Asset AllocationOctober 28, 2019

Endowments and Foundations Sticking It Out with China

Despite volatility, long-term institutional investors see no reason to change strategy, NEPC study says.

Reported by Steffan Navedo-Perez

Protests in Hong Kong, a new era of civilian monitoring through an advanced “social credit” program, and the Sino-US trade conflict aren’t making institutional investors head for the exit on their Chinese investments. Instead, these long-term investors are sticking it out and holding onto their exposures in the world’s second-largest economy, a new survey by consulting firm NEPC found.

“Endowments and foundations continue to be optimistic about the long-term potential for returns in China and the global economy at large, despite heightened volatility,” said Sam Pollack, principal of the firm’s endowments and foundations practice found. “While geopolitical tensions continue to drive conversations for thoughtful investors, alarm bells in the media aren’t translating into significant portfolio changers for organizations with a focus on the long-term.”

Pollack’s ‘s comments closely resemble statements recently made by Caisse de dépôt et placement du Québec’s (CDPQ) Anita George, executive vice president and head of strategic partnerships for growth markets.

“We take a very long-term approach, and we see a country’s growth through different cycles,” George said. “Our view is that as long as you’re with the right partners, you can navigate through ups and downs that all countries go through. In today’s world, more countries are going through periods where things don’t go as planned.“

NEPC added it believes China has the potential for relatively higher growth, compared to other international markets due to its development as a service-oriented economy.

Ray Dalio, chief investment officer of Bridgewater Associates, found that China is “for the most part quietly winning the geopolitical war.” CIO recently investigated China’s growth trajectory and its apparent destiny to surpass the United States as the world’s largest economy in the next decade.

The NEPC survey found that 79% of endowments and foundations have exposures to China in their portfolios, and 80% have no plans to change their exposure, while none have plans to decrease their exposure.

The survey also touched on subjects regarding fears of an imminent recession, finding that only 14% of respondents believing a recession is likely within the next two years. About one in10 endowments and foundations believe the hype regarding a recession is being sensationalized.

Also, the survey revealed that almost half (46%) of respondents feel their short-term investment strategies are threatened by a slowing global economy. Also, none of the respondents felt that Brexit is a threat to their strategy.