Global institutional investors are expecting to make more asset allocation changes in the next one to two years than in 2012 and 2014, according to the results of Fidelity Investments’ Global Institutional Investor Survey.
Globally, 72% of institutional investors said they will increase their allocation to illiquid alternatives in 2017 and 2018, with significant numbers also looking to increase domestic fixed income (64%), cash (55%) and liquid alternatives (42%).
“Institutional investors are confident of generating 2% alpha every year through a combination of manager selection as well as asset allocation,” said Scott E. Couto, president, Fidelity Institutional Asset Management, in a telephone interview. “This means they’d have to be pretty active in their management selection.”
Mr. Couto added that advanced equity markets, healthier pension funding ratios and potentially rising interest rates are driving the expected increase in allocations to fixed income.
Many institutional investors in North America are adopting a wait-and-see approach, the survey said. For example, compared to 2012, the percentage of U.S. institutional investors expecting to decrease domestic equity allocations has fallen to 28% from 51%, while the number of respondents who expect to increase their allocation to the same asset class has risen to only 11% from 8%.
Overall, the top concerns for institutional investors are a low-return environment (30%) and market volatility (27%), with the survey showing that institutions are more worried about capital markets than in previous years. In the 2014 survey, market volatility was the chief concern (22%), followed by the low-return environment (21%) and risk management (18%).
Despite their concerns, nearly all institutional investors surveyed (96%) believe they can still generate alpha over their benchmarks to meet their growth objectives. The majority (56%) of survey respondents said growth, including capital and funded status growth, remain their primary investment objective.
The survey covers 933 institutional respondents from 25 countries with $21 trillion in investible assets.