What are a few of the trending topics for endowments and foundations in 2023? We asked members of Glenmede’s Endowment & Foundation Management team for their perspective on this year’s hot-button issues.

Inflation

With inflation reaching 30+ year highs in 2022, it is top of mind for organizations this year — along with anxiety about the Federal Reserve’s monetary policy. Although many economists are calling for a mild recession this year, we recommend maintaining a long-term investment strategy but revisiting spending needs your organization may be facing.

 Key takeaways:

• Glenmede recognizes the impact of what has played out with different asset classes and maintains a commitment to portfolio diversification.
• Avoid the temptation to adjust portfolios based solely on 2022 performance; diversification will prevail in the long term.

 Investment Returns

Inflation is but one investment-related concern for endowments and foundations. Investment returns are also on the radar for many organizations — and their advisors — this year. Last year was a down year for both equities and fixed income, straining many organizations’ balance sheets. Fixed income returns endured a particularly difficult 2022, with the Bloomberg U.S. Aggregate Bond Index¹ down 13%. What made this even more unusual is that this occurred alongside a decline of 18% in the S&P 500 Index.² This unusual dual-market downturn was driven largely by the Fed as it raised interest rates very quickly to bring inflation under control, upending the typical inverse relationship between stock and bond returns.

 Key takeaways:

• With investment-grade fixed income yields at 15-year highs³, there is a greater likelihood that fixed income may produce positive returns, and provide a hedge against equity risk, going forward.
• As often occurs in difficult periods, market volatility tends to create price distortions and attractive opportunities for long-term investors.

ESG — Savior or Sham?⁴

Skepticism around environmental, social and governance (ESG) investing was pervasive in 2022, but this skepticism may be deserved. For example, there may be a level of mismarketing broadly around what ESG is designed to do. While ESG investment approaches have been positioned in a binary light, either as a savior able to singlehandedly cure the world of its intractable problems, or a sham serving as a marketing tool without real material consequence, ESG data is merely an input into complex investment frameworks, like any quantitative tool.

 Key takeaways:

• ESG data is information which can be used to help identify financially material issues when making investment decisions, or to help advance a societal or environmental impact in a portfolio.
• It remains important to understand investment managers’ proprietary view of what constitutes a sustainable strategy, and what standards they’re applying in evaluating an investment across a range of criteria.
• Best-in-class strategies will harness ESG data to identify sources of risk and alpha, which remains an area where investors can continue to mine opportunity.

Outsourced Chief Investment Officer (OCIO) Model

Many foundations, endowments and nonprofits use an OCIO, recognizing the benefits of this model versus the self-managed or consultant model. An OCIO should serve as a comprehensive fiduciary partner to your organization. Examples of typical services provided are investment policy development, asset allocation modeling, portfolio implementation and rebalancing, financial and performance reporting, and board education — all of which require a significant time commitment and expertise. An OCIO should serve as a  can work with your organization to customize investment solutions that can align with your organization’s mission, vision and values, offering actively managed equity, alternative, fixed income and mission-aligned investing strategies.

Key takeaways:

• Manage liquidity through challenging market environments can put an extraordinary time constraint on organizations.
• Organizations could benefit from an OCIO as a fiduciary partner that can support the organization’s mission, while allowing staff to focus on managing and expanding the operations.

Staffing

Turnover is high for nonprofits, making staffing a significant concern. Whether it’s adding personnel during year-end giving campaigns or building out the staff, organizations are wrestling with attracting and retaining talent at all levels. We can speculate as to the causes, but they likely include the Great Resignation and staff burnout in a difficult fundraising environment. The U.S. Chamber of Commerce estimates that as of year-end 2022 there were more than 10 million job openings in the U.S., but only around 6 million unemployed workers.⁵

Key takeaways:

• Fully staffing nonprofit teams remains challenging, as the economy in general is experiencing a qualified labor shortage.
• Organizations may need to take a closer look at their culture and work environment to attract and retain talent, especially leaders with nonprofit experience.
• It might also be prudent to reconsider how the role of fundraising links to your organization’s mission.⁶

 Fundraising

The need for nonprofit support continues to grow, stretching many nonprofits to their limits, both in terms of staff and dollars. And with charitable giving highly correlated to stock market performance, it’s no surprise that  even a fear of recession can leave donors reevaluating their charitable giving. According to the 2022 Giving USA report, donations in 2021 were 4% higher than 2020 (a record $466 billion) but were down 0.7% when adjusted for inflation.⁷ Many nonprofits are feeling the strain because giving is not growing as fast as price increases.

Another challenge for nonprofits is donor engagement, as the pandemic has changed donor engagement methods. During the pandemic when the number of in-person events grinded to a halt, there was a focus on virtual events, often with less attendance and interest. Nonprofits have started to return to in-person events, but re-engaging donors can be daunting.

Key takeaways:

• Acknowledge donors’ concerns about a possible recession, but don’t focus on it.
• Keep engaging with donors at all levels — not just mega-donors — reminding them of your organization’s mission and their role in supporting it.
• With the changes over the past couple of years, be sure to adapt to donor preferences about how they want to be engaged. Be ready for fundraising challenges in 2023.

 For information on any of the topics mentioned in this article, please email Glenmede’s Endowment & Foundation Management Team at EFSolutions@glenmede.com.

1 The Bloomberg U.S. Aggregate Bond Index is an index of investment-grade bonds in the U.S.

2 The S&P 500 is a market capitalization weighted index of U.S. large cap stocks.

3 As represented by Bloomberg U.S. Aggregate Bond Index.

4 This is one of the themes in Glenmede’s 2023 Sustainable & Impact Investing Outlook, “Recalibrating the Industry Paradigm,” which outlines the three themes we see collectively heralding in a new, more sophisticated phase of the industry.

5 Ferguson, S. “Understanding America’s Labor Shortage.” U.S. Chamber of Commerce, January 19, 2023.

6 Cowan, L.P., and M. Flores. “Opinion: Let’s Address the Real Reason Great Fundraisers Are in Short Supply.” The Chronicle of Philanthropy, January 5, 2023.

7 “Giving USA: Total U.S. Charitable Giving Remained Strong in 2021, Reaching $484.85 billion.” Indiana University Lilly Family School of Philanthropy at IUPUI, June 21, 2022.