The following article summarizes key trends we’re observing from the many nonprofits we work with in the endowment and foundation marketplace. The Wilmington Trust Endowments and Foundations team categorized them into investment and fundraising trends, since these are the two key ways to grow endowment funds. With the pandemic essentially behind us, many nonprofits are now assessing their endowment strategies, fundraising goals, and strategic plans in light of a slowing economy and stubborn inflation.
Lingering inflation, rising interest rates, and the Russia-Ukraine conflict are leading to greater uncertainty on the U.S. economy and capital markets. With the S&P 500 index* finishing down almost 18% in 2022, nonprofit boards are reviewing their endowment strategies and strategic plans. Many boards are reassessing their asset allocations and liquidity positions, while numerous nonprofits are dealing with a new world without the CARES Act funds and other government funds that supported their operations. Investment committees are also speaking regularly with their investment advisors about their risk levels and applying stress testing to their portfolios.
Boards also continue to monitor and refine their investment policy statements, which include strategic and tactical asset allocation targets and endowment spending rates, as market returns are expected to be lower over the next decade. Some nonprofits have assessed their spending levels. In these current times, endowments and foundations are also asking about the overall value-add services, such as fundraising insights and peer review comparisons, as they seek to grow their endowments in other ways, such as through fundraising.
While the stock market has rebounded through mid-2023, there continue to be a number of risks we are following such as inflation trends, interest rates, a slowing economy, and the geopolitical environment. Our Investment Committee is in constant discussion as we continue to evaluate the economic ramifications of the Russia–Ukraine war.
Many nonprofit investment committees have had to quickly review and respond to the new world of market volatility related to higher interest rates and geopolitical concerns. Some investment committees have reviewed their asset allocations more closely, and most of our endowment and foundation clients have maintained their target allocations and focus on being diversified. Some investment committees have moved to rebalance back to their targets, while some more conservative committees have remained underweight to their equity targets. Portfolio stress testing has become an important part of our client dialogue.
A number of clients are taking a closer look at their spending policies and have reviewed the study recently posted by the National Association of College and University Business Officers (NACUBO), which provides useful benchmarks for asset allocation, spending, and returns for colleges and universities (www.nacubo.org). A main focus is also having enough liquidity in the portfolio for day-to-day operations. Pensions & Investments magazine noted that higher allocations to private equity have benefited some larger nonprofits’ portfolios.
Many nonprofits continue to review their overall fee structures, including their direct advisory fees and the imbedded manager/mutual fund/ETF costs. Some nonprofits have commented on their desire in having a higher level of valued-added services to help them reach their overall missions.
Please visit our Endowments & Foundations resource center to learn more about the services we provide for nonprofit organizations.
* The S&P 500 index measures the stock performance of 500 large companies listed on stock exchanges in the U.S. and is one of the most commonly followed equity indices.
This article is for educational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought. There is no assurance that any investment, financial, or estate planning strategy will be successful.