BOSTON, February 8, 2016 – NEPC, LLC (www.nepc.com), one of the industry’s largest independent, full-service investment consulting firms to endowments and foundations, today published the results of its Q4 2015 NEPC Endowment and Foundation Poll. The latest poll results reveal these institutions have a dim view of the global economy and expect its limited growth prospects to be the greatest near-term threat to portfolio performance.
“Volatility has once again returned to the forefront of investors’ minds, driving concerns over a stalled recovery at home and a slowdown globally,” said Cathy Konicki, Head of NEPC’s Endowment and Foundation Practice Group. “The pullback in emerging markets, namely in China, declining commodity prices, significant oil price declines and divergent central bank policies have created an investment environment that has become more difficult to navigate. However, investors believe there are opportunities for return in select asset classes for those willing to move quickly and look past short-term noise.”
Sixty-seven percent of endowments and foundations say a slowdown in global growth is the greatest near-term threat to investment performance and it’s been trending this way throughout most of 2015. In the third quarter, approximately 62% of respondents said global growth was the greatest near-term threat, while 46% said as much in the second quarter.
Global economic growth outweighs concerns with rising interest rates, inflation and geopolitical unrest as the greatest threat to the market this year. In part, China is to blame. Seventy percent say a slowdown in China is a near-term concern for emerging markets, but despite talk of emerging market flight, endowments and foundations are not yet ready to sell. They are willing to reassess exposure, as 77% of respondents say they will be rebalancing or already have made adjustments to their exposure.
As of December 31, 2015, these endowments and foundations had 30% of assets committed to domestic equities, 20% to international equities, 15% to fixed income, 13% to hedge fund strategies and 15% to private markets. These allocations have not changed from a year ago.
Where is the opportunity? Some respondents say it’s in the energy sector. Thirty-five percent of respondents will make an “opportunistic allocation” to energy related investments this year. In doing so, 53% will explore private equity strategies, followed by master limited partnerships at 26% and distressed credit at 21%. There is continued interest in increasing allocations to private market and hedge funds.
Other key findings:
- Almost all respondents expect the Fed to raise rates in 2016, though they’re divided on how much. Forty-eight percent expect an increase of less than 50 basis points, while 43% expect an increase of 51-100 basis points.
- Seventy-eight percent say the S&P 500 Index will return between zero and 5% in 2016. Meanwhile, 17% still expect a 6% to 10% return. As of February 2nd, the S&P was down approximately 7%.
- Additionally, 33% think distressed debt or credit is attractive. Europe-based equities and high yield debt garner the attention of 30% and 17% of the respondents, respectively. Meanwhile, 22% of respondents do not see any attractive opportunities.
For full survey results click here.
For Infographic click here.