The biggest threat to endowment and foundation investment portfolios is a slowdown in global growth, according to a survey by consulting firm NEPC.
Sixty percent of endowments and foundations probed by NEPC this year said they’re most concerned about an economic slowdown, up from 21 percent in 2018, the consultant said Tuesday. About 50 investors from higher education institutions, private foundations, public charities, and nonprofit healthcare organizations participated in the survey, according to Sam Pollack, principal and senior consultant at NEPC.
Endowments and foundations have been wrestling with what they would do in the event of an economic downturn for some time, he said Tuesday in a phone interview.
“Economic slowdown and market behavior don’t necessarily go hand in hand every time, but the concern is that it could lead to a downturn, potentially a significant one,” Pollack said. To cope, he said that endowments and foundations are allocating more capital to private or illiquid strategies.
Forty-one percent of those surveyed by NEPC anticipate allocating more to private equity, while 51 percent plan to maintain their current exposure. Thirty-one percent of respondents believe that private equity will be the strongest-performing asset class in 2019, up from 15 percent in 2018.
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Domestic equities and emerging market equities tied as the next most frequently cited asset classes expected to outperform this year. Twenty-nine percent of those surveyed by NEPC expect domestic equities to outperform, jumping from 6 percent in 2018. The portion of investors favoring emerging market equities as the strongest performing asset class slid this year to 29 percent, from 45 percent last year.
According to Pollack, the results of the survey show the “mixed emotions” among managers of endowments and foundations about the performance of global markets this year.
“Even in the wake of the run-up, there’s a group that thinks U.S. equities will still be a top performer,” he said.