Institutional investors are raising their exposure to
higher-risk assets in pursuit of better returns, according to a
survey by Natixis Global Asset Management.
More than 500 managers of pensions, foundations, endowments,
insurance funds and sovereign wealth funds globally were polled
by the firm recently.
Their top organisational concern is low yield and given the
prospect for greater volatility and persistence of low interest
rates, few institutions are relying on traditional portfolio
strategies to meet their performance goals.
Instead they are increasing their exposure to equities and
alternatives and turning to illiquid assets and the private
markets for risk-managed return generation and yield
At the same time, they are doubling down on risk management
to better balance long-term growth objectives and liquidity
needs, but say they need better ways of identifying risk across
"While risk factors change over time, the challenge for
institutional investors remains to deliver long-term results
while navigating short-term market pressures," said David
Giunta, chief executive of Natixis Global Asset Management for
the United States and Canada.
"Given their mandates, avoiding risk is not an option for
institutional investors. They have to beat the odds or change
the game, and they are doing so by balancing risks and
embracing alternatives to traditional 60/40 portfolio
construction, but always with an eye on their long-term
In examining their goals, 70% of investors believe their
return expectations are achievable, but confidence may not be
as strong as it seems on the surface.
Half (50%) of the institutions expect to decrease return
assumptions in the next 12 months.
75% of those surveyed say alpha is becoming harder to come
by as markets become more efficient.
Sixty-seven percent of institutional investors think private
equity provides higher risk-adjusted returns than traditional
asset classes, and more than half (55%) believe private equity
provides better diversification than traditional stocks.
The three areas they consider most promising are
infrastructure, healthcare and the technology, media &
Seventy-three percent think private debt provides higher
risk-adjusted returns than traditional bond investments. Many
also say they are likely to consider increasing use of direct
lending (44%), collateralized debt (34%) and special situations
About one-third (34%) of institutions report that they are
planning to increase allocations to real assets, including real
estate, infrastructure and aircraft financing, in the next 12
Half of institutions (50%) report they are increasing
exposures to alternative investment strategies this
The adoption of alternative investments isn’t
limited to growth portfolios, as 77% of respondents say
alternatives have a role in liability-driven investing as
"Institutions are turning to risk assets to combat this
extended period of historically low rates, but they also need
strong ballast to keep them on course," said Robert Hussey,
executive vice president of the Institutional Services
"Even as they embrace risk, they have a plan for managing
their exposure using the wide range of tools that are now