The low-yield challenge for endowment & foundation investors

The current low-yield environment remains the key challenge for endowment and foundation investors in Australia and New Zealand, according to the results of the Mercer 2015 Survey of Endowments and Foundations, presented in conjunction with Philanthropy Australia.

The results of the 2015 Mercer survey of Australian and New Zealand endowment & foundation investors* reveals that most (73%) are comfortable with their investment objectives, but the current low-yield environment is motivating more of them to adjust their spending requirements:
 


Most respondents looked to adjust spending requirements downwards in response to the low-yield environment. Fewer now have a spending policy exceeding 5%, reflecting a fundamental shift on expected long-term returns from investment markets. 

As revealed in the key findings infographic, Australian endowment & foundation investors may also be under utilising their tax-exempt status when investing in the Australian sharemarket – leaving a significant amount of money on the table. Nevertheless, consistent with the preferential tax status, and despite some decreases in equity exposures, the larger allocation to Australian shares relative to overseas shares has remained.

The survey also revealed that property, and particularly alternatives, are becoming more popular with endowment & foundation investors. Allocations to both asset-class sectors increased across the board in 2015 – up 9% among endowments, and 7% among foundations. Foundations appear to be funding such allocations out of their Fixed Income holdings. 

Interestingly, most respondents remain comfortable with their current investment objectives despite a reduction in the highest levels of spending policy rates. This is something of a misalignment of the optimal alignment of policy, strategy and objective, which needs to be thought through carefully.

On a positive note, around 63% of the respondents indicated an appetite to increase the integration of Environmental, Social and Governance (ESG) issues into their investment processes. However, 40% of this group acknowledging that they still had some way to go to get that integration right. More than two-thirds (68%) of respondents admitted that they did not yet have a policy on what investing in a time of climate change means for their asset allocation, investment objective and spending policy. 

On a positive note, around 63% of the respondents indicated an appetite to increase the integration of Environmental, Social and Governance (ESG) issues into their investment processes. However, 40% of this group acknowledging that they still had some way to go to get that integration right. More than two-thirds (68%) of respondents admitted that they did not yet have a policy on what investing in a time of climate change means for their asset allocation, investment objective and spending policy. 

Want to know more?

To request the full survey results, visit mercer.com.au/nfp-survey

About the survey

Mercer’s annual Survey of Endowments and Foundations is now in its 8th year, and was presented in conjunction with Philanthropy Australia for the first time in 2015. Mercer surveyed 35 investors with total assets of $9.8 billion, comprising $5.6 billion from Australian funds and $4.2 billion from New Zealand funds. The average university endowment fund size was $400 million, while the average foundation fund size was $240 million.

Apr. 26, 2016

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