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June 06, 2017 01:00 AM

Passive investment wave stabilizing for endowments and foundations — survey

Rob Kozlowski
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    Endowment and foundation investment officials plan to stay the course in their approaches to passive management over the next 12 months, according to NEPC's first-quarter survey of endowments and foundations released Tuesday.

    A slight majority, 51%, of respondents said they plan to maintain their current exposure to passive management, while 20% say they plan to increase their exposure modestly and only 7% plan to increase it substantially. A total of 8% of respondents plan to decrease their exposure to passive management and 14% responded “I am not sure.”

    When asked how their passive management exposure has changed in the past three years, 49% said there has been no significant change, 42% said exposure has increased and 9% said it has decreased.

    When asked how much of their total portfolios consisted of passive management, 20% said more than 30% of their portfolio; 15% said 21% to 30% of their portfolio; 26% said 11% to 20%; and 39% said 10% or less.

    “Although many endowments and foundations have incorporated passive management into their portfolios, investors also recognize its limitations,” said Kristin Reynolds, partner in NEPC's endowment and foundation practice, in a news release accompanying the survey report. “Passive management offers some compelling attributes, but our survey results indicate that active management still plays a prominent role in investors' portfolios. It seems that the use of passive management by most investors has stabilized, potentially because of geopolitical uncertainty and general concerns about the volatility of the market.”

    Thirty-seven percent of respondents said geopolitical uncertainty was the greatest near-term threat to their investment performance, while 34% cited global growth as the greatest threat. Other concerns included rising interest rates, global deflation and potential military conflict, although those concerns were less than in 2016.

    Despite those concerns, 57% of respondents think the U.S. economy is in a better place compared to the first quarter of 2016.

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