Endowments and foundations are navigating a period of heightened uncertainty, driven by geopolitical tensions, rising spending demands, and increasingly illiquid portfolios, according to Morgan Stanley's 2026 Endowments and Foundations Survey. The poll, conducted in January 2026 among 100 investment decision-makers at mid- to mega-sized organizations, found that only 13% of respondents expressed high confidence in achieving their three-year return targets, a decline from 19% in 2023.
Geopolitical risk ranked among the top concerns for investment leaders, alongside market volatility, inflation, and liquidity demands. The survey underscores a shift in priorities as alternative investments have become the largest single allocation in endowment and foundation portfolios, representing 36% of assets under management, compared to 27% for U.S. equities.
However, the build-out phase for alternatives appears to be maturing. Fewer organizations plan to increase their alternatives exposure over the next 12 months, while the proportion planning to reduce allocations has more than doubled since 2023. Jeremy France, head of Institutional Consulting Solutions at Morgan Stanley, noted that the focus is moving from portfolio construction to resilience, as liquidity, spending discipline, and governance become as critical as long-term returns.
Liquidity has emerged as the dominant concern, with 47% of respondents identifying it as the single greatest challenge related to alternatives, up sharply from 21% in 2023. This marks a reversal from earlier years, when gaining access to private markets was the primary preoccupation. The shift reflects the ongoing demands of capital locked in illiquid vehicles, a trend that has broader implications for financial advisors managing client portfolios with similar exposure.
Despite the growing emphasis on liquidity, governance frameworks have not kept pace. Approximately two in five endowments and foundations report that their investment policy statement does not explicitly address liquidity parameters, such as minimum liquid holdings or lockup limits. While more than two-thirds monitor liquidity at least monthly, this discipline has not consistently translated into written policy, leaving gaps in formal oversight.
On the spending side, nearly a third of organizations anticipate their spending rate will rise over the next three years, more than double the 15% who said the same in 2023. For institutions whose portfolios primarily fund operations, this pressure is particularly acute. The parallel for retail clients is clear: withdrawal sequencing and cash flow planning are as important as return generation when a portfolio is being drawn down.
Fundraising expectations were optimistic at the time of the survey, with 38% of respondents expecting 2026 donations to exceed 2025 levels. However, Morgan Stanley noted that first-quarter market volatility, driven by geopolitical conflict and reduced expectations for Federal Reserve rate cuts, has likely tempered that outlook since responses were collected in January.
Consultant relationships have deepened alongside portfolio complexity, with more than three-quarters of respondents reporting they have worked with their current external consultant for six or more years, up from 49% in 2023. The average length of these relationships now stands at 9.4 years, reflecting the growing need for specialized guidance in managing complex portfolios.
For financial advisors, the survey highlights key lessons: liquidity management is paramount as alternatives grow, and governance frameworks must evolve to address new risks. As recent redemption requests at Blackstone's BCRED fund and Partners Group's redemption caps illustrate, liquidity strain in private markets can have ripple effects. Advisors should also consider how regulatory developments around 401(k) safe harbors might affect client access to alternatives.
