How to structure endowment and foundation portfolios in today's uncertain environment 

It is fair to say the first half of 2025 has been a challenging year for many endowments and foundations. Government support, direct and indirect, for them or their parent organisations has been cut and for some larger endowments, a meaningful tax hike has been signed into law. On the investments side, while public markets have recovered from their “liberation day” pull back, distributions from private assets have remained lacklustre. With this as background, many endowments and foundations are reviewing their asset allocation to make sure it has both diverse sources of return and liquidity to support their mission in this uncertain environment.

In our latest paper, we turn the lens inward and examine both the similarities and key differences between our views on endowment asset allocation and the framework utilised by many of the largest endowments. 

The approach utilised by many of the largest endowments combines significant exposure to private markets with low fixed income allocations (often 5% or less). In contrast, our research would suggest that endowment asset allocations take a balanced, objective-based approach with the appropriate allocation for an investor’s portfolio scaling based on risk tolerance, return objective and liquidity needs.

At Mercer, we approach portfolio construction for endowments and foundations through the lens of our Perpetual Framework, emphasising diversified portfolios to ensure desired returns and manage risk.

While on the surface many investment frameworks for endowments look similar with a strong emphasis on private markets, the precise asset class weights and implementation can make a meaningful difference in portfolio results. 

By building a broader private markets portfolio, investors can help build robustness to the many possible market environments an endowment or foundation might have to face. Placing an emphasis on areas that recycle capital faster, investors could potentially create more natural liquidity to (1) protect against medium term uncertainty and (2) seize opportunities as the investment landscape continues to evolve.