Endowments and foundations plan to downsize their exposures to equities and bump up allocations to alternatives in 2015, according to NEPC.
The consulting firm’s Q4 2014 survey revealed that despite bullish views on the US economy and domestic equities, investors will seek to moderate their allocations.
Nearly 70% of respondents said they would decrease their allocations to US equities while 36% said they believed the asset class would be the best performer in 2015. The survey also showed 54% of investors expected the S&P 500 to return 6% to 10% this year.
“Given the strong multi-year bull run we’ve experienced in domestic equities, we’re not surprised that endowments and foundations are dialing down their allocation and shifting to other asset classes,” Scott Perry, partner at NEPC’s endowment and foundation practice, said.
(Source: NEPC)
The firm advised that investors “should guard against the natural instinct to project [strong investment gains] into the future” as they could disappoint over the long term.
“As we look forward, we believe moderation is a key theme: moderation in US central bank stimulus, moderation in expected investment returns, and moderation in placing concentrated bets in focused investment sectors,” NEPC’s asset allocation committee said.
Endowments and foundations were particularly bullish about private markets, with 33% of respondents saying they would increase their allocations. More than a quarter of investors also said they would up their exposures to hedge funds, absolute return strategies, and real assets.
(Source: NEPC)
The survey also showed more than half of responding endowments and foundations were concerned about the slowdown in the global economy, particularly in relation to their near-term performance.
Investors were increasingly uneasy about the potential for global deflation, NEPC said, with 14% saying it posed the greatest threat to their investments.
As such, three-quarters of respondents said they would maintain their inflation hedging allocation this year. About 20% said they would up their allocation, of which the majority would increase both liquid and illiquid assets, possibly due to opportunities created from the recent disorder in energy prices.
NEPC also found the majority of endowments and foundations said they would maintain their fixed income allocation in 2015 and expect interest rates to rise.
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