Endowments and foundations are somewhat more optimistic about the economy, with 55% of them considering it better than last year, and only 13% seeing it in worse shape, according to a new survey by NEPC released Monday.
That optimism is notable "both in the wake of a significant market runup and, more recently, the return of some volatility," said Samuel J. Pollack, NEPC principal and senior consultant, in an interview. "There's still some pretty clear confidence."
The survey had 47 respondents, including NEPC clients and other endowments and foundations.
Prospects for S&P 500 performance this year were more divided, with 47% expecting returns between 6% and 10%; 34% expecting returns of 5% or less; and 9% expecting negative returns. Just 10% of respondents expect returns of 11% to 20%.
Regarding asset classes, respondents expected to increase allocations to international and emerging markets equities, private equity and hedge funds. Among respondents, 45% expected emerging market equities to be the strongest performers this year, followed by 15% for private equity and debt, 11% for international equities, 9% for real estate and real assets, 6% each for domestic equities and hedge funds, 4% for fixed income, and 2% each for venture capital and cash.
The biggest threats this year, respondents said, are geopolitical uncertainty, rising interest rates and a slowdown in global growth, in that order.
Despite all the drama from tax reform in 2017 that included a new excise tax on large endowments, 38% of survey respondents think the reforms will help their investment returns, while only 9% expected it to hurt. Another 36% expected to see a minimal effect and 17% were unsure.
Another big story last year was cryptocurrencies, but survey respondents are not jumping in. Only 2% currently invest in them, while 2% are considering it this year and 96% have no plans to do so in 2018. "That is not really a surprise," Mr. Pollack said. "There is a lot of volatility and some liquidity questions and regulatory questions." He noted that many clients have explored the possibility of investing in cryptocurrencies and even made changes to accept cryptocurrency donations. "It's something clients are talking about," he said.