After fears of possible tax hikes and pulled funding, small endowments and foundations are still dealing with lingering fear and anxiety over an uncertain future, leaving them in survival mode with almost no time spent discussing investment strategy with their consultants.
On a panel discussing the state of endowments and foundations at the Investments & Wealth Institute Strategy Forum in New York, consultants described the pressures small allocators face — funding uncertainty, rising spending needs, greater operational demands — and how they’re dealing with these challenges.
“My clients don’t know what to do, given what they fear is a significant shift by the administration to pull away all funding sources that impact them if they have any grant writing that they need to do,” said Kevin Sanchez, an institutional consultant at Morgan Stanley.
Sanchez, who advises charitable foundations with $5 million to $50 million in assets, described the world of small nonprofits as “disjointed,” noting that conversations with clients rarely if ever touch on investments. Instead, most discussions center on remaining functional.
“The investment side is almost nonexistent as a conversation,” he told attendees. “They spend more time talking about where they’re going to bring in their next pool of money that’s actually going to allow them to keep the doors open.”
While the Morgan Stanley SVP acknowledged that “it may be a little bit of an overblown fear,” he insisted “that fear is very real.”
Meanwhile, small universities also have lingering concerns over operational uncertainty.
“Six months ago, there was definitely a lot of anxiety around what exactly legislation was going to mean for some of our clients,” said Lisa Sebesta, an investment consultant at Prime Buchholz.
“There was certainly a sigh of relief after the bill finally came out,” she said, noting that smaller colleges were spared from the tax hikes. “But then that underlying anxiety is still very much there.”
According to Sebesta, most of Prime Buchholz’s endowment clients manage a little more than $1 million, though the firm’s accounts span $500,000 to $50 million.
Lately she has seen clients make changes to their spending policies. “I’d say almost all of them are spending more, usually for the increment of maybe a half a percent, sometimes a little bit more than that,” she said.
Despite the numerous challenges they face, nonprofits are on track to eclipse corporate defined benefit plans by next year in terms of AUM, according to Cerulli Associates.
