30 November 2023
Endowment and foundation investors share how they are assessing risk, allocating portfolios and building resilience within their portfolios for the long term.
Mercer’s 2023 Endowment & Foundation Survey seeks to advance discussion and collaboration around organisations’ key concerns, recent investment decisions and plans for the future.
This study convenes the views of over 115 Endowment and Foundation (E&F) investors from 24 countries across 7 regions, to share important insights and key learnings from across this very diverse universe of organisations. With heightened concerns around inflation, recessionary fears, and evolving geopolitical risks front of mind for investors - we outline four core areas of focus for E&F investors and key findings from the survey.
Four themes for endowment and foundation investors
Endowment and foundation (E&F) investors have elevated concerns around the short-term risks presented by inflation, the potential for recession, ongoing market volatility and evolving geopolitical risks. Below are some of the highlights from the report:
- More than half (52%) of organisations anticipate a rise in spending targets over the next three years.
- More than half (54%) of organisations regard delivering a level of investment return sufficient to meet spending needs as a significant risk.
- Following a series of extreme weather events and natural disasters across regions in 2023, more than half (54%) of organisations deem climate change to be a significant risk to portfolios over the next 12 months.
Endowment and foundation (E&F) investors look to diversification as a – if not the – core component to drive growth across portfolios over the long-term. Below are some of the highlights from the report:
- Allocations beyond traditional developed market equities and bonds – from private markets and alternatives to emerging markets – are strongly correlated with the size of portfolios, reinforcing the access challenge for smaller organisations.
- More organisations (68%) have increased allocations to private markets than any other asset class over the last three years.
- 41% of organisations plan to introduce or increase allocations to ESG and sustainability strategies over the next three years; 60% of organisations with existing allocations plan to increase allocations.
Endowment and foundation (E&F) investors continue to drive forward the pathway into private markets as they push through near-term uncertainty to increase private market allocations. Below are some of the highlights from the report:
- More than half (58%) of E&F organisations are currently invested in private market assets or are considering investing over the next 12 months. This rises to 90% of E&F portfolios in excess of $1bn, and 75% of portfolios between $100-$250m.
- The experience investing in private markets is overwhelmingly positive for organisations already doing so, with nearly four fifths (79%) determining that they have been adequately compensated for illiquidity risk.
- Organisations are very comfortable with extended lock up periods in private markets; nearly three quarters (73%) agree that performance has compensated for high fees, a view that remains broadly consistent across organisations by size.
Endowment and Foundation (E&F) investors look to sustainable investment and the net zero transition to align portfolios with the mission of their organisations – yet investors’ approaches vastly differ from other another. Below are some of the highlights from the report:
- A quarter (26%) cite impact investment as the mechanism through which they align their portfolio with their organisation’s mission. At a global level, however, impact investing is not widespread across E&F portfolios; nearly two thirds (62% of organisations) do not have an allocation to impact strategies or projects.
- Concerns around return implications, a lack of robust data, and the risk profile of investible assets are the barriers most cited by investors in, or those intending to invest in, impact specific strategies.
- Just 15% of organisations have set a science-based Net-Zero target across their portfolio; a fifth (21%) have implemented a DEI framework across their investment programme.
- Climate transition is the most-cited social issue that organisations believe could be better supported through portfolio allocation; this issue is most important for organisations in the United Kingdom, Australia & New Zealand, and across the AMEA region.