Institutional investors are anticipating some significant asset allocation changes over the next two years, according to a new report.
However, many institutional investors in the U.S. are, on a relative basis, adopting a wait-and-see approach. For example, compared to 2012, the percentage of U.S. institutional investors expecting to move away from domestic equity has fallen significantly — from 51% to 28% — while the number of respondents who expect to increase their allocation to the same asset class has only risen from 8% to 11%.
Authors of the recent Fidelity Global Institutional Investor Survey note that institutions are increasingly managing their portfolios in a more dynamic manner — making more investment decisions today than they have in the past.
Top Concerns
Overall, the top concerns for institutional investors are a low-return environment (30%) and market volatility (27%), with the survey showing that institutions are expressing more worry about capital markets than in previous years. In 2010, a quarter of survey respondents cited a low-return environment as a concern while 22% cited market volatility. Those concerns are seen driving more institutions into less commonly used assets, such as illiquid investments.
Globally, 72% of institutional investors say they will increase their allocation of illiquid alternatives in 2017 and 2018, with significant numbers as well for domestic fixed income (64%), cash (55%), and liquid alternatives (42%), according to the new Fidelity Global Institutional Investor Survey. Survey respondents included 933 institutions in 25 countries with $21 trillion in investable assets.
Investment concerns also vary according to the institution type. Globally, sovereign wealth funds (46%), public sector pensions (31%), insurance companies (25%) and endowments and foundations (22%) are most worried about market volatility, though it’s the low-return environment that is the top concern for private sector pensions (38%).
Despite their concerns, nearly all institutional investors surveyed (96%) believe that they can still generate alpha over their benchmarks to meet their growth objectives, and most (56%) of survey respondents say growth, including capital and funded status growth, remain their primary investment objective, comparable to the 52% who expressed that sentiment in 2014.
Targeted Returns
On average, institutional investors are targeting to achieve approximately a 6% required return. On top of that, they are confident of generating 2% alpha every year, with roughly half of their excess return over the next three years coming from shorter-term decisions such as individual manager outperformance and tactical asset allocation.
Around the world, institutional investors report that they consider a number of qualitative factors when they make investment recommendations. At least 85% of survey respondents say the following factors have at least some impact on asset allocation decisions, with around one-third reporting that these factors have a significant impact.
However, many institutional investors in the U.S. are, on a relative basis, adopting a wait-and-see approach. For example, compared to 2012, the percentage of U.S. institutional investors expecting to move away from domestic equity has fallen significantly — from 51% to 28% — while the number of respondents who expect to increase their allocation to the same asset class has only risen from 8% to 11%.
Authors of the recent Fidelity Global Institutional Investor Survey note that institutions are increasingly managing their portfolios in a more dynamic manner — making more investment decisions today than they have in the past.
Top Concerns
Overall, the top concerns for institutional investors are a low-return environment (30%) and market volatility (27%), with the survey showing that institutions are expressing more worry about capital markets than in previous years. In 2010, a quarter of survey respondents cited a low-return environment as a concern while 22% cited market volatility. Those concerns are seen driving more institutions into less commonly used assets, such as illiquid investments.
Globally, 72% of institutional investors say they will increase their allocation of illiquid alternatives in 2017 and 2018, with significant numbers as well for domestic fixed income (64%), cash (55%), and liquid alternatives (42%), according to the new Fidelity Global Institutional Investor Survey. Survey respondents included 933 institutions in 25 countries with $21 trillion in investable assets.
Investment concerns also vary according to the institution type. Globally, sovereign wealth funds (46%), public sector pensions (31%), insurance companies (25%) and endowments and foundations (22%) are most worried about market volatility, though it’s the low-return environment that is the top concern for private sector pensions (38%).
Despite their concerns, nearly all institutional investors surveyed (96%) believe that they can still generate alpha over their benchmarks to meet their growth objectives, and most (56%) of survey respondents say growth, including capital and funded status growth, remain their primary investment objective, comparable to the 52% who expressed that sentiment in 2014.
Targeted Returns
On average, institutional investors are targeting to achieve approximately a 6% required return. On top of that, they are confident of generating 2% alpha every year, with roughly half of their excess return over the next three years coming from shorter-term decisions such as individual manager outperformance and tactical asset allocation.
Around the world, institutional investors report that they consider a number of qualitative factors when they make investment recommendations. At least 85% of survey respondents say the following factors have at least some impact on asset allocation decisions, with around one-third reporting that these factors have a significant impact.
- 90% – board member emotions
- 94% – board dynamics
- 86% – press coverage
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