NEPC: Slowdown is ‘Greatest Challenge’ to E&Fs

Nearly a quarter of endowments and foundations see zero attractive investment opportunities as fears about the economy mount.

A potential global economic slowdown is the biggest concern for endowments and foundations, according to survey by NEPC.

The consultant’s latest Endowment and Foundation Poll found that institutions have a “dim view” of the economic environment, with 67% citing a slowdown in global growth as the greatest near-term threat to investment performance.

“Investors believe there are opportunities for return in select asset classes for those willing to move quickly and look past short-term noise.”“Volatility has once again returned to the forefront of investors’ minds, driving concerns over a stalled recovery at home and a slowdown globally,” said Cathy Konicki, head of NEPC’s endowment and foundation practice group. “The pullback in emerging markets—namely in China—declining commodity prices, significant oil price declines, and divergent central bank policies have created an investment environment that has become more difficult to navigate.”

The global economic slowdown beat out interest rates, inflation, and geopolitical unrest as the largest potential detriment to performance this year, according to the survey. Of respondents, 43% said the economy was in a worse place today than it was a year ago. An additional 22% said they did not see any attractive investment prospects in 2016.

Those with a more positive outlook pointed to distressed debt/credit, European equities, and emerging markets as opportunities for gains.

“Investors believe there are opportunities for return in select asset classes for those willing to move quickly and look past short-term noise,” Konicki said.

US equity was chosen as the likely strongest performer in 2016, backed by 24% of respondents. However, 78% said they only expected the S&P 500 to return between 0% and 5% this year, and just 17% predicted returns between 6% and 10%. No one expected returns over 10%.

Another favorite was private equity, picked by 19% to be the best-performing asset class this year. While allocations to private equity and real estate averaged a respective 8% and 7% at the end of 2015, 30% said they planned to increase their commitments to private markets this year.

As for interest rates—chosen by just 6% as their biggest concern this year—the vast majority expected rates to go up. However, nearly half predicted an increase of less than 50 basis points.

nepc ef pollSource: NEPC’s Q4 2015 “Endowment and Foundation Poll” 

Related: ‘Another Lackluster Year’: Market Predictions for 2016 & The Best and Worst Asset Classes of 2016