“The essence of a well-balanced portfolio is that no single asset class actually defines the nature of the vehicle.”
“Virtue is the middle ground between two extremes (Aristotle).” Foundations, family offices, and other long-term investors face a challenging landscape: higher distribution expectations, shifting correlations between stocks and bonds, concentration risks in global equity markets, and the question of how true diversification can still be achieved today. The so-called endowment approach, familiar from the context of large U.S. university endowments, has been providing important food for thought in this regard for years—not as a trendy product label, but as a disciplined combination of strategic asset allocation, risk budgeting, rebalancing, and manager selection.
Markus Hill spoke for FINANZPLATZ FRANKFURT with Martin Friedrich, Lansdowne Partners Austria GmbH, about the latest findings of the NACUBO Commonfund Study of Endowments, the strengths and limitations of the endowment approach, catastrophe bonds, emerging and frontier markets, private equity, artificial intelligence, and the challenges facing endowments and family offices in 2026. The focus is less on short-term market sentiment and more on the question of how institutional investors can combine long-term resilience, sufficient returns, and true diversification.
Hill: How do you assess the results of the 2025 NACUBO Commonfund Study of Endowments?
Friedrich: NACUBO is the umbrella organization and advocacy group for U.S. universities. Their foundations—better known as endowments— are strategically important capital reserves that simultaneously preserve value for future generations and provide distributions for ongoing university operations. The annual survey on the investment returns and strategies of these educational institutions is primarily in the best interest of the association’s more than 650 members. It enables independent benchmarking of investment results and highlights industry trends. This is also important for us, as we strive to replicate the unique selling points of this investment style—which is otherwise unavailable in Europe—using liquid instruments.
The latest study, published in February, highlights three interesting developments. First, the large and largest endowments have regained the top spot in the pecking order of returns, after the extreme stock rally in the previous two years had given smaller endowments—which hold higher allocations to the S&P 500—a temporary advantage.
Second, it appears that private equity allocations are stagnating at high levels among the largest institutions, but are declining again among medium-sized and small endowments. Third, we find it noteworthy that donations have declined by around 9%, though this is attributable exclusively to the large endowments. Institutions with assets under $1 billion, in fact, recorded a further increase in giving. We can only speculate about the reasons for this trend; it could be, for example, that the current administration’s political attacks on some universities have made certain donors wary.
In conclusion, we can summarize that at a time when universities’ costs are rising faster than their revenues, their reliance on their own capital reserves is increasing even further. It is therefore not surprising that average distributions have been raised further and have now reached an annual rate of nearly 5.0%. This, in turn, means that the performance of investment strategies will be put to the test in the coming years.
Hill: In your approach, what role does strategic asset allocation play compared to tactical decisions? Where does the actual added value come from?
Friedrich: It may surprise you, but tactical bets are not the focus of the investment style of large investors such as foundations. Rather, the goal is, first, to take on sufficient risk to achieve the targeted returns over the long term—and second, to maximize portfolio efficiency through diversification. You achieve this primarily through strategic asset allocation combined with rigorous risk management.
In our strategy, too, the primary value is generated through long-term asset allocation, which is rebalanced monthly over time and thus kept stable. We also incorporate tactical elements into the portfolio, which do generate additional returns but play a secondary role in the overall context. More important than the tactics, however, is the implementation within the portfolio: This is because the strategic allocation is calculated using asset class indices that are not directly investable. Furthermore, passive strategies are not available in all asset classes. We therefore spend a great deal of time on the proper selection and combination of active fund products, with the result— —that we also create additional value for our investors through manager selection.
Hill: On the other hand, what are the disadvantages of the endowment approach?
Friedrich: A key cornerstone of the strategy pursued by endowments is the deliberate acceptance of capital market risks in order to generate sufficiently high returns over the long term. This necessitates remaining invested even in unfavorable environments—that is, during periods of loss. For this reason, our investment philosophy does not use stop-loss limits and does not invest in any capital-guaranteed products. We also deliberately focus on longer-term metrics when calculating risk parameters. Although the strong diversification of endowment portfolios reduces the likelihood of losses in the medium and long term, sudden market downturns can still result in losses that exceed the benchmark. This happened, for example, in March 2020. To be clear: these were temporary losses. But in the short term, such episodes are, of course, always painful.Hill: Which asset classes are currently your main focus?
Friedrich: The essence of a well-balanced portfolio is that no single asset class should dominate the vehicle’s character. We pursue a moderate risk profile, which can be approximated by an index composed of equal parts developed-market stocks and bonds.
Based on the return and risk characteristics we have identified for the 17 asset classes we use, the resulting portfolio has a very international focus. Eurozone equities, for example, account for only a low single-digit allocation. In contrast, the portfolio represents approximately 150 countries in total. About 30% of the portfolio is thus allocated to emerging and frontier markets, with this portion of our fund containing twice as many bond funds as equity funds.
Another unique feature is catastrophe bonds, which, with an allocation of 10–15%, represent a significant component of the portfolio. This is a high-yield, uncorrelated investment vehicle that is, however, shunned by many investors. The reason for this is irregular but very sudden losses, which can be severe and therefore cause unease. For us, this presents an opportunity.
Hill: What challenges do foundations and family offices face this year?
Friedrich: For 2026, we see both opportunities and risks. Overall, the latter are likely to outweigh the former, which is why we are currently positioned rather defensively. The challenges are manifold: For example, we are observing—as we have since 2022—a positive correlation between stocks and bonds. This is a classic hallmark of a stagflationary macroeconomic regime, in which we currently find ourselves. The situation is further complicated by the fact that in recent months, gold has also begun to fluctuate in tandem with stocks. Another problem is the enormous concentration risks lurking in the stock markets. The top 10 stocks in the S&P 500 already account for nearly 40% of the market capitalization. Technology and social media dominate not only the narrative but also the investment portfolios of most investors.
Incidentally, this dominance of the technology sector is by no means limited to liquid assets: A recent study by JP Morgan shows that the weighting of technology in private equity or private credit investments also ranges between 35% and 40%, thus even exceeding the S&P’s exposure. I therefore believe that achieving effective diversification is one of the most difficult, yet also most important, tasks for investment managers.
Hill: What topics will you be discussing on May 12 in Frankfurt?
Friedrich: On the one hand, we will delve deeper into the topics already discussed, and I will demonstrate how we are attempting to address the challenge of diversification. Additionally, I have been invited to speak during an afternoon panel discussion on the challenges of artificial intelligence. I will deliberately take on the role of the skeptic in the hope of fostering an engaging discussion. The annual “Credit Day” hosted by Frankfurt Asset Management provides the organizational framework for this.
Hill: What other activities are you focusing on in 2026?
Friedrich: Before that, on May 5 and 6, I’ll be speaking at the Markets Group’s “DACH Investors Retreat” to discuss opportunities and risks in the stock markets. In June, I’ve been invited to speak at the IMPower Fundforum in Monaco. In the fall, there will be investor days, a conference in Trier, and the Petersberg meeting hosted by Drescher & Cie.
Hill: Thank you very much for the interview.
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March 17, 2026, Frankfurt – Private Markets Excellence Forum – “Private Markets, Family Offices & Foundations – Due Diligence & Outlook 2026”
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Spring 2026: Investor Study “Preferences of Institutional Investors in Real Estate & Alternative Investments”
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April 16, 2026 – “köln let’s talk” – Bettina Timmler – Real Estate & Dialogue
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