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Portfolio > Alternative Investments > Private Equity

Endowments and Foundations Are Worried About a Global Slowdown

By Michael S. Fischer

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Sixty percent of endowments and foundations in a new survey cited a slowdown in global growth as the biggest threat to their investment portfolio, compared with 21% of organizations that said this a year ago.

Investment consultant and private wealth advisor NEPC reported that 36% of survey participants said the economy was in a worse place, compared with 13% last year.

Respondents expressed less concern about geopolitical uncertainty and global inflation, and none about interest rates.

“Economic pressures weigh heavily on endowments’ and foundations’ minds as we approach the midpoint of 2019,” Catherine Konicki, partner and leader of NEPC’s endowments and foundations practice, said in a statement.

“As investment committees anticipate a potential global slowdown for the first time in a decade, it has never been more important to construct an investment portfolio balanced to withstand volatility.”

The online survey was conducted in March among higher education institutions, private foundations, public charities and nonprofit health care organizations.

Among other survey results, 38% of respondents said they had an impact investing program in place or planned to set one up within two years.

At the same time, they have not seen a significant shift from regular cash donations to cryptocurrency. Three in five organizations said they were unsure whether their donors were using digital currency, and the others said they had seen no change in the level of cryptocurrency donations.

The survey results also uncovered advances by nontraditional giving strategies. Twenty-three percent of respondents reported that donor-advised funds were detracting from direct cash donations. This has prompted some endowments and foundations to set up their own DAFs to adapt to donors’ changing giving behaviors, NEPC said.

Donations of highly appreciated assets increased only marginally over the past year, by 10%.

Tax Overhaul and Allocations

The survey also focused on the effect of the 2017 tax overhaul on annual fundraising and the asset classes endowments and foundations think will perform best in 2019.

Thirty-six percent of survey respondents said tax reform posed a slight concern for their fundraising abilities; several pointed to the increased standard deduction and changes in generational giving habits.

In order to mitigate the effect of tax reform, 13% said they had launched campaigns to attract new donors, and 4% had elicited larger gifts from businesses and high-net-worth donors.

The survey found that overall, charitable giving has stayed strong in spite of the tax reform frenzy. Twenty-eight percent of organizations in the study closed out their annual fundraising with increased levels of donations, and 55% with constant levels.

Forty percent expressed a positive outlook for the year ahead, with 27% forecasting that 2019 annual fundraising would exceed last year’s levels and 13% saying it would meet those levels.

According to endowments and foundations in the survey, these are the asset classes they anticipate will turn in the strongest performance this year, compared with their perceptions in last year’s survey:

  • Private equity: 31% vs. 15%
  • Domestic equities: 29% vs. 6%
  • Emerging markets equities: 29% vs. 45%

For 2019, 41% of respondents anticipated allocating more to private equity, while 51% planned to maintain their current exposure. Twenty-eight percent said they would allocate more to emerging markets, and 23% said the same about real estate.

Thirty-two percent expected to decrease their hedge fund allocation and 18% their domestic equities allocation.

Michael S. Fischer

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