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These investors, who oversee pensions, endowments and sovereign
wealth funds, plan to be careful in their allocations next year, however, favoring
income-producing investments over riskier assets.
Forty-six percent of institutional investors surveyed say stocks will be the strongest
asset category next year, with U.S. equities standing above those from other
regions. Another 28 percent identify alternative assets as top performers, with
private equity leading the way in that category. Only 13% predict bonds will be
best, followed by real estate (7%), energy (3%) and cash (2%).
Natixis solicited the market outlook opinions of 642 investors at institutions that
manage a collective $31 trillion. The survey found:
- Realistic expectations of returns: On average, institutions believe they can
realistically earn yearly returns of 6.9 percent after inflation. In separate surveys
by Natixis earlier this year, financial advisors globally said their clients could
anticipate earning 5.6 percent after inflation[[Natixis Global Asset Management released its Global Survey of Individual Investors in May of 2014. Natixis’ 2014
Individual Investor Research study is based on fieldwork conducted in 14 countries throughout the Americas, Europe,
Asia and the Middle East with 5,950 investors having assets of 200K+ (USD).
]] and individuals said they had to earn
returns of 9 percent after inflation to meet their needs[[Natixis Global Asset Management, released its Global Survey of Financial Advisors in September of 2014 based the
responses of 1,800 financial advisors internationally.]].
- Geopolitics leads potential threats: The top four potential threats to
investment performance in the next year are geopolitical events (named by 17% of
institutional investors), European economic problems (13%), slower growth in
China (12%) and rising interest rates (11%).
- Focus on non-correlated assets: Just under three-quarters of respondents
(73%) say they will maintain or increase allocations to illiquid investments, and
87% say they will maintain or increase allocations to real estate. Nearly half (49%)
believe it is essential for institutions to invest in alternatives in order to outperform
the broad markets.
- Words of advice for retail investors: Among the top investment guidance
institutions have for individuals in the next 12 months: avoid emotional decisions.
“Institutional investors have an enormous fiduciary responsibility to fund current
goals and meet future obligations,” said John Hailer, president and chief executive
officer for Natixis Global Asset Management in the Americas and Asia. “The current
market environment makes it difficult for institutions to earn the returns that are
necessary to fulfill both short-term and future responsibilities. Building a durable
portfolio with the proper risk management strategies can help investors strike a
balance between pursuing long-term growth and minimizing losses from volatility.”
Rising rates, a manageable challenge
Institutional investors are confident in their own prospects in the face of markets
that will feature higher interest rates and lower growth. Eighty-seven percent think
they’ll ultimately be able to meet their long-term liabilities.
In addition, the survey found that:
- 67 percent of institutional investors foresee difficulties in the next three years
because of climbing interest rates.
- In order to counteract higher rates, 61 percent of institutional investors plan to
position their portfolio to move from long to shorter duration bonds. Less than half
(46%) say they’d reduce exposure to bonds. And while most institutional investors
use alternatives as an important part of their portfolio construction, more than a
third (36%) would increase their allocation to alternative strategies to combat
rising rates.
Investment advice from the pros
“Institutional investors have an unusually good perspective about markets and
long-term prospects,” Hailer said. “Like ordinary investors, institutions have shortterm
worries. They also feel the pressure to take care of current needs, no matter
what the markets are doing. Because of their longer-term time horizon, they offer
valuable perspective.”
Asked what advice they could provide to average individual investors, institutional
managers say they should:
- Avoid making emotional decisions about finances: 84%
- Use alternative investing strategies – including hedge funds, long-short funds
and other options: 76% - Set a return target based on personal goals rather than market benchmarks:
62% - Think about risk first, rather than return, when putting together a portfolio:
61%
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