Endowments and Foundations Take a Hard Pass on Cryptocurrencies

Ninety-six percent of endowments and foundations do not currently invest in cryptocurrencies — and they have no immediate plans to do so.

This is according to the latest quarterly survey by consulting firm NEPC, which measured the sentiment of non-profit investors toward asset classes and investment options including electronic currencies like Bitcoin.

Just 2 percent of the endowments and foundations surveyed said they were currently invested in cryptocurrencies, while another 2 percent said they were considering doing so.

"The institutional community moves a bit slower," explained Scott Perry, partner at NEPC, who noted the sector's high volatility and lack of regulation as potential detractors.

Still, Perry said there was a "small and growing group" of endowments and foundations who see cryptocurrencies as an opportunity.

"Something that has outsized return potential is an area to consider," he said.

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But for now, at least, endowments and foundations are more likely to seek out exposure to the blockchain technology that is powering electronic currencies, according to NEPC.

"Blockchain is a disruptive technology that can affect so many industries," said Sam Pollack, a principal and senior consultant at NEPC. "Crypto is a little more narrow, and there is still debate as to whether it should be treated as an asset class."

The primary avenue for blockchain exposure, Perry said, is venture capital, an asset class that 15 percent of respondents planned to boost their allocations to. Private markets overall remained popular choices, with 43 percent of surveyed investors intending to allocate more to private equity and private debt. Seventeen percent said they would grow their real estate and real assets portfolios.

Within public markets, endowments and foundations are shifting away from U.S. stocks, with 40 percent planning to decrease their domestic equities allocation. Meanwhile, 28 percent planned to invest more in international stocks, while 26 percent intended to put more money into emerging market equities.

Domestic equities made up 26 percent of endowment and foundation portfolios as of the end of 2017, slightly down from 30 percent in 2015.

Still, 87 percent of respondents said they thought the U.S. economy was doing as well as or better than it did last year, an overwhelmingly positive year for domestic equities as the Standard & Poor's 500 index gained 19 percent. This year, 47 percent of the surveyed allocators expected the S&P 500 to achieve high single-digit returns, while 10 percent predicted double-digit gains up to 20 percent.

Overwhelmingly, emerging market equities were chosen as the likely strongest performer in 2018. 

"Emerging markets were the leader in 2017, and the expectation is that will continue," Perry said. "In our view, emerging markets remain one of, if not the, most interesting asset classes."