Nonprofit Endowment Investing During a War in 9 Charts

Nonprofit endowments with funds to deploy toward their philanthropic mission have been trying to make sense of Russia’s invasion of Ukraine. The conflict has created another setback for a global economy struggling to recover from the ravages of the pandemic. The West’s economic sanctions have spurred investors to dump Russian assets, causing the ruble to lose over two-thirds of its value vs. the dollar almost 10 days since the invasion. The government is expected to default and economic experts predict runaway inflation in the country and a severe economic contraction.

Russian Stock Market

Markets have shown how poorly nonprofit investors believed the likelihood of a “black swan” event—low-probability, high-cost risks—even when intelligence from Western governments conveyed an invasion was imminent. The ETFs with pure Russian exposure experienced record trading volumes during the week of Feb. 28 before the NYSE halted trading.

Trade

 Energy giants BP, Shell and Exxon effectively   walked away from their businesses in Russia,   partnerships estimated at nearly $20B which took decades to build. This pullout demonstrates the   great geopolitical and reputational risks of doing   business with Russia. Disruption to Russia’s oil   and gas trade is not only a hit to its own   economy, but to trading partners as well, which must find other suppliers, thereby increasing energy prices. Europe is particularly entangled so increases in energy prices will affect prices of many other goods across the continent.

Commodities

Major Russian exports such as Oil, Wheat, Natural Gas and Metals experienced huge price increases as global supply contracted significantly as Russia’s trading partners scrambled to find alternative sources. On Monday, the national average price for regular gasoline hit $4.065 a gallon, the highest price since July 2008 and approaching the record of $4.114 reached that same month, according to AAA. 

Treasury Yields

US Treasury yields fluctuated as investors weighed both the effect of the Ukraine invasion on markets against the possibility that Fed Chair Powell may or may not raise rates. The Fed’s first meeting of 2022 concluding on March 16 will be a critical indicator for investors. A drop in yields (bond prices increase as yields decrease) tends to reflect negative economic sentiment as investors flee to the safety of bonds. Should the Fed indeed increase rates, Treasury returns could attract European investors seeking better performance.

Labor

On a more sanguine note, US employers added 678,000 workers to their payrolls in February, the biggest gain in seven months, according to the Labor Department. The jobless rate fell to 3.8% from 4.0% a month earlier, edging closer to the 50-year low of 3.5% hit just before the pandemic. Combine this with the relaxing of mask and vaccine mandates across the country, many economists see better days ahead for the US economy.

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