Only 14 percent of nonprofits running endowments and foundations expect a recession within the next two years while barely 1 in 10 (11 percent) have made no adjustments to their portfolio’s risk exposure.
Despite that, a slowdown in economic growth poses the greatest threat to short-term performance, according to almost half of respondents (46 percent) while about a quarter (23 percent) said that it’s political uncertainty.
The Endowments & Foundations Practice Group at consulting firm NEPC conducted the survey online last month to gauge nonprofits’ views on the U.S. economy, their current thinking about hedge funds, and their opinions about exposure to China amid heightened trade tensions. Just less than half of respondents had an asset size in excess of $500 million.
“Endowments and foundations continue to be optimistic about the long-term potential for returns in China and the global economy at large, despite heightened volatility,” said Sam Pollack, principal of NEPC’s Endowments & Foundations practice. “While geopolitical tensions continue to drive conversations for the thoughtful investors, alarm bells in the media aren’t translating into significant portfolio changes for organizations with a focus on the long-term” she said.
Nearly three-quarters of endowments and foundations surveyed (74 percent) believe the U.S. economy is in the late-cycle and that the market can still “deliver sizeable returns in the short-term.”
Some 79 percent of respondents have investment exposure to China, primarily through broad emerging markets strategy. The most common concern about that exposure is U.S.-China trade tension (27 percent), followed by corporate governance issues and weak investor protections (22 percent), declining economic growth (19 percent), and growing debt levels in the country (18 percent).
Still, four out of five endowments and foundations have no plans to change their exposure and no respondents plan to decrease their exposure.
Almost two out of five endowments and foundations (37 percent) have decreased exposure to hedge funds in the past year while 21 percent have plans to in the next year. Eighty-six percent of respondents still have some exposure to hedge funds, with almost half (48 percent) at greater than 10 percent. The greatest “pain points” in hedge funds are high fees (25 percent), limited liquidity (18 percent), and limited transparency (18 percent), according to the survey.
NEPC provides services for more than 130 endowment and foundation relationships, representing more than $82 billion in endowment and foundation assets.