Private Markets for Nonprofits: Opportunities Beyond Private Equity and Venture Capital

For many nonprofit organizations, the world of private markets can feel distant, as if it’s something reserved for elite institutional investors or sophisticated wealth managers. Historically, private markets were associated mainly with private equity (PE) and venture capital (VC), both of which require long investment horizons, higher minimums, and an appetite for risk that may feel misaligned with a mission‑driven organization’s goals and liquidity needs.

But the private markets universe is far broader than PE and VC. In recent years, the menu of more accessible private-market strategies and vehicles has expanded significantly, offering nonprofits new avenues to help enhance returns, diversify portfolios, and align long‑term investments with mission stability. As donor expectations evolve and endowments face growing demands for resilience, understanding the full spectrum of private markets has become increasingly important.

This article explores the private-market landscape today — and highlights how nonprofits can thoughtfully integrate these opportunities into their long‑term investment strategy.

Why nonprofits are looking more closely at private markets

Nonprofits face a unique financial balancing act. They must steward capital responsibly, preserve purchasing power, support annual operating needs, and grow assets over time. All of that while navigating economic volatility and unpredictable donor cycles. Public markets alone may not always provide the stability or return profile necessary to meet these objectives.

Private markets can offer:

• Enhanced diversification: Many private-market assets often exhibit different behaviors compared to public stocks and bonds, which may help reduce portfolio volatility.
• Higher long‑term return potential: Historically, several private-market asset classes have outperformed their public counterparts due to inefficiencies, liquidity premiums, and access to specialized opportunities.
• Inflation protection: Certain private assets, such as real estate and infrastructure, have built‑in inflation‑linked revenue streams.
• Access to niche segments: Nonprofits can tap into areas with limited public-market equivalents, such as specialty credit, renewable‑energy infrastructure, and impact‑aligned real assets.

Importantly, the rise of diversified access platforms has lowered barriers to entry, making private-market investing more feasible for mid‑sized and smaller nonprofits.

Key private market categories beyond PE and VC

Private markets encompass a wide range of assets that do not trade on public exchanges. There are relevant categories for nonprofits seeking alternatives outside traditional private equity and venture capital.

1. Private credit

Once dominated by banks, private credit has grown rapidly as lenders step in to provide financing directly to companies, real estate developers, and projects. For nonprofits, private credit can offer:

• Attractive yields relative to traditional bond markets
• Potential income streams
• Shorter durations than equity‑based private assets
• Lower volatility due to non‑mark‑to‑market pricing

Strategies range from senior secured loans (lower risk) to opportunistic credit (higher risk/return potential). Private credit can serve as a stable income‑generating component within a diversified nonprofit portfolio.

2. Real estate (private real assets)

Private real estate has long been a core component for institutional investors, but its relevance to nonprofits continues to grow. Investments may include:

• Multifamily housing
• Industrial and warehouse facilities
• Health care and senior‑living properties
• Student housing
• Commercial office repositioning
• Niche sectors like data centers and self‑storage

Private real estate can offer steady income, inflation-hedging, and tangible underlying assets. For mission‑driven organizations, it can also create opportunities for location‑based impact or alignment with community development goals.

3. Infrastructure

Infrastructure investing has surged as governments and private partners work to modernize transportation, energy, water, and digital systems. For nonprofits, private infrastructure funds can offer:

• Long‑duration, stable cash flows
• Inflation‑linked revenue models
• Lower correlation to traditional markets

Examples include renewable energy projects, toll roads, fiber networks, energy-transition infrastructure, and utilities. These assets often align well with ESG or mission‑aligned investment frameworks.

4. Hedge funds and alternative strategies

While hedge funds can be misunderstood due to their complexity, many strategies within this category emphasize risk management, market‑neutral exposure, or absolute‑return objectives.

Nonprofits may find value in:

• Market‑neutral strategies designed to reduce volatility
• Global macro or managed futures, which may serve as hedges in turbulent markets
• Credit‑focused hedge funds offering differentiated yield

These strategies can complement traditional 60/40 portfolios by smoothing return patterns during periods of market stress.

5. Impact‑driven private assets

Many nonprofits are exploring private-market opportunities that further their mission. These range from:

• Community development finance
• Affordable housing funds
• Climate‑aligned infrastructure
• Sustainable agriculture and land stewardship

Impact‑aligned private investments can generate both financial returns and measurable social or environmental outcomes — an increasingly important consideration for boards, donors, and younger stakeholders.

Key considerations before investing

While private markets offer meaningful benefits, nonprofits should carefully evaluate several factors before allocating capital.

1. Liquidity constraints: Private investments often have multi‑year lockups. Nonprofits must assess spending needs, reserve requirements, and donor unpredictability before committing assets.

2. Fee structures: Fees can be higher than public-market alternatives. Understanding cost implications, and ensuring access to institutional‑quality managers, is critical.

3. Governance and oversight: Boards and investment committees should be comfortable evaluating complex strategies, reviewing manager due diligence, and monitoring performance.

4. Diversification within private markets: Just like public portfolios, private-market allocations require thoughtful construction across strategies, sectors, and vintages.

5. Alignment with mission and risk tolerance: Private-market investments should support, not compete with, the organization’s values and long‑term goals.
6. Taxation: While private markets offer enhanced return and yield potential, we need to evaluate potential tax-treatment of these strategies. Unrelative Business Interest Tax (UBIT) is a tax imposed on income derived from activities outside of the organization’s primary mission and can be applicable depending on the investment.

The bottom line

Private markets are no longer limited to private equity and venture capital. For nonprofits seeking to strengthen financial resilience and pursue long‑term impact, a broader array of private assets — from private credit to infrastructure to real estate — offers compelling opportunities.

By thoughtfully integrating these strategies into their investment policy, nonprofits can help:

• Achieve greater diversification
• Enhance income and return potential
• Protect purchasing power
• Support mission‑aligned initiatives
• Build a more stable financial foundation

As access expands and due‑diligence resources become more robust, private markets could help nonprofits advance their missions with confidence starting today and for decades to come.

The next step is a thoughtful conversation. Private markets can strengthen your nonprofit’s long‑term financial foundation, but only when it aligns with liquidity needs, governance, and mission priorities. Engaging experienced advisors and revisiting your investment policy can help determine whether these strategies belong in your portfolio and how to implement them prudently.

Our Endowments & Foundations team is here to help. If you want guidance and a partner for your organization, contact us here.