Plotting a course through volatile markets

This year has ushered in a combination of interconnected challenges for investors, from geopolitical conflicts to high inflation, supply chain problems to financial market volatility. Inflation in some developed countries has exceeded 10%, levels not seen in decades. In response, central banks have steadily – and rapidly – increased interest rates to their highest levels in several years. At the same time, Russia’s invasion of Ukraine has shaken equity markets, with global indexes falling by as much as 25% during 2022 as investors adopted a ‘risk off’ approach. Economic sanctions as well as energy and food supply issues have exacerbated investor concerns, particularly in Europe.


According to Mercer’s survey of endowments and foundations, half of respondents cited higher inflation as one of their two main investment challenges for the next three years. This was second only to concerns about low expected investment returns. In addition, 39% said they were not sure or did not believe that their portfolios were prepared for a market downturn. If your portfolio has experienced investment losses, it’s easy to be pessimistic and focus on the worst outcomes. While it is prudent to be prepared for worst-case scenarios and ensure that these short-term headwinds don’t affect your organization’s overall mission and spending plans, it is also important not to be caught flat footed and instead ensure that you are positioned to capitalize on compelling opportunities.


To do this, you’ll need information – and plenty of it. Without a clear path over the coming months and years, it is best to explore different scenarios and how they may affect your portfolio, its liquidity, and the ability of your investments to support your organization’s mission and objectives. We have identified four important strategic issues currently facing E&Fs. In this paper, we introduce approaches to navigate through them to achieve long-term success, while managing short-term disruptions.

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Rather than make snap decisions based on market movements, endowments and foundations should take time to assess their strategy, model different scenarios, and ensure they have as much relevant information as possible so they can act when the time is right.
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Four areas of consideration for endowments and foundations

  • Adapting to higher inflation and interest rates

    High inflation and interest rates can pose considerable challenges to endowments and foundations, making it difficult to achieve a real return that would preserve spending power. This circumstances also bring opportunities, so it’s important to be fully prepared to mitigate risks and seize opportunities.

    Addressing inflation concerns:

    • Stress test your portfolio
    • Reassess your bond allocation
    • Explore inflation protection options
    • Review spending plans

  • Keeping your ESG investments on track

    The recent backlash against ESG investing, combined with concerns about greenwashing, may cause some endowments and foundations to reassess their approach to environmental or social issues. While regular reviews are important, be sure to keep your focus on long-term goals and objectives.

    Considerations for investing sustainably:

    • Engage with your asset managers
    • Explore alignment with your broader objectives
    • Capture long-term opportunities
    • Model climate scenarios

  • Seizing opportunities emerging in private markets

    Endowments and foundations are perfectly placed to benefit from the unique qualities of private market asset classes, as they can truly invest for the long term. Other investors may be challenged by short-term headwinds, so look for opportunities to access managers as others step back.

    Considerations for investing in alternative markets:

    • Review private markets allocations
    • Assess opportunities with best-in-class asset managers
    • Explore investments that align with your objectives
    • Prioritize diversification

  • Capturing long-term trends in public markets

    As long-term investors, endowments and foundations can look to buy into long-running trends in public markets at more attractive prices following this year’s volatility. China’s growth, technological advances, and demographic shifts are all examples of themes that will prevail through short-term uncertainties.

    Considerations for trends in public markets:

    • Assess your exposure to emerging markets
    • Explore global themes
    • Review managers and flexibility


Three Key Investment Themes in 2022


Plotting a course through volatile markets


Learn more about the top four considerations for endowments and foundations in 2023.


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What investors are telling us*


Allocating to alternatives

65% see diversifying away from traditional asset classes as their greatest opportunity over the next three years.


Seeking expert advice

55% of survey participants say they're using external expertise to help navigate this complexity.


Sustainable investments

39% of survey participants believe meeting their ESG investing goals means compromising on returns.

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* Global Not for Profit Survey, Mercer 2022