U.S. institutional investors are looking to allocate more of their portfolios to alternative investments as a way to combat inflationary pressures, according to a new report from research firm Cerulli Associates.
The report lands near the end of a tumultuous year marked by war in Ukraine, persistent inflation and market volatility. Also, looking ahead, several asset and wealth managers are forecasting lower expected returns for equities. For example, Vanguard Group projects his 10-year annualized return on U.S. stocks to be just 4.7-6.7%.
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Overall, this is a difficult road for institutional investors, including pension schemes, endowments and foundations.
“Institutional investors are operating in a very different market environment in 2022 than in previous years as a result of sustained inflation,” Chris Swansea, senior analyst at Serli Associates, said in a statement. . “Many institutions are evaluating investment options that can help prevent a decline in their assets and funding status.”
According to Boston-based Cerulli Associates, 44% of institutional investors want to increase their allocation to alternative investments. In contrast, only 24% of those surveyed said they planned to increase their exposure to equities.
Institutional investors, in particular, are focusing on infrastructure and real estate investments as a hedge against inflation. They also want to invest more in private equity, private debt and hedge funds to enhance returns, according to Cerulli Associates.
Some institutional investors, especially defined benefit pension plans, are also seeking help with their portfolios. About a third of institutional investors plan to increase their use of investment consultants in the next 24 months, according to Cerulli Associates.
“Many plans are seeking guidance to navigate turbulent markets as inflation, rising interest rates and falling capital market expectations lead to lower asset values and higher future liabilities,” Swansea said. Stated.
Write to Andrew Welsch at andrew.welsch@barrons.com.
