Nearly half of executives and investment committee members overseeing US nonprofit endowments would consider outsourcing the investment management function to a fiduciary management or outsourced CIO model, according to a recent SEI poll.

The appeal of outsourcing investment management is being driven by limitations to time and resources, according to Kevin Matthews, a managing director at SEI’s solutions team, who says that it frees executives up to concentrate on strategic investment and organizational finance decisions.

"As market volatility continues, nonprofit investment committees face a challenging year ahead in aligning endowment assets with organizational spending needs," said Matthews.

What has been particularly challenging for endowments, of course, is the rock-bottom interest rate climate, which has forced institutional and private investors alike to take on more risk than usual to generate income.

The “outsourced CIO model” has also been bolstered by trends in the single-family office space, according to research that came out last year. Similar difficulties, as well as escalating in-house management costs and the Dodd-Frank financial reform bill, are changing the way family offices invest, providing opportunities for the external chief investment officer industry, a study by the Family Wealth Alliance found.

The earlier study found that while many single-family offices looked after their own liquid assets in the past, the challenging environment now facing these organizations means an increasing number are outsourcing this function to an external CIO firm.

The SEI poll, conducted with 150 executives in January 2012, suggests that opportunities exist across the family office/nonprofit space for those organizations which can capitalize on them.

In terms of what nonprofit endowments are looking for, the SEI poll found that when asked to rank investment statements in terms of their priority to the organization, executives’ top priority was finding ways to best make asset allocation decisions in conjunction with organizational finance decisions.

The number two priority was making asset allocation changes to focus on downside risk protection, while this was followed by attempting to decrease volatility through the introduction of new asset classes to the portfolio.

Number four on the list of executives’ concerns was defining investment management fiduciary responsibilities for trustees and investment consultants, followed by finding ways, such as through simulation tools, to evaluate the effects on the portfolio of potential market changes. This latter concern may be linked to the most recent financial crisis, which sparked huge debate about levels of inter-connectedness in the financial system, with links often buried until a negative event.

Also ranking among the top ten priorities were implementing an asset allocation process to exploit short-term market inefficiencies to add return/mitigate risk, and “immunizing” a portion of the portfolio to support spending policy needs – analogous to a “goals-based” approach to investing for private clients.

Increasing donor confidence in investment strategies was also a priority, as well as gaining more transparency from investment managers, and increasing allocation to strategies that protect against inflation.