BOSTON, May 29, 2018 – NEPC, LLC (www.nepc.com), one of the industry’s largest independent, full-service investment consulting firms to endowments and foundations, today announced the results of the latest Endowments and Foundations Survey, a measure of those organizations’ views on the economy, investment opportunities, and key market trends. This survey focused on endowments’ and foundations’ attitudes toward events that could impact the global economy, such as trade tensions with China and the return of market volatility.
According to the survey, the vast majority (89%) of respondents expressed concern about a trade war between the U.S. and China. More than three-quarters (78%) reported having “moderate” concern, while 11% said their level of concern is “very high.” Only 11% of respondents have no concern.
Perhaps unsurprisingly, the survey also found that nearly all endowments and foundations – 91% – have some form of investment in China in their portfolios. Seventy-six percent of respondents invest in China through a broad emerging markets strategy. Four percent pair this approach with a dedicated China-only investment strategy, such as China A-Shares. And an additional 9% report having a China-focused private equity or private debt strategy. Just 9% said they have no direct exposure to China.
“Headlines about a U.S.-China trade war may have lessened in recent weeks, but if tensions reignite, endowments and foundations will likely feel the impact in their portfolios,” said Cathy Konicki, Partner in NEPC’s Endowment and Foundation Practice. “Our survey results show that while investors recognize the impact geopolitics could have on their portfolios, they haven’t made drastic changes to their investment strategies in response. While vigilance is always prudent, we recommend endowments and foundations maintain focus on their long-term objectives despite today’s unpredictable environment.”
The survey also assessed endowments’ and foundations’ outlook on alternative investments such as hedge funds, private equity and private debt in the current environment. Nearly three-quarters (73%) of respondents have more than 10% of their portfolios dedicated to alternative investments. Almost half (42%) have more than 20% allocated to alternatives.
Endowments and Foundations had a clear perspective on which alternative investments are poised to benefit from the return of market volatility: half (50%) said hedge funds, followed by private equity (17%), commodities (13%) and real estate or other real assets (13%). Taking a slightly longer-term focus, more than half (59%) of respondents believe private equity will generate the greatest return over the next three to five years, followed by hedge funds (15%), commodities (11%) and real estate and real assets (9%).
Despite Uptick in Volatility, Endowments and Foundations Stay the Course
The survey also asked investors for their view on the strength of the economy, as well as what they consider to be the top threats to their portfolios. Key findings include:
- Three-quarters (75%) haven’t changed their portfolios due to recent market volatility, even though 81% believe greater volatility is here to stay.
- More than 95% believe the economy is in the same or better place than this time last year.
- 57% believe the economy is in a better place.
- 38% believe it’s in the same place.
- Overall, investors are even more optimistic than in early 2017, when 92% of survey respondents said the economy is in the same or better place.
- More than half (57%) of respondents cited geopolitical tensions and political uncertainty as the greatest threat to their investments over the near term.
- Another 11% are most concerned about rising interest rates; 9% highlighted global inflation, and 6% selected Federal Reserve action, such as balance sheet adjustments.
About the Survey
This NEPC survey was conducted online by the Endowments & Foundations Practice Group in April 2018. Copyright is held by NEPC. For the full survey results, contact Danielle Orsino at email@example.com.
About NEPC, LLC
NEPC® is an independent, full-service investment consulting firm, providing asset allocation, manager search, performance evaluation, and investment policy services. We work with discerning investors on both an advisory and discretionary basis. We service over 100 endowment/ foundation relationships, representing over $62 billion in endowment/ foundation assets, from our offices in Boston, Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Portland and San Francisco. We encourage your comments and feedback, as well as any inquiries you may have about our firm or our consulting services. Learn more at http://www.nepc.com/focus-areas/endowments-foundations
Statistics as of 1/1/2018
Please note that all investments carry some level of risk. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Please contact NEPC for current information about our views of the economy and the markets. Past performance is no guarantee of future results.