Global institutional investors sober as markets rally: survey

Despite continued strong markets, global institutional investors are apprehensive about what 2020 has in store, with more than half of survey respondents saying they think the next global financial crisis will hit within one to three years, according to a new survey by Natixis Investment Managers.

The survey, which polled 500 institutional investors, including 145 corporate pension plans and 103 public or government plans, found volatility is the top concern, with many investors expecting bond and currency volatility to rise.

“Institutional investors have been steadily fortifying their portfolios in anticipation of inevitable changes in the market cycle that could make 2020 a bumpy ride for unprepared investors,” said David Giunta, chief executive officer for the U.S. at Natixis, in a press release.

Read: Are investor portfolios structured to withstand a market correction?

Nearly three-quarters (73 per cent) of institutional investors said they expect trade disputes to hurt investment performance next year, while 67 per cent said they expect pain from slowing global growth and 59 per cent said they think a hard Brexit will hamper performance next year.

On a similarly pessimistic note, 76 per cent of respondents said they believe low rates have led to asset bubbles and 54 per cent are worried central banks don’t have tools left to manage new market challenges.

Overall, investors aren’t reporting big changes to their portfolio allocation. However, they are planning to increase allocation to private debt (37 per cent), private equity (28 per cent), real estate (29 per cent) and infrastructure (32 per cent). Yet the move to private assets can come along with challenges, with the study finding 86 per cent of institutional investors are concerned about too much money chasing too few deals.

Investors also reported optimism about the benefits of active management in the current environment, with three-quarters saying the market will favour active in 2020. “Despite a substantial amount of uncertainty next year, institutional investors remain focused on their long-term objectives and continue to see actively managed, diversified portfolios as a prudent path to outperformance,” said Giunta.

Read: When does active investment trump passive?