eVestment New Report: Foundations, Endowments Up Emerging Markets Investment Exposure, Seek Higher Returns

eVestment’s latest report, "Investor Trends Report: Foundations & Endowments," looks at allocation decisions and market exposures among foundations and endowments (F&E) around the world. The report looks at the allocation decisions over the twelve-month span ending Q1 2014. Key points, according to eVestment Vice President of Research and report author Peter Laurelli include:

F&E allocations are currently weighted heavily towards US markets focused on equity and fixed income. Within US markets, F&E largest allocations are to Large Cap Value, Core Fixed Income, Large Cap Growth, Interim Duration FI and Core Plus FI. Outside the US, F&E have allocated heavily to Emerging Markets and Global All Cap Equity universes.
To face a low-yield environment with an uncertain outlook, F&E appear to be actively shifting portfolios to cost-effective global equity exposure and seeking higher yields and longer duration fixed income.
From a regional perspective, we see slightly reduced exposure to North America, no meaningful change to Europe, but a noticeable increase to emerging markets beginning in 2013. Additionally, while sovereign exposure has remained relatively stable, there is a noticeable shift away from US sovereign debt to non-US developed market sovereigns.
Foundations & endowments typically have a dual purposes for their funds, to maintain and grow the portfolio after expenses and spending, and to generate reasonably predictable cash flows for their varying operating budgets and goals. With this backdrop, it is clear why the current interest rate environment, along with a strong 5-year run in US equity markets has caused concern.
In response, F&E appear to be actively transitioning portfolios away from their largest holdings. To mitigate the risks of a US equity market decline, large allocations have gone to international markets, but doing so through passive strategies. Additionally, recent large inflows into long/short and event-driven hedge funds likely include allocations from F&E. This would further reduce their directional risks and create more flexible regional exposures.