Top considerations for endowments and foundations 2025  

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We identify the five considerations that we believe endowments and foundations should have front and center as they look ahead.

While every year brings new challenges, the long-term perspectives of endowment and foundations investors can help them ride out surprises. Our current long-term view on the world is captured in our paper, Themes and opportunities 2024: An age of agility. The instability and uncertainty that have characterized the global economy and geopolitics for several years have provided a familiar backdrop for all investors, but endowments and foundations (E&Fs) have independent values and objectives, with missions that often go far beyond simply balancing profits and costs, along with stakeholders (from beneficiaries to donors) with different expectations and needs. 

We believe that in an age of agility such characteristics can be useful. With that in mind, we think that E&Fs should consider the following:

Top investment considerations for endowments and foundations

Continued market concentration and lower expected returns for equities are two catalysts that point to the need for investors to review the diversification of their portfolios.

  • Today, much of the market’s growth and earnings are concentrated in a small number of publicly listed companies. This concentration risk creates the potential for volatility and complicates efforts to construct resilient, agile portfolios that minimize risk without sacrificing expected returns.
  • Many equity-biased investors have been rewarded in recent years given strong equity market returns. This is not expected to be the case for the long term. Many sources (including Mercer) have return expectations for equities that are lower than what has been achieved over the last 10 years. This presents challenges and a need to further ensure return driver diversification.

Diversifying into assets that provide uncorrelated return drivers - such as hedge funds, private debt, and defensive assets - can provide protection and a smoother return profile during volatile equity market environments. 

Managing liquidity while maintaining exposure to diversifying asset classes remains a key challenge for E&Fs, particularly in asset classes like private equity, which as of late, have presented longer exit timelines and delayed distributions. However, this also offers up the opportunity for some investors to invest in many once-closed fund series’ and enhance their private market portfolio line-up. Additionally, by refocusing and reframing the structures underpinning portfolio allocations, E&F investors can balance typical closed-end primary strategies along with strategies that generally are prone to provide distributions earlier in their lifecycle – like secondaries, co-investments, and private debt, to ensure their portfolios align with their liquidity expectations without sacrificing long-term risk-adjusted growth potential.

E&Fs require a governance framework that drives and enables their long-term vision. Understanding how your organization manages its time and resources (the governance budget) and having direct conversations among the committee on governance can enhance long-term returns. There are a number of decisions that need to be made by the Committee and management to ensure the long-term success of an investment program. These decisions can include the portfolio’s time horizon, liquidity needs, and what success or failure may look like in a challenged market environment. Having a communal understanding of (and formalization of) these key strategic decisions is critical to ensure effective management of the program and optimization of the performance. 

For those organizations interested, it is important for the board to hold conversations on how to achieve the dual goal of financial return and values alignment within investment portfolios. Regular deep dives into portfolio construction, with an emphasis on sustainability, can help organizations stay centered on long-term objectives and beliefs rather than reacting to short-term market fluctuations.  By conducting annual reviews of their investment policy statement; incorporating assessment of performance over extended time horizons; and integrating values alignment considerations into strategic discussions, E&Fs can maintain a steady focus on their long-term mission. 

Top investment considerations for endowments and foundations 2025

Our paper examines four opportunities that endowments and foundations should consider for their portfolio construction in 2025.
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