Top considerations for endowments and foundations 2025
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19 Dec 2024
We identify the four considerations that we believe endowments and foundations should have front and centre as they look ahead.
Endowments and foundations (E&F) are increasingly grappling with a converging set of sector and market risks that require thoughtful navigation. Central to this is answering a fundamental series of questions including:
- How should concentration risk be managed in global markets and are there opportunities to thoughtfully diversify?
- How should investors balance short-term liquidity needs against current and future allocations to private markets?
- How can long-term investment goals align with the organization’s values in a polarized world?
Our Themes and opportunities 2025 paper explores the forces playing out across portfolios over the next five years and beyond. Highlights include how institutional investors can prepare their portfolios to benefit from long-term opportunities while protecting capital from emerging risks. In recent years, investors have reacted to a number of surprises, including a global pandemic, heightened geopolitical tensions and the rise of AI. As the pressure from the shocks recedes, investors should consider how these events might affect their investments over the long term and how they can position portfolios to best achieve their goals.
In this paper, we address four top considerations that E&Fs should keep in mind coming into the new year:
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.
