Endowments and Foundations Confident About Economy, Markets

Poll finds move away from traditional investments to alternatives continues

U.S. and emerging equities, followed by international equities, ranked among this year’s top performers. U.S. and emerging equities, followed by international equities, ranked among this year’s top performers.

Three-quarters of endowments and foundations in a recent poll said the U.S. economy was in a better place now that it was last year at this time.

NEPC, an investment consulting firm to endowments and foundations, conducted its online Q1 2014 survey in April.

More than half of respondents expected markets to show high single-digit returns.

Overall confidence in the markets notwithstanding, half the respondents said a slowdown in global growth posed the greatest single risk to investment performance, down somewhat from the 60% that gave the same answer in the fourth quarter last year.

Rising interest rates was the second biggest concern, cited by 19% of endowments and foundations, and Fed tapering was third, cited by 13%.

As for investments, 60% of organizations surveyed believed U.S. and emerging equities, followed by international equities, would be among this year’s top performers.

At the same time, migration of capital from traditional equity and fixed income strategies to nontraditional assets appeared to be continuing.

Only 4% of respondents said they planned to increase exposure to domestic equities, while 81% said they would allocate the same or more to hedge funds, specifically those in the multistrategy, credit-linked and event-driven spaces.

Private equity continued as one of the preferred alternative investment allocations of endowments and foundations.

Thirty-eight percent of respondents (versus 32% last quarter) planned to increase their allocation to private equity, and 34% said they would keep their investments level with last year.

Specific subcategories of private equity investments favored by respondents were split at 25% each among buyouts/growth equity, direct lending and secondaries.

NEPC said in a statement that its Q4 2013 survey had found 41% of respondents planning to allocate more to real assets in 2014.

In the current survey, when asked which real assets were their top choices, 34% said real estate, 24% selected energy and 8% picked precious metals, specifically gold, gold mining and silver.

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