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Commentary: Shifting focus from alternatives to inflation

13 July 2018

RiskFirst’s Darius Grant writes for Foundation and Endowment Report on why inflation risk should be on the agenda of E&F investors, and how an endowment should go about evaluating the efficacy of its investment strategy in the face of potential inflation.

For approximately the last 25 years, inflation has been benign and generally ignored in the design of endowments and foundations (E&F) investment strategies, which are long-term focused. Instead, focus has been firmly placed on the debate around allocating to alternatives such as private equity and real estate, and whether this so-called “endowment model” truly delivers better returns over time across the spectrum of different E&F.

But should the focus shift, or at least broaden, given inflation expectations have increased for the first time in decades?

In short: yes. The fact is that the real value of spending would be significantly and permanently reduced by rising inflation. Given current investment strategies, returns from the endowment portfolio will simply not keep pace. This could be devastating to E&F mission delivery. Is it therefore time to evaluate the potential impact of changing inflation expectations in more detail?

Read the full article at Foundation and Endowment Report.

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