cash management (44 per cent), and
  • inflation hedging (44 per cent).

Only 28 per cent of respondents said they had immunized a portion of their portfolios to better support spending policies and avoid liquidity challenges. But another 23 per cent said they were considering introducing such a program.

SEI, which offers both traditional asset consulting services and multi-manager products, asked the non-profits, none of whom were clients, to define their investment governance according to one-of-three models: 56 per cent said they had an asset consultant to assist internal professionals on manager selection and oversight; 31 per cent said they had an internal team, without a consultant, to choose and oversee all managers and investments; and 13 per cent they had outsourced the CIO function to a multi-manager.

The SEI report notes that several high-profile firms have recently been offering their multi-manager services, specifically to the non-profit sector as an alternative to using an asset consultant. The researchers therefore asked the organisations which use an asset consultant about their intentions. A total of 54 per cent said they had “ at least a moderate level of interest in better understanding the benefits of an outsourced approach”.