After a decade of inexorable growth for passive assets under management, buoyed by extraordinary monetary policy support that favored beta over alpha, Casey Quirk executives called the survey's latest data point intriguing but warned that it may be too early to draw far-reaching conclusions.
If the material drawdown in passive allocations the survey points to comes to fruition, it would prove an "inflexion point … but this is one where you'd like to see it hold up for a little bit longer" before talking about new industry trends, said Tyler Cloherty, managing director and head of Casey Quirk's knowledge center, which conducted the survey.
For now, after mostly staying on the sidelines against the backdrop of a once-in-a-generation restructuring of the capital market environment, institutional investors are just now beginning to reposition their portfolios, Mr. Cloherty said.
"They were kind of waiting for the chips to fall and the environment to normalize to figure out how they're going to respond and now … roughly six months into that normalization you're starting to see some of those investment committees come together and (ask) what are the big structural changes we need to make now that we're in a new environment," he said.
Passive exposures, meanwhile, could simply be the easiest lever to pull in pursuing those allocation shifts, whether to private equity, LDI strategies or core fixed income, Mr. Cloherty said.
A survey-leading 35% of asset owners responding said they'll be looking to boost allocations to core/core-plus fixed income over the coming year or two, followed by private equity, with a net 20%, and private debt, with a net 16%.
Long-only equities, by contrast, saw as many respondents saying they'll be reducing allocations as adding to them, with net-zero results on balance for global equities, U.S. equities and emerging markets equities over the coming year or two.
Mr. Cloherty said the interviews his team conducted with respondents as part of the survey process found sentiment mixed with regard to equities, with some conceding there could be more opportunities for active management now that central banks are no longer buoying markets, but overall no great enthusiasm.
"There was some interest around Japan, EMEA" and a couple of other regions, but they were few and far between, he said.
The anticipated rise in LDI allocations, meanwhile, could reflect the prominence of large U.S. institutional investors in the survey pool and where they are in their life cycles, Mr. Cloherty said.
A decent amount of those U.S. plans are derisking now, taking down some of their equity exposure and pushing up LDI allocations, he noted.
Whether passive strategies grow, maintain or lose market share over the next five years, Mr. Cloherty said the huge impact those strategies have had on fee consciousness in the industry should persist.
"It's such a substantive portion of the industry that it will always be a potential alternative" for investors and that commanding position in the fee conversation doesn't go away even if passive stops taking market share from active strategies, he said.
