Investment considerations for endowments and foundations in 2023 

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December 1, 2022

It’s important to understand how different scenarios affect your portfolio and overall mission.

Plotting a course through volatile markets 

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 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 organisation’s overall mission and spending plans, it is also important not to be caught flat footed and instead ensure that you are positioned to capitalise 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 organisation’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.

Rather than make snap decisions based on market movements, endowments and foundations should take time to assess their strategy, model different scenarios, and ensure they have as much relevant information as possible so they can act when the time is right.

Four areas of consideration for endowments and foundations

Plotting a course through volatile markets

Learn more about the top four considerations for endowments and foundations in 2023.
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Global Not for Profit Investment Survey findings* 

Below are some of the key findings from Mercer’s inaugural Global Not for Profit Investment Survey.
65%

Allocating to alternatives

65% see diversifying away from traditional asset classes as their greatest opportunity over the next three years. 

55%

Seeking expert advice

55% of survey participants say they're using external expertise to help navigate this complexity. 

39%

Sustainable investments

39% of survey participants believe meeting their ESG investing goals means compromising on returns. 

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* Source: Mercer 2022 Not for Profit Investment Survey