This year has ushered in a combination of interconnected challenges for investors, from geopolitical conflicts to high inflation, supply chain problems to financial market volatility. Inflation in some developed countries has exceeded 10%, levels not seen in decades. In response, central banks have steadily – and rapidly – increased interest rates to their highest levels in several years. At the same time, Russia’s invasion of Ukraine has shaken equity markets, with global indexes falling by as much as 25% during 2022 as investors adopted a ‘risk off’ approach. Economic sanctions as well as energy and food supply issues have exacerbated investor concerns, particularly in Europe.
According to Mercer’s 2022 survey of endowments and foundations, half of respondents cited higher inflation as one of their two main investment challenges for the next three years. This was second only to concerns about low expected investment returns. In addition, 39% said they were not sure or did not believe that their portfolios were prepared for a market downturn. If your portfolio has experienced investment losses, it’s easy to be pessimistic and focus on the worst outcomes. While it is prudent to be prepared for worst-case scenarios and ensure that these short-term headwinds don’t affect your organization’s overall mission and spending plans, it is also important not to be caught flat footed and instead ensure that you are positioned to capitalize on compelling opportunities.
To do this, you’ll need information – and plenty of it. Without a clear path over the coming months and years, it is best to explore different scenarios and how they may affect your portfolio, its liquidity, and the ability of your investments to support your organization’s mission and objectives. We have identified four important strategic issues currently facing E&Fs. In this paper, we introduce approaches to navigate through them to achieve long-term success, while managing short-term disruptions.
Four areas of consideration for endowments and foundations
Addressing inflation concerns:
- Stress test your portfolio
- Reassess your bond allocation
- Explore inflation protection options
- Review spending plans
Considerations for investing sustainably:
- Engage with your asset managers
- Explore alignment with your broader objectives
- Capture long-term opportunities
- Model climate scenarios
Considerations for investing in alternative markets:
- Review private markets allocations
- Assess opportunities with best-in-class asset managers
- Explore investments that align with your objectives
- Prioritize diversification
Considerations for trends in public markets:
- Assess your exposure to emerging markets
- Explore global themes
- Review managers and flexibility
Listen to the podcast
Allocating to alternatives
65% see diversifying away from traditional asset classes as their greatest opportunity over the next three years.
Seeking expert advice
55% of survey participants say they're using external expertise to help navigate this complexity.
39% of survey participants believe meeting their ESG investing goals means compromising on returns.
Before you access this page, please read and accept the terms and legal notices below. You’re about to enter a page intended for sophisticated, institutional investors only.
This content is provided for informational purposes only. The information provided does not constitute, and should not be construed as, an offer to sell, or a solicitation of an offer to buy, any securities, or an offer, invitation or solicitation of any specific products or the investment management services of Mercer, or an offer or invitation to enter into any portfolio management mandate with Mercer.
Past performance is not an indication of future performance. If you are not able to accept these terms and conditions, please decline and do not proceed further. We reserve the right to suspend or withdraw access to any page(s) included on this website without notice at any time and Mercer accepts no liability if, for any reason, these pages are unavailable at any time or for any period.