Key takeaways:
- During times of economic and market uncertainty, it’s essential for universities to stick to their long-term investing plan
- As recession risks rise, university CIOs should monitor credit risk, interest rate sensitivity, and liquidity.
- Investment outsourcing can help universities manage resourcing constraints
Russell Investments recently hosted a webinar on how universities can manage investments, address recession risks, and balance liquidity and concentration risks. The discussion featured insights from a panel of Russell Investments experts: Samantha Foster, managing director and senior portfolio manager; Rob Balkema, senior director and head of multi-asset investing for North America; and Rachel Carroll, managing director of consulting for Americas Institutional.
Below is a summary of their conversation.
Managing recession risks
Foster began by emphasizing the importance of having a well-tested plan for managing recession risks across different investment pools. She explained that each pool, such as a working capital pool or an endowment, requires its distinct strategy. Working capital pools, for instance, are designed for the short term, while endowments are geared for the long term and have spending rules. Foster said it’s critical for universities to stick to their strategic investing plan amid times of uncertainty—and for CIOs to communicate this guidance broadly to ensure comfort and adherence.
What to watch
Next, Balkema discussed Russell Investments' approach to managing portfolios amid rising recession risks. He highlighted three key elements the team is focusing on: credit risk, interest rate sensitivity, and liquidity. Balkema noted that credit spreads are historically tight, which is prompting the team to shift toward higher-quality government bonds and securitized assets. Balkema also emphasized the importance of maintaining liquidity to capitalize on market volatility.
Spending policy considerations
During an economic downturn, Foster said spending policies should be tailored to an organization's mission and needs. For example, a food bank might increase spending during a recession to fulfill its mission, while an educational institution might maintain its existing spending policy. She stressed that the decision depends on the organization's goals and the board's preferences.
The public-private balance
The discussion pivoted to liquidity and balancing public and private assets in investment portfolios. Foster said that for long-term pools like endowments, it typically makes sense to take calculated risks to generate higher returns, which can make an allocation to private assets a good idea. However, she also stressed the importance of maintaining liquidity to rebalance during market downturns and to meet special distribution needs.
Other options
The conversation also highlighted trends in investment structures, such as the growing popularity of evergreen structures and international interest in private assets. Foster and Balkema discussed the importance of understanding different investment vehicles’ underlying risks and liquidity.
Sticking to a plan
Next, Balkema emphasized the importance of sticking to a long-term investing plan despite today’s elevated recession risks. Any potential asset allocation changes should be based on shifting return objectives, past performance, and opportunity costs, he remarked. At the end of the day, the goal is to ensure that a portfolio aligns with its organization's strategic objectives and risk tolerance.
Outsourcing help
Next, Foster shared strategies for managing resource constraints, such as staff, budget, and time. She said organizations may want to consider outsourcing certain tasks, such as back-office functions, capital calls, or cashflow projections. The broad range of outsourcing options allows organizations to tailor their approach based on specific needs, she noted.
Alternative investments
The webinar wrapped up with a discussion on alternative investments. Balkema and Foster highlighted opportunities they see today in venture capital, private credit, and real estate. They both emphasized the importance of blending public and private allocations to balance liquidity and capture returns. Foster stressed that ultimately, the investment strategy that is chosen depends on the organization’s risk-reward profile and liquidity needs.
The bottom line
With recession risks ticking upward, the three speakers reiterated the importance of having a well-tested plan, maintaining liquidity, and tailoring investment strategies to an organization's goals and risk tolerance levels.