Category: Insights

Cash is an unglamorous – but critical – element of portfolio management. For the past couple of years yields on cash-like instruments were negligible, leading endowments to hold cash in bank accounts bearing little to no interest. This year’s increases in short-term interest rates have changed this calculus. Non-profits are now able to explore more active approaches to cash management which have the potential to realize some additional return in a market environment that has been challenging for all asset classes. TIFF explores how organizations can define cash needs and help identify what strategy may be appropriate for them.

Over the course of our careers, we’ve learned some important lessons that professors didn’t teach us in economics or finance classes. We believe it is useful to discuss three of these ideas that we wish we had understood on our first days on the job. In our new white paper, “Three Ideas I Wish I Had Understood From The Start: Lessons That Have Made Us Better Investors”, we examine:

• The importance of creativity and how it is often unappreciated
• Why being open-minded is more important than being smart
• Why a steady temperament might be the most important characteristic of all

Investors have endured a challenging six months in the markets as multiple macro-economic events have driven uncertainty to near-term highs. With risk being top of mind for investors, we believe it is useful to discuss how TIFF approaches risk management within our Diversifying Strategies team. In our new white paper, “Stayin’ Alive: The Importance of Risk Management in a Risky Market”, we aim to:

• Introduce some of the metrics and tools we use to monitor risk
• Explain the philosophy behind how we measure hedge fund risk management
• Help readers gain a better understanding of why risk management is critical to long-term portfolio performance
• Bonus: recommend some great tunes to listen to while reading the paper!

The always highly anticipated annual university endowment results for fiscal 2021 (FY 2021) were released in February, triggering the usual flurry of articles in the financial media. These results received a great deal of attention, largely because of the uniquely strong returns. In our new white paper, “Higher Education Endowment Results: Reflections on Recent Returns and Outlook for the Future”, we aim to:

• Explain the context for the strong returns, focusing on the asset classes that drove this outcome
• Give our perspective on the outlook for market returns in the coming years
• Discuss some of the key investment tenets that, we at TIFF, believe contributed to strong outperformance from some select institutions

View of Russia’s Invasion of Ukraine

At TIFF, we are hopeful for a near-term peaceful resolution of Russia’s invasion of Ukraine. We are mindful of the dire humanitarian consequences on Ukraine and its people.

There are many significant moving pieces in this conflict – the actions of Putin and Russia, the heroic response of Zelensky and the Ukrainian people, the coordinated and unified response of Europe generally, the United States’ evolving role, the response from China, and, alarmingly, the first genuine threat of nuclear engagement in this century. Although the number of actors and complexity of this event contribute to a wide range of possible outcomes, we think a few implications are more likely than not. Below, we provide our assessment of market impact, our portfolio positioning, and our actions in response to the market conditions created by the invasion and subsequent developments.

Market Impact

Market reaction has been global and across asset classes. Equities generally have fallen, particularly in Europe as the prospect of a protracted conflict, higher energy prices, and possible recession weighs on stocks. Bonds have rallied, causing yields to drop. Oil has hit decade-high prices as buyers shun Russia, which is second globally behind Saudi Arabia in production. Gold and bitcoin have also rallied, albeit less so.

Market Expectations

Our internal optimist has us seeking a clear “best-case” scenario, but our internal realist sees few positive near-term repercussions.

Inflation has and will be negatively impacted, as, similar to our experience with COVID, supply chains are reworked and there is added demand for certain goods without commensurate increases in production. If all else were equal, this rise in inflation may force the Federal Reserve and other central banks to be even more hawkish than they have become in recent weeks.  However, all else is not equal.  Because of the wide range of outcomes, the market now perceives a bit slower retraction of accommodation as banks proceed cautiously and also are careful to forestall a “Lehman-like” moment.

Longer-term is even less predictable, though some developments seem likely. The European Union and individual European countries have indicated that they will vastly increase defense spending. Europe may also reduce its vulnerability to Russia by accelerating its transition to green energy and / or allowing oil production. The US may also allow for increased oil production to offset a sustained reduction of Russian oil imports. Two other possible secondary effects of economic sanctions: 1) intentional decoupling of connected economies to reduce interdependence; and 2) revisiting crypto as a possible workaround for sanctions and asset freezes. We do expect the reversal of some recent market trends. For example, if the US and / or Europe are able to wean themselves off Russian oil through production or alternate supply, the war may counterintuitively expedite oil’s ultimate decline.  Similarly, while near-term we see inflation increasing, dramatic expansion and duplication of capacity in energy, alternatives, food, etc., may ultimately lead to lower long-term inflation.

TIFF Exposure

Our direct exposure to Russia is de minimis, with approximately 0.5% of any given portfolio as of February 28.

Action

We are monitoring the situation closely, staying in close contact with our managers, and avoiding making large, reactive moves.  We remain underweight bonds and have rebalanced back to slightly above our target for equities. We have explored and are considering inflation hedges, but are mindful of how expensive hedges have become in recent weeks. Our portfolios are well diversified, and we are prepared to adapt quickly as needed.

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Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.

There is no guarantee that any particular asset allocation or mix of strategies will meet your investment objectives.

These materials are being provided for informational purposes only and constitute neither an offer to sell nor a solicitation of an offer to buy securities. Opinions expressed herein are those of TIFF and are not a recommendation to buy or sell any securities.

These materials may contain forward-looking statements relating to future events. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the negative of such terms or other comparable terminology. Although TIFF believes the expectations reflected in the forward-looking statements are reasonable, future results cannot be guaranteed.