What Keeps Endowments and Foundations Up at Night?

More than 80% of E&F investors are worried about not being able to meet long-term goals and critical funding needs 10 years from now, according to NEPC.

Endowments and foundations (E&Fs) are having an identity crisis.

According to consulting firm NEPC, asset owners are deeply concerned about not being about to meet their institutions’ long-term goals and missions.

This worry stems from the difficulty investors face in finding the right balance between institutions’ spending needs and their investment performance, the firm said.

“The vast majority are concerned about the most fundamental reasons why an E&F would have an investment program: meeting their mission and funding needs,” said Kristin Reynolds, partner in NEPC’s endowment and foundation practice.

Specifically, the firm’s Q2 2015 survey found 42% of E&F investors were troubled by the risk of not meeting the organization’s mission and 40% by the risk of falling short on critical funding needs 10 years from now.

“The vast majority are concerned about the most fundamental reasons why an E&F would have an investment program: meeting their mission and funding needs.” —NEPCNearly half of surveyed investors also identified balancing operations with investment return, risk, and liquidity as their number one current challenge. This was a drastic change from responses in 2012 when the impact of return on the organization was the top concern.

However, NEPC found investors have also made pronounced efforts to bridge the gap between expenses and investment performance within the past two years.

More than half (54%) said they increased interactions between the investment committee and operations, and 46% said they facilitated more meetings with the investment committee and the finance department.

Furthermore, 43% reported they added more liquidity in their portfolios to meet obligations. A quarter said they made efforts to de-emphasize peer comparisons.

And a large majority (80%) told NEPC they now discuss operational issues at investment committee meetings.

Despite these endeavors, 81% still measured their investment success against market benchmarks, NEPC found. More than half continued to compare performance to their peers’.

E&F investors also identified market performance impacting spending needs as the greatest threat to their investments (34%), the report said. Other concerns included expenses rising higher and faster than revenues and slowing gifts and donations.

Related: Why the Richest Schools Invest More in Alts & What Is Your Non-Asset Manager Doing for You?

By Sage Um

«