Non-Profit Investors and Investment Solutions: A Large and Growing Market
Chestnut Advisory Group
Chestnut is a boutique management strategy consultant dedicated to asset managers and solutions providers.
The Chestnut Solutions Institute’s next webinar, Non-Profit Investors and Investment Solutions, will feature a panel of non-profit asset owners and managers discussing why holistic investment solutions are so highly valued by non profit investors today.? Register here or see webinar details at the end of this article.?
This article is an excerpt from the Institute’s recent Defining Investment Solutions research report.?
Non-Profits: A Large and Growing Solutions Market
The Chestnut Solutions Institute estimates non-profit investors (endowments, foundations and healthcare) are the second-largest institutional market segment using OCIOs today, representing about 27% of total global OCIO AUM in 2023.?
While endowments and foundations have experienced the highest growth rate of OCIO adoption over the past five years (at 377% and 211% respectively), OCIO respondents to Chestnut’s recent solutions marketplace study expect the non-profit endowment and foundation investor segment to deliver by far the highest growth for their OCIO businesses over the next several years, as illustrated in the chart below.
Factors Driving the Rapid Growth of Investment Solutions
Both institutional and individual investors are increasingly choosing holistic solutions over the traditional ‘portfolio building block’ approach due to two key secular trends, discussed below.?
Increasing Markets Complexity and Risk Require Greater Expertise
Investors of all types historically made most portfolio level investment decisions themselves, from asset class allocation to manager selection. In most cases, the people making these important investment decisions were not professional investors. Rather, these traditional investment decision-makers had extensive expertise and a wide range of responsibilities well outside their investment management obligations. In the less complex investment marketplace of past decades this approach worked well.
As a result of the substantially more complex investment marketplace today, holistic investment solutions provide substantial benefits when compared with the traditional investing approach.
Today, however, investors face such a dizzying array of decisions when building a portfolio that It is no wonder they are increasingly turning to holistic investment solutions from expert external providers. For example, investors can allocate their portfolios across at least 13 different public markets asset classes today. Private capital offers another seven commonly accepted asset classes to choose from, each of which contains multiple sub-asset classes with widely differing risk/return profiles (e.g. venture, growth, buyouts, and mezzanine are all types of private equity).? The wide and growing range of investment products, vehicles, and structures (e.g. co-investments) available in each asset class today dramatically expands the number of investment decisions to be made within each asset class, as well as the expert knowledge required to understand and evaluate each of the available opportunities and risks.
As a result of the substantially more complex investment marketplace today, the personal (and, for institutional investors, professional) downside risk of retaining primary responsibility for making and implementing each investment decision of note increasingly outweighs any potential benefits.? Investment solutions provide three substantial benefits when compared with the traditional investing approach:
?Investment Solutions Offer an Attractive Value Proposition
Effective investment solutions products and services can lead to better holistic outcomes for the end investor than the traditional ‘building blocks’ approach. Four key factors drive these better outcomes:
As these underlying growth trends remain intact, we forecast continued strong investment solutions industry growth for many years to come.
Non-Profit Investors and Solutions Webinar: May 15, 11:00 AM ET?
The Chestnut Solutions Institute is hosting a public webinar, Non-Profit Investors and Investment Solutions, ?featuring a discussion among our distinguished panel of non-profit asset owners and asset managers:?
In this webinar, Chestnut Solutions Institute Advisor Mary Jane Bobyock and our panelists will discuss key issues facing nonprofit investors and the implications for the investment solutions marketplace today. All investors (both those using and not using OCIOS), investment solutions providers and their partners (asset managers, OCIO evaluators, etc.) will benefit from attending this webinar discussion.?
To learn more about the Chestnut Solutions Institute and Chestnut Advisory Group, please visit www.chestnutadvisory.com
The Chestnut Solutions Institute is an independent forum for investment solutions providers and their partners, dedicated to advancing the future of the investment solutions industry. The Institute’s mission is marketplace education to help establish and promote strong solutions industry standards and norms that increase transparency and enhance investor trust.