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Bailey McCann, Opalesque New York:

New data from investment consultant Callan shows that nonprofits are expanding how they use alternative investments in their portfolios.

Like most allocators nonprofits are targeting portfolio returns of 5-8%. Callan data shows that in recent years, nonprofits have benefited from rising rates through an improved return on cash. Many nonprofits have also increased their allocation to private credit which also benefits from higher interest rates.

Nonprofits have changed their portfolio construction significantly to account for the increased allocation to private credit. Callan data shows that they have opted to reduce investments in public equities and traditional fixed income from 70% of nonprofit portfolios to 39% in 2023. These assets were shifted to marketable alternatives (hedge funds) and private equity from a total of 21% in 2003 to 45% in 2023.

While returns have improved, the liquidity profile of non profit portfolios has also changed. Increases in hedge fund and private equity allocations alongside existing allocations to real assets brings the total of illiquid investments to more than half of portfolios at 56%.

Portfolio size also matters. Callan data shows that larger portfolios are making bigger allocations to private equity and hedge funds. As of June 2023, portfolios with more than $1 billion in assets had a total ......................

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