Key 2019 trends for the endowment, foundation, and nonprofit marketplace.
- Assessment of investment strategies continues to be critical for 2019, with continued market volatility despite early gains.
- Heightened fiduciary responsibility remains an important topic, while diversifying fundraising strategies and revenue sources is still a strong focus.
- Many nonprofits are seeking ways to grow their endowment funds.
The following summarizes key trends we’re tracking as we continue to focus on the endowment, foundation, and nonprofit marketplace. The Wilmington Trust Endowments and Foundations team categorized the trends into investment and fundraising, since these are the two key ways to grow endowment funds.
Investment-related trends: Asset allocation strategies are assessed after a surprisingly weak finish for 2018 and continued market volatility in 2019
The U.S. economy continues its path of moderate growth due to the administration’s pro-growth stance, but some investors are starting to worry that economic growth may be slowing. The end of 2018 provided a new level of volatility as there was a wall of worries for investors (rising interest rates, potential tariffs, political uncertainty, geopolitical risk, etc.). The fundamentals remain strong in 2019, but investors still are watching global growth and the progress on tariff negotiations. In the meantime, nonprofit boards and investment committees were considering whether to shift their endowment asset allocations. Most boards were concerned with the surprising declines in late 2018 and reassessed their long-term allocations. Some boards are exploring ways to increase their returns such as the allocation to private markets.
Many are focused on performance (versus benchmarks) and overall fees. Most are asking about the overall value-add their managers bring to the relationship as they seek to grow their endowment in other ways, such as fundraising. Boards also continue to monitor and refine their endowment spending rates.
As the market became more volatile in the fourth quarter of 2018, some investment committees lowered their target equity asset allocations slightly. Most of the endowments we work with maintained their target asset allocations since these are long-term investments. Many continued to maintain a balance of both active and passive strategies in their portfolios. Some investment committees were exploring private markets, such as private equity, to enhance returns. One nonprofit was completing a merger and seeks to consolidate its investments under one overall discretionary advisor for efficiencies. Three charities moved to an all passive strategy with their investments. Other nonprofits were assessing their spending rates and their overall fundraising strategies. One college took steps to make sure they had sufficient reserve funds in case they needed to increase their spending levels. Many nonprofits are reviewing their overall fee structure, including their direct advisory fees and the embedded manager/mutual fund costs.
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