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Endowments and Foundations Need to Rethink Their Investment Expectations

In a survey by CAPTRUST, some organizations said they expect returns over 8 percent.

Most endowments and foundations say they anticipate investment returns within a range of 5 to 8 percent, but some need to better manage expectations.

A recent 50-question survey by CAPTRUST of more than 150 organizations showed that 10 percent of them expect returns greater than 8 percent. It was the first thing about the study that stood out to Grant Verhaeghe, asset-liability practice leader at CAPTRUST, when he was reviewing early responses trickling in last summer.

Relative to their responses, an 8 percent return in most years is unrealistic given their appetite for risk and volatility: Almost half of the organizations surveyed were willing to lose only up to 5 percent of their portfolio values, according to the study.

But Verhaeghe told WealthManagement.com there is a reason some organizations might have expectations that are misaligned with their tolerance for risk or volatility. In many cases, members of investment committees serve short stints and lack the knowledge of members who came before them. He said that only about half of the companies provided training to incoming investment committee members.

“To me, the overarching theme is that these orgs have boards that make decisions, and those boards change over time, and they don’t always have the institutional knowledge of their predecessors,” Verhaeghe says. 

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