CORRECTING and REPLACING Endowments and Foundations Plan to Maintain Exposure to China Amid Trade Concerns

-- NEPC survey also reveals the majority of organizations do not believe a recession is likely within two years --

CORRECTION...by NEPC, LLC

BOSTON--()--Please replace the release with the following corrected version due to multiple revisions.

The corrected release reads:

ENDOWMENTS AND FOUNDATIONS PLAN TO MAINTAIN EXPOSURE TO CHINA AMID TRADE CONCERNS

-- NEPC survey also reveals the majority of organizations do not believe a recession is likely within two years --

NEPC, LLC one of the industry’s largest independent, research-driven investment consulting firms to endowments and foundations, today announced the results of their latest Endowments and Foundations Survey. NEPC’s Endowments & Foundations Practice Group conducted this survey to gauge non-profit organizations’ views on the U.S. economy, their current thinking about hedge funds, and their opinions about exposure to China amid heightened trade tensions.

“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 thoughtful investors, alarm bells in the media aren’t translating into significant portfolio changes for organizations with a focus on the long-term.”

Top findings include:

Endowments and foundations will continue to invest in China: Nearly eight in 10 (79 percent) of endowments and foundations have investment exposure to China, largely through a broad emerging markets strategy. However, these organizations have several concerns about this exposure, including: U.S.-China trade tensions (27 percent), corporate governance issues and weak investor protections (22 percent), declining economic growth (19 percent) and growing debt levels in the country (18 percent). Despite these concerns, the survey indicates their outlook for investing in China remains high. In fact, 80 percent of endowments and foundations have no plans to change their exposure to China and no respondents plan to decrease their exposure.

Fears of an imminent recession are not widespread: Only 14 percent of respondents believe a recession is likely within the next two years. Nearly three-quarters (74 percent) of endowments and foundations believe the U.S. economy is in the late-cycle and that the market can still deliver sizeable returns in the short-term. About one in 10 (11 percent) indicated that recession fears are overhyped and have made no adjustments to their portfolio's risk exposure.

Endowments and foundations still use hedge fund strategies to manage risk: More than one-third (37 percent) have decreased their exposure to hedge funds in the past year and 21 percent plan to do so in the next year. Still, the vast majority (86 percent) of respondents maintain some level of exposure to hedge funds and 48 percent have an exposure of greater than 10 percent. Three-quarters of respondents invest in hedge funds to address or mitigate their investment risk. Only 19 percent cite investing in hedge funds to deliver absolute returns.

With many organizations reevaluating their approach to investing in hedge funds, NEPC’s survey took a closer look at this activity. The greatest pain points are high fees (25 percent) along with limited liquidity and limited transparency (both 18 percent). Endowments and foundations are also indicating a shift in preference from generalist hedge funds to specialists. Currently, the top three hedge fund strategies are equity long-short generalist funds (16 percent), global macro discretionary funds (15 percent) and multi-strategy funds (15 percent). Among organizations that are planning to increase exposure, there is elevated interest in discretionary global macro strategies (25 percent), sector specialist equity long-short strategies (25 percent) and credit-linked strategies (20 percent).

This survey also revealed the greatest investment worries for endowments and foundations. Despite their limited concern about an imminent recession, almost half (46 percent) of respondents believe that a slowdown in economic growth poses the greatest threat to their short-term investment performance. Approximately one-quarter (23 percent) said political uncertainty. While Brexit continues to generate headlines around the world, zero respondents said it was a significant threat to their portfolio.

For more information, view the full survey and infographic.

About the Survey

This NEPC survey was conducted online by the Endowments & Foundations Practice Group in September 2019. The survey respondents represent a diverse array of endowments and foundations, including educational institutions, private foundations, public charities and other not-for-profit organizations. Forty-nine percent of survey respondents have an asset size in excess of $500 million. Copyright is held by NEPC.

About NEPC, LLC

NEPC® is an independent, full-service investment consulting firm, providing asset allocation, manager search, performance evaluation, and investment policy services. We work with discerning investors on both an advisory and discretionary basis. We service over 130 endowment and foundation relationships, representing over $82 billion in endowment/foundation assets, from our offices in Boston, Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Portland and San Francisco. We encourage your comments and feedback, as well as any inquiries you may have about our firm or our consulting services. Learn more at https://www.nepc.com/focus-areas/endowments-foundations.

Contacts

Media:
Corey Law
Email: nepc@fullyvested.com
Phone: (917) 765-8720

Contacts

Media:
Corey Law
Email: nepc@fullyvested.com
Phone: (917) 765-8720