Institutional investors expect market volatility, high inflation and rising interest rates to spur portfolio de-risking policies over the next two years, according to a new survey by Aeon Investments.

The survey, which polled pension plan sponsors, insurers and asset managers with about US$545 in combined assets under management, found 81 per cent said they expect to de-risk portfolios in response to rising bond yields and falling equity values during the next two years. While more than half (58 per cent) said they expect de-risking activities to be slight, almost a quarter (23 per cent) said they expect them to be dramatic, six per cent said they’ll decline and six per cent predicted no change.

Read: 43% of global institutional investors expect fixed income performance to continue to decline: survey

The survey also found institutional investors are concerned about risks to fixed income portfolios. When it comes to the biggest threats to fixed income allocations, nearly half (48 per cent) cited inflation, followed by interest rates (28 per cent) and liquidity concerns (six per cent).

When asked to rank the risks to private debt markets, 41 per cent respondents said they’ll be a dramatic rise in inflation risk, while 38 per cent said it will be slight. And looking at credit risks, about a third said they’ll either increase dramatically (33 per cent) or slightly (30 per cent). A quarter (25 per cent) said the interest rate risk would increase dramatically, while 42 per cent said it would increase slightly. And 10 per cent said interest rate risks will decrease in the period.

Read: Institutional investors reducing exposure to fixed income: survey