Institutional investors expect headwinds in their ability to outperform return targets, according to results of a survey conducted by Fidelity Investments.
Despite respondents on average nearly doubling their expected required rate of return in 2020 — 12.3% actual vs. 6.3% required — only 54% of the 500 institutional investors Fidelity surveyed said they are confident that they will achieve their expected target rate of return over the next three years.
When asked about challenges they are experiencing, yield generation topped the list, with 40% of institutional investors saying they felt "forced to take on more risk for the same level of return," according to a news release announcing the annual survey results.
Meanwhile, 39% of respondents said they are taking on more total risk in their portfolios than three years ago and 37% said they aren't comfortable with their portfolios' total risk levels.
"This year's study signals headwinds that have been putting pressure on firms to consider taking on more risk as they look for new sources of excess returns," said Vadim Zlotnikov, president of Fidelity Asset Management Solutions and Fidelity Institutional Asset Management, in the release. "As we consider the impact of potential future macroeconomic changes, this is an opportunity for institutional investors to reevaluate their investment philosophies and decision-making processes."
Fidelity surveyed institutional investors representing more than $12 trillion in assets under management from May 28 to July 26.
Of those surveyed, 21% were public defined benefit plans, 21% corporate DB, 16% insurance companies, 15% defined contribution, 11% foundations and endowments, 7% family offices, 6% private banks, and the remainder multiemployer DB plans and sovereign wealth funds.