Inflation, geopolitical uncertainty and the risk of a global recession are just some of the challenges that asset managers are navigating as they make decisions on portfolio allocations.
With unique economic conditions shaping a volatile stock market, institutional investors are tasked with delivering high earnings and stability to their clients while meeting a growing appetite for sustainable, socially conscious investments that customers can feel proud of.
The rise of digital assets and cryptocurrencies is also playing a significant role in asset managers’ decision-making. With everything from bitcoin to real assets on the table, the institutional investor playbook is transforming.
Our latest US Institutional Investor Brandscape® report shows that institutional investors are turning their attention to alternative investments at unprecedented levels. The report, which identifies key trends in investment strategy and asset manager selection, use and loyalty, found that three-quarters of asset managers are now using private equity. Nearly eight in ten hold real assets or commodities, while 42% report allocations to digital assets and cryptocurrencies, a 50% increase from 2021.
Meanwhile, concerns about environmental instability and an increased awareness of Diversity, Equity and Inclusion (DE&I) investments are playing an elevated role in allocation decisions. Institutional investors—and their clients—are increasingly aware of the social and environmental impact of portfolio allocations and feel a responsibility to select investments that reflect a commitment to the world’s well-being.
Adding to the landscape is enhanced scrutiny of asset managers’ commitment to DE&I. Institutional consultants and outsourced chief investment officers expect asset managers to demonstrate and adhere to DE&I practices and policies. Almost two-thirds of asset managers say that an Environmental, Social and Governance (ESG) strategy is a top priority, and nearly one-third indicate that DE&I is highly influential in their allocation decisions.
It’s not surprising to see sustainability take a front seat in portfolio allocation decisions. As growing public concerns about the environment echo across headlines and through government chambers, the market is feeling the heat, too. Today’s institutional investors want their portfolios to reflect the impact they wish to have on the world—and a sustainable future is top of mind. In response, asset managers are expanding ESG investment allocations, citing climate change, sustainability and growing support for nuclear energy as leading decision influencers.
With an increasingly complicated geopolitical, environmental and social landscape to navigate, institutional investors are getting creative in their approach to stable and profitable assets for their clients, investing in private equity, real estate and commodities alongside more traditional investments.
A growing social awareness, coupled with the emergence of market disruptors such as digital assets and cryptocurrency, is redefining the investment landscape and providing asset managers with new opportunities to diversify portfolio allocations while aligning investments with a broader social and environmental agenda.
With values-based investing on the rise, profit is no longer the sole benchmark for institutional investors. Asset managers have an opportunity to connect with clients on what really matters to them—strengthening that all-important customer relationship. And as the pandemic wanes, face-to-face interactions are a welcome return for investors and asset managers, demonstrating the one constant in the institutional market—the importance of personal connection.
To learn more about trends in investment strategy and asset manager selection, click below to review what’s included in the full US Institutional Investor Brandscape report.