Top considerations for endowments and foundations 2025
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.