…And now look to active management
NEW YORK–(BUSINESS WIRE)–North American institutional investors are bracing for volatility, according to global asset manager Schroders, which today released the North American findings of its annual Global Investor Insights Survey. The survey polled pension funds, insurance companies, single family offices, endowments and foundations, and official institutions for their views on key investment and market themes including market volatility, active management, and public and private investments.
The survey uncovered that 54% of North American institutional investors expect that the next 12 months will be more volatile than 2022 – 2023 (Return of inflation) and nearly half (47%) believe the next 12 months will be more volatile than the Global Financial Crisis (2007 – 2010). When asked about the most significant macroeconomic considerations impacting their investment strategy in the next 12 months, 67% of North American institutional investors ranked tariffs and protectionist trade policies as their top consideration.
Volatile Markets
This volatile market environment has refocused investors’ attention on active management. A majority (68%) of North American institutional investors are confident that active management can deliver value in the new investment landscape and over three quarters (76%) are more likely to employ active management in the next 12 months than they were previously.
North American institutional investors are also recognizing the role of active management in building portfolio resilience (i.e., enhancing diversification / lowering volatility), which the majority (56%) of respondents ranked as their top priority for the next 12 to 18 months. Of this group, over three quarters (76%) said they are increasingly looking to harness active management to do so.
Respondents ranked diversification (62%), the ability to respond quickly to uncertainty (55%), and the potential to capture excess return (49%) as top factors driving confidence in active management.
Across traditional asset classes, North American institutional investors are favoring actively managed strategies. Of the respondents who selected public equities or fixed income as an asset class in which they are investing to access the best return opportunities, the vast majority (86% and 88%, respectively) believe an active or blended strategy is best positioned to deliver returns over passive approaches.
Tom Darnowski, CEO, Americas, said, “Active management has demonstrated its ability to dynamically adapt to changing market conditions, manage risk with greater precision, and uncover returns in areas where passive strategies may fall short. As public equities and fixed income remain core pillars in institutional portfolios, North American investors are increasingly recognizing this and are relying on skilled active managers to build resilient portfolios amid ongoing economic uncertainty.”
Private debt and credit alternatives are top of mind as investors look to generate income
As compared to their global peers, North American institutional investors are more interested in private debt and credit alternatives (PDCA) as an asset class to access the best return opportunities. Fifty three percent of North American respondents indicated PDCA as their number one area of interest within private markets, compared to 40% of global institutional respondents. Within PDCA, North American institutional investors highlighted direct lending (65%) and securitized products/asset-backed finance (44%) as asset classes that will deliver the strongest returns.
Half of North American institutional investors also reported favoring PDCA strategies for income generation in their portfolios over the next 12 months, the most popular response amid several public and private asset class options.
Private equity also continues to be prioritized, with an estimated 90% of North American institutional investors currently allocating to the asset class in some way. Among those invested, small and mid-cap buyouts (61%) and venture or growth capital (40%) are the most favored sub-strategies. For many, the appeal of private equity lies in its long-term return potential (66%) and its diversification benefits (52%).
Michelle Russell-Dowe, Co-Head of Private Debt and Credit Alternatives, Schroders Capital, commented, “In an environment defined by uncertainty, inefficiency, and volatile risk premiums, the ability to select well-collateralized debt, backed by strong borrowers and robust security packages, is a significant advantage of private debt and alternative credit markets. The ability to access diversifying and flexible income through the wide universe of securitized and asset-backed finance, defensive income through real asset debt, and uncorrelated income through insurance-linked securities, provides a valuable extension of the fixed income toolkit for investors.”
Market concentration is driving a shift toward global public equities
Public equities still rank high on investors’ lists as a return generator. Forty one percent of respondents indicated that they are considering investing in the asset class to access the best return opportunities. For those investing in public equities, 43% of respondents believe global public equities will deliver the strongest returns.
North American investors, though, remain more confident in public equities from their home countries compared to their global peers, with 30% indicating domestic equities will deliver the strongest returns, compared to 19% of global respondents.
Interest in global equities comes as concerns over market concentration rise. Eighty percent of North American institutional investors said the S&P 500 raises the greatest concern over market concentration, reflecting worries about the dominance of a few mega-cap stocks driving a disproportionate share of index performance.
To learn more about this year’s survey, please visit: https://www.schroders.com/en-us/us/institutional/global-investor-insights-survey-2025/
