Institutional investors foresee more asset allocation shifts

Increased volatility in markets will increasingly impact investment decisions

Institutional investors foresee more asset allocation shifts

Institutional investors across the world expect to make more changes to their asset allocations over the next two years compared to 2012 and 2014, based on findings from Fidelity’s 14th Global Institutional Investor Survey.

Participating in the survey were 933 institutions in 25 countries, whose investable assets totaled $21 trillion. Among those polled, 72% said they will allocate more funds toward illiquid alternatives in 2017 and 2018, 64% reported increasing their exposure to domestic fixed income, 55% are moving to cash, and 42% are going more toward liquid alternatives.

“Institutions are increasingly managing their portfolios in a more dynamic manner,” said Fidelity Instutional Asset Management President Scott E. Couto. “In addition, the expectations of lower return and higher market volatility are driving more institutions into less commonly used assets, such as illiquid investments.”

Institutional investors are more worried than ever about capital markets, with the top concerns being a low-return environment (28%) and market volatility (27%). Sovereign wealth funds (46%), public sector pensions (31%), insurance companies (25%), and endowments and foundations (22%) reported market volatility as their top concern, while private sector pensions (38%) prioritized market volatility.

“As the geopolitical and market environments evolve, institutional investors are increasingly expressing concern about how market returns and volatility will impact their portfolios,” said Derek Young, vice chairman of Fidelity Institutional Asset Management and president of Fidelity Global Asset Allocation.

While they foresee challenges, respondents seem undaunted overall. Almost all respondents (96%) believe they can still outperform their growth benchmarks, with 56% sticking to growth, including capital and funded status growth, as their primary investment objective. The average return target was 6%; those surveyed were generally confident that they can generate 2% alpha yearly.

“[T]hese institutional investors understand that taking on more risk, including moving away from public markets, is just one of many ways that can help them achieve their return objectives,” Young said.

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