NEPC Survey: Endowments and Foundations Use Passive Management – to a Point

Geopolitics and Political Uncertainty Continue to Worry Investors

Investors Eye Emerging Market Equities as Top-Performing Asset Class in 2017

BOSTON--()--NEPC, LLC (www.nepc.com), one of the industry’s largest independent, full-service investment consulting firms to endowments and foundations, today made public the results of its Q1 2017 NEPC Endowment and Foundation Poll, a measure of endowment and foundation views on the economy, investing, and key market trends.

“Although many endowments and foundations have incorporated passive management into their portfolios, investors also recognize its limitations”

The results show that endowments and foundations vary widely in their allocation to passive management, however, most don’t plan to significantly change their use of passive management within the next 12 months. The responses suggest that investors are staying the course with their current investing strategies.

Click here for an infographic that highlights the survey’s primary findings.

According to the survey, 39% of respondents have less than 10% invested via passive management. However, 35% of respondents have more than 20% of their portfolios allocated towards passively managed strategies. Nearly half (49%) reported having no significant change to their use of passive management during the last three years, while 42% have increased their use of passive management at least somewhat during this same period. When asked what drew them to passive management, respondents cited lower fees (39%) as the top reason, followed by poor active performance (26%) and the inability to identify and hire strong active managers (4%).

“Although many endowments and foundations have incorporated passive management into their portfolios, investors also recognize its limitations,” said Kristin Reynolds, Partner in NEPC’s Endowment and Foundation Practice. “Passive management offers some compelling attributes, but our survey results indicate that active management still plays a prominent role in investors’ portfolios. It seems that the use of passive management by most investors has stabilized, potentially because of geopolitical uncertainty and general concerns about the volatility of the market.”

When asked to look ahead to the next 12 months, just 7% of respondents said they plan to substantially increase their use of passive management, while one in five (20%) plan to increase it modestly. The majority of respondents (51%) said they plan to maintain their current exposure to passive management.

According to the survey, domestic equity is the most popular asset class to implement via passive management, with 93% of respondents already using passive management or considering it. Other asset classes cited as favorable for passive management (respondents were allowed to select multiple options) include international equity (38%) and core fixed income (30%).

Geopolitics and Political Uncertainty Chief Concern among Investors

The Q1 NEPC Poll also found that while investors are optimistic about the economy, their outlook is slightly less rosy than it was in Q4 2016. Investors are less worried about a slowdown in global growth, but concerns about geopolitics and political uncertainty have risen in comparison. Other key findings include:

  • More than half (57%) of respondents think the U.S. economy is in a better place compared to this time last year, a substantial increase from Q3 2016 (32 percentage points) but a slight decrease from Q4 2016 (7 percentage points).
  • When asked about the greatest threat to their investment performance over the near term, 37% of respondents cited geopolitics and political uncertainty.
  • One-third of respondents (34%) cited slowdown in global growth as the greatest threat, a decrease of 29 percentage points from Q3 2016. Investors are also significantly less concerned about rising interest rates, global deflation and potential military conflict than they were in 2016.
  • Nearly two in five respondents (39%) think emerging market equities will be the strongest-performing asset class in 2017, followed by domestic equities (23%) and international equities (16%).

About the Survey

The Q1 2017 NEPC survey was conducted online by the Endowment & Foundation Practice Group in May 2017. Copyright is held by NEPC. For the full survey results, contact Danielle Orsino at danielle@w.group.

About NEPC, LLC

NEPC® is an independent, full service investment consulting firm. We provide asset allocation, manager search, performance evaluation, and investment policy services to discerning investors on both an advisory and discretionary basis.

The firm has offices in Atlanta, Boston, Charlotte, Chicago, Detroit, Las Vegas, Portland and San Francisco, and services 109 endowment and foundation retainer relationships, representing assets of $60 billion as of 3/31/17. Learn more at http://www.nepc.com/focus-areas/endowments-foundations and www.twitter.com/NEPC_EandF.

Contacts

Water & Wall Group
Danielle Orsino, 646-343-9672
danielle@w.group

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