Shifts in Asset Allocation Anticipated for Institutional Investors

Fidelity finds the top concerns for institutional investors are the low-return environment and market volatility. 

By John Manganaro | December 01, 2016
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The latest Fidelity Global Institutional Investor Survey denotes “remarkable anticipated shifts” in the use of alternative investments, domestic fixed income, and cash holding.

Globally, 72% of institutional investors say they will increase their allocation of illiquid alternatives in 2017 and 2018, with significant numbers planning to do the same with domestic fixed income (64%), cash (55%), and liquid alternatives (42%).

Zooming in on the U.S., there appears to be some uncertainty among institutional investors with regards to equity markets. For example, compared to 2012, the percentage of U.S. institutional investors expecting to move away from domestic equity has fallen significantly from 51% to 28%, while the number of respondents who expect to increase their allocation to the same asset class has only risen from 8% to 11%.

“With 2017 just around the corner, the asset allocation outlook for global institutional investors appears to be driven largely by the local economic realities and political uncertainties in which they’re operating,” suggests Scott Couto, president, Fidelity Institutional Asset Management. “The U.S. is likely to see its first rate hike in 12 months, which helps to explain why many in the country are hitting the pause button when it comes to changing their asset allocation.”

Couto says institutions are “increasingly managing their portfolios in a more dynamic manner,” which means they are making more investment decisions today than they have in the past. In addition, the expectations of lower return and higher market volatility are driving more institutions into less commonly used assets, such as illiquid investments.

“For these reasons, organizations may find value in reexamining their investment decisionmaking process as there may be opportunities to bring more structure and accommodate the increased number of decisions, freeing up time for other areas of portfolio management and governance,” he says.

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