Institutional investors are bearish about market prospects for the upcoming year, while more than half expect another global financial crisis to occur within three years, results of a global survey by Natixis Investment Managers said.
The survey, which collected the opinions of 500 global institutional investors, revealed that nearly three-quarters (73%) of respondents expect current trade disputes to dampen investment performance in 2020, while 67% anticipate slowing global growth to hurt returns. More than half (59%) believe a hard Brexit will hamper performance.
Meanwhile, more than three-quarters (76%) believe that consistently low rates have led to asset bubbles. However, with rates so low for so long, more than half (54%) fear that central banks lack the necessary tools needed to navigate upcoming market challenges.
Most investors (89%) are concerned that the proliferation of public debt will have a negative impact on global financial security.
Ultimately, more than half of institutional investors (58%) believe the next global financial crisis will occur within one to three years.
"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," David Giunta, CEO for the U.S. at Natixis Investment Managers, said in a news release announcing the survey results. "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."
In the year ahead, asset owners rank volatility as their top portfolio risk (53%), with 77% saying they expect greater volatility specifically in the stock market. Many also expect bond (67%) and currency (52%) volatility to rise.
Natixis found most institutions have turned to the private markets, primarily for diversification (62%) and more attractive returns (61%) than those expected from traditional stocks and bonds. Most institutions now use private equity (79%) and private debt strategies (77%), and two-thirds (68%) see private assets playing a more prominent role in their long-term portfolio strategy. And despite the associated liquidity risks, most investors (71%) believe the return potential within private assets is worth those risks.
Next year, 37% of institutional investors plan to increase their allocations to private debt as well as private equity (28%), real estate (29%) and infrastructure (32%). However, 86% of investors worry that too much capital may be chasing too few deals in the year ahead.