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Portfolio > Economy & Markets > Fixed Income

Foundations, Endowments Buying Emerging Market Debt

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Over the past decade, foundations and endowments have repositioned their market exposures away from long-only U.S. equities, and moved into U.S., global and emerging markets fixed income, according to a new report form eVestment.

These investors have been searching for yield around the world as a way to rely more heavily on income-producing investments, the report said.

Although much of these reallocated assets have gone to U.S. fixed-income strategies, the reallocation process has resulted in large increases in exposure to the sovereign debts of a diverse group of countries.

Since 2011, foundations and endowments have allocated more to emerging markets fixed-income strategies than to any other strategy, according to eVestment. 

eVestment based its report on information provided to its global database on more than $500 billion of foundation and endowment assets under management.

According to the report, foundations and endowments’ emerging markets fixed income exposure amounted to some $8 billion across 28 firms and 38 strategies. Five firms accounted for 70% of assets.

Eighty-five percent of these exposures are in sovereign debt and 45% in BBB/Baa-rated securities. Only 30% is rated below investment grade.

eVestment found that Latin America was investors’ region of choice, followed by equal exposures in Africa/Middle East and Far East excluding China.

Brazil and Mexico accounted for 50% of Latin America exposure, while Indonesia dominated Asia with 39% exposure.

Seven countries comprise 61% of all foundation and endowment emerging market fixed income exposures: Mexico, Brazil, Indonesia, Turkey, Colombia, Russia and South Africa.

Among this group, only Russia and to a lesser extent Mexico have experienced lower allocations in recent quarters, the report said.

Exposures to Colombia and Indonesia have consistently increased, as have those to Turkey and Brazil, though less smoothly. South African debt has treaded water since beginning to generate interest in 2010.


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