Investing Ideas

Are private assets worth the effort? A study of their impact on endowments and foundations' returns and spending

Fidelity analysis shows nonprofits can potentially improve investment performance and reduce spending volatility by accessing above-median private market managers.

By: Emil Iantchev Ian Johnson Erika Murphy
Updated: 6/10/2024
Key Takeaways
  • Given muted expectations for public markets, simulation analysis shows that a nonprofit’s investment plan with a traditional 70% stock/30% bond portfolio only has a 29% chance of meeting a 5% real return spending target over a 10-year period.1
  • Private assets are not always beneficial in meeting the return objective. Our simulation analysis shows that consistently sourcing the median private market managers barely improves (29% to 31%) the probability of meeting the return target (investment objective).2
  • We believe manager access and selection are critical. Top-quartile private equity managers have historically delivered nearly 9.5% higher annualized returns than median managers. A plan could potentially improve the probability of meeting the return target—increasing to an estimated 65% chance—if allocating 30% of portfolio exposure to top-quartile private managers.3
  • Investing in bottom-quartile private market managers can lower a plan’s probability of achieving the 5% spending target to only 11%—a far worse outcome than investing in traditional asset classes alone.4
  • Contrary to commonly held views, diversified exposure* to top-quartile manager scan potentially provide liquidity through annual distributions, while also potentially reducing the volatility of total asset levels used for calculating annual spending (and thereby mitigate potential spending shortfalls and volatility).
  • Resource-constrained endowments and foundations need not forgo private market exposure and related potential benefits, but rather they can extend their capabilities and staff by aligning with an outsourced chief investment officer (OCIO) provider that can assist with access to private market talent and liquidity management.
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Are private assets worth the effort? A study of their impact on endowments and foundations' returns and spending.
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  1. Source: Fidelity Investments. See article exhibits and Appendix on page 8 for full details.
  2. Ibid.
  3. Ibid.
  4. Ibid

Past performance is no guarantee of future results.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the authors and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

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