Global Endowment Management deputy CIO expects market volatility to remain high

Institutional investors are primarily concerned about high inflation, rising interest rates and a slowing economy, said Matt Bank, partner and deputy chief investment officer at Global Endowment Management, an outsourced CIO that oversees $11.2 billion in assets for endowments, non-profits and foundations.

The Federal Reserve is likely nearing the end of its tightening cycle, Mr. Bank said in an interview. "However, regardless of when they stop, the era of free money is over," he said. "And we will likely continue to see elevated volatility."

The recent turmoil in the banking industry, including the collapse of Silicon Valley Bank and the imminent takeover of Credit Suisse Group by UBS Group, might also hasten an economic slowdown leading to a possible recession later this year, he added.

While the Fed acted quickly following the implosion of SVB as well as Signature Bank by, among other things, insuring deposits over and above $250,000 per account, Mr. Bank warned that after a decade of low rates there is always a risk of other issues emerging in the sector.

"A lot of deposits are flowing to larger institutions and into Treasuries and money markets," he said. "It's very hard to predict how this will play out."

While GEM adheres to a long-term investment horizon and generally does not make short-term economic forecasts, Mr. Bank noted that rising rates and the positive correlation between stocks and bonds last year pushed the firm to prioritize non-correlated assets and to maintain alternative asset class exposure in private equity, real estate, commodity and natural resources-related investments.

GEM, Mr. Bank added, is wholly committed to environmental, social and governance factors in its investment approach, but he conceded that ESG has become a "political football" given the rising crescendo of voices from the Republican Party expressing their opposition to what the GOP calls "woke" investing by state investment vehicles.

"ESG is foundational to our risk management, and I think that unfortunately the ESG debate has distracted from the longer term goal of sustainable investing," he said.

At GEM, he added, many of the firm's endowment and foundation clients are highly committed to and care deeply about impact investing.

Mr. Bank also noted how the OCIO industry has changed in just the past 15 years or so.

"It's a much more crowded marketplace now than it was when we started," he said. "It is a more competitive environment, but we seek to distinguish ourselves from our peers by sticking to our roots — that is, providing smaller university endowments and foundations with investment opportunities they cannot access on their own. We focus heavily on governance and partnering with our clients, which will be crucial in a more volatile market regime."