Navigating volatile markets: A checklist for endowments & foundations

It’s easier to be a long-term investor when markets are generally trending up. It may be helpful to speak with your OCIO or consultant to understand what different stress scenarios (for example: persistent inflation, slowing growth) could mean for your portfolio. These discussions can help illustrate the potential implications for asset values, spending needs, and liquidity needs to gauge committee comfort with the portfolios’ positioning.

Portfolio values, market performance, and realized inflation have all been volatile and changing over the last 18 months. If target spending is tied to the current portfolio value and/or inflation, depending on the time frame or valuation date used, you may be looking to spend a higher or lower amount in the coming months. In addition, in periods of higher inflation, grant recipients may ask for higher amounts to realize their objectives or organizational expenses may continue to tick up given higher wages and costs. Meeting spending needs may be further complicated in the event of a market sell-off if your portfolio has a significant allocation to illiquid investments. Reviewing your spending policy and discussing your expected spending needs may help in the event we continue to see prolonged volatility.

As long-term investors, endowments and foundations are often well-positioned to maintain their real spending power to enact their missions. Reviewing and planning for potential volatility through a series of simple, deliberate governance checks can help ensure these organizations and their supporting investment committees can continue to focus on their important missions.