The possibility of a global economic slowdown is of greater concern to global institutional investors than rising inflation, according to a new survey from the Official Monetary and Financial Institutions Forum.

The survey, which polled investors at public pension plans and sovereign wealth funds with combined assets of about US$27 trillion, were asked to rank the most pressing concerns they expect to impact their investment strategies over the next two years. More than a quarter (27 per cent) picked a possible global economic slowdown as their top concern, with 80 per cent ranking it among their top three concerns.

While the same percentage (80 per cent) of respondents also included inflation on their lists, only about a fifth (21 per cent) ranked it as their chief concern. More than half included geopolitical tensions in their top three, though only about a tenth (11 per cent) ranked it as their chief concern.

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“[The respondents] expect a period of stagflation,” wrote Clive Horwood, managing editor and deputy chief executive officer of the OMFIF, in the survey’s forward. “The global economic slowdown and persistently higher inflation are their two main concerns. In this environment, how do they plan to protect the gains of recent years and generate positive returns?”

The survey also asked respondents to identify the asset classes to which they anticipate increasing or decreasing allocations. Some 42 per cent indicated they’d increase allocations to infrastructure — more than any other asset class. The least popular asset class was equities, with 32 per cent of respondents indicating they intend to reduce allocations.

Horwood said the movement away from public equities and toward alternative asset classes was part of a strategy to drive returns. “There are risks in this approach — many of these are less-liquid assets and funds will want to avoid any liquidity crunches in uncertain times. Sooner rather than later, the attraction of improved fixed income yields may outweigh the pressure to avoid assets that are falling in price.”

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