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Endowment, Foundation Investor Confidence Soars

42% of investors plan to increase their investment in private equity, while 30% said they will reduce their exposure to hedge funds.

By Michael Katz

A new report from investment consulting firm NEPC has found that endowment and foundation investors’ optimism for the coming year has risen sharply from a year ago.

According to the Q4 2016 NEPC Endowment and Foundation Poll, 64% of investors say the U.S. economy is in a better place now than at the same time last year, while only 7% said they think the economy is worse off. That’s a significant increase from the 28% of respondents who shared that sentiment in last year’s Q4 report.

“Despite everything that has happened over the last several months, endowments and foundations seem to be feeling pretty good right now,” said Cathy Konicki, head of NEPC’s Endowment & Foundation Practice Group. “There are certainly some headwinds on the horizon, but the results indicate a strong sense of economic optimism that we haven’t seen in quite some time.”

Some of those headwinds stem from uncertainty regarding America’s trade policy under a new and unpredictable administration.

“When we think about some of the challenges coming out the changing domestic policy here in the U.S., the equity complex could be more impacted,” said Phillip Nelson, NEPC’s director of asset allocation. “China, Taiwan, and South Korea, are much larger components of the equity indices, so if there’s a change in trade policy you could see some unexpected hits to those markets.”

Despite this uncertainty, investors said they are bullish on U.S. equities, with 26% of respondents expecting them to be the top performing asset class in 2017.

Some of the investor optimism is also based on the fact that many are expecting interest rates to rise during the year.

“We asked them where interest rates would be by the end of the year and they said 50 to 100 basis points higher,” said Konicki. “So I think they are a little more aggressive than what’s priced into the markets.”

But not everything is seen through rose-colored lenses for investors. Despite the increased confidence, 47% think the S&P 500 will only return between 0% and 5% this year. And when asked what they thought was the biggest threat to their near-term investment performance, 46% of respondents said geopolitics and political uncertainty, while 38% cited a slowdown in global growth is their biggest concern.

The report also found that 42% of investors plan to increase their investment in private equity, while 30% said they will reduce their exposure to hedge funds. Only 2% said they expect hedge funds to be the strongest performing asset class in 2017. Additionally, 68% of respondents believe interest rates will rise by more than 51 basis points this year.

| Christine.Giordano@strategic-i.com | 212-217-6929