NEPC Survey: Endowments and Foundations Optimistic About 2018, See Opportunities Abroad

Investors Bullish on U.S. Economy and Impact of Tax Reform;

Emerging Markets, International Equities and Private Equity Expected to Shine;

Cryptocurrencies a No-Go

BOSTON--()--NEPC, LLC (www.nepc.com), one of the industry’s largest independent, full-service investment consulting firms to endowments and foundations, today announced the results of the latest Endowments and Foundations Survey, a measure of those organizations’ views on the economy, investment opportunities, and key market trends. The survey focused on the manner in which endowments and foundations are responding to economic and market changes, from tax reform to the surging interest in cryptocurrencies.

“Recent volatility aside, the U.S. economy continues to be strong, and investors appear confident that the economic benefits of tax reform will have a positive effect on their portfolios”

Results show that, despite the return of market volatility in early 2018, endowments and foundations continue to be optimistic about the return potential of equities. Almost half (47%) of the survey’s respondents expect U.S. equities to produce returns in the 6% to 10% range this year. Only nine percent of respondents expect the benchmark to end 2018 in the red.

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

Looking toward the broader economy, 55% of respondents think the U.S. is in a better place compared to this time last year. Another third (32%) think the economy is in the same place, and just 13% believe it’s in a worse place. When asked about the recent tax reform, 38% of respondents believe it will help their investment returns, while 36% think it will have minimal effect. Nine percent of respondents said they think tax reform will hurt their portfolios, and another 17% were unsure of its impact.

“Recent volatility aside, the U.S. economy continues to be strong, and investors appear confident that the economic benefits of tax reform will have a positive effect on their portfolios,” said Scott Perry, Partner in NEPC’s Endowments and Foundations Practice. “The results also show investors continue to focus heavily on equity strategies across both public and private markets. The current investment landscape, with higher volatility levels, provides an improved backdrop for investment managers to demonstrate their value to endowments and foundations.”

When asked to predict which asset classes will be the strongest performers in 2018, nearly half (45%) of respondents favored emerging market equities, followed by private equity/debt (15% of respondents) and international equities (11%). In terms of investment focus for 2018, 43% of respondents anticipate allocating more to private equity/debt, while another 53% plan to maintain their current exposure. Twenty-eight percent of respondents said they will allocate more to international equities, with 26% saying the same about emerging market equities.

Although Bitcoin was one of the biggest news stories of 2017, the vast majority of respondents (96%) reported having no exposure to cryptocurrencies and don’t expect that to change.

Risk Factors? Geopolitics and Political Uncertainty Overshadow Other Concerns

The survey also asked investors to identify the top threats to their portfolios and their asset allocation and positioning. Key findings include:

  • More than a third (36%) believe geopolitics and political uncertainty pose the greatest near-term threat to investment programs. This is on par with the percentage of respondents in Q1 2017 who said this was their biggest concern (37%).
  • Rising interest rates were also cited as a top threat (26%), up 21 percentage points from Q1 2017 (5%). Twenty-one percent of respondents expressed concern about a slowdown in global growth, a 13-point decrease from 2017.
  • Nearly one in five (19%) indicated a plan to invest more in hedge funds this year. A survey of endowments and foundations conducted by NEPC in August 2017 found that two-thirds (68%) of respondents have more than 10% of their portfolios allocated to hedge funds and marketable alternatives.
  • Although 85% of respondents anticipate maintaining their current exposure to fixed income in 2018, just 4% plan to increase exposure.
  • Forty percent of respondents are expecting to allocate less to domestic equities this year, while another 55% plan to maintain their current exposure.

About the Survey

This NEPC survey was conducted online by the Endowments & Foundations Practice Group in February 2018. Copyright is held by NEPC. For the full survey results, contact Danielle Orsino at danielle@waterandwallgroup.com.

About NEPC, LLC

NEPC® is an independent, full-service investment consulting firm, providing asset allocation, manager search, performance evaluation, and investment policy services. We work with discerning investors on both an advisory and discretionary basis. We service over 100 endowment/ foundation relationships, representing over $62 billion in endowment/ foundation assets, from our offices in Boston, Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Portland and San Francisco. We encourage your comments and feedback, as well as any inquiries you may have about our firm or our consulting services. Learn more at http://www.nepc.com/focus-areas/endowments-foundations

Statistics as of 1/1/2018

Please note that all investments carry some level of risk. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Please contact NEPC for current information about our views of the economy and the markets. Past performance is no guarantee of future results.

Contacts

Water & Wall Group
Danielle Orsino, 646-343-9672
danielle@waterandwallgroup.com

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