The macroeconomic outlook at the end of 2024 appears positive: inflation is decreasing, and interest rates are falling. Despite this, valuations (for 47% of institutional investors) and interest rates (for 43%) remain the primary concerns for portfolios in 2025, according to the results of a new survey* by Natixis Investment Managers (Natixis IM).
As explained by the firm, following a two-year bull market where much of the gains have been concentrated in technology stocks, up to 67% of respondents believe that equity valuations currently do not reflect fundamentals. However, there is optimism among respondents, with 75% stating that 2025 will be the year when markets realize valuations matter. Nonetheless, 72% emphasize that the sustainability of the current market rally will depend on central bank policies.
Improving Sentiment
One of the key findings of this survey is that sentiment has improved drastically over the year. For example, there is a more positive view of inflation, with over three-quarters of respondents globally believing that inflation will either decrease or remain at current levels (38%) in 2025. Overall, 68% are confident that inflation will meet expected levels next year, while 32% remain concerned about potential inflation spikes in the global economy in 2025.
Economic Threats
Despite this optimism, institutional investors still see a wide range of economic threats for the coming year. Their biggest concerns are the escalation of current wars (32%) and U.S.-China relations (34%). While their market outlook may be optimistic, institutional investors remain realistic: despite the relatively calm performance of major asset classes during 2024, many respondents globally anticipate increased volatility in equities (62%), bonds (42%), and currencies (49%) in 2025.
Moreover, although confidence in cryptocurrencies has more than doubled (38% compared to 17% in 2024), given the speculative nature of this investment and its usual volatility, 72% state that cryptocurrencies are not suitable for most investors, and 65% believe they are not a legitimate investment option for institutions.
However, portfolio plans show high confidence, with 48% of respondents actively de-risking their portfolios. “Moreover, four out of ten Spanish institutional investors state that they are actively taking on more risk in 2025,” noted the firm.
Private Market Boom?
Another conclusion of the survey is that institutions plan to continue increasing their investments in alternative assets in 2025, with 61% of respondents expecting a diversified 60:20:20 portfolio (with alternative investments) to outperform the traditional 60:40 stocks-to-bonds mix. Regarding where to allocate the 20% alternative portion, institutions are clear about wanting to add more private assets to their portfolios.
Among all options, 73% are most optimistic about private equity in 2025, a significant increase from the 60% who felt the same a year ago. “This is likely to change throughout next year, as 78% believe rate cuts will improve deal flow in private markets, and 73% of respondents anticipate more private debt issuance in 2025 to meet growing borrower demand,” Natixis IM explained.
In terms of their approach to private investments, 54% report having increased allocations to private markets, while 65% are exploring new areas of interest, such as opportunities related to artificial intelligence.
Markets Will Favor Active Management
Finally, a noteworthy finding is that 70% of institutional investors believe that markets will favor active management in 2025, while 67% said their actively managed investments outperformed benchmarks over the last 12 months. “Given the changing interest rate and credit environment, institutions are likely to benefit from active investing. Overall, 70% of respondents stated that active management is essential for fixed-income investing,” concluded the firm.
Natixis IM interviewed 500 institutional investors managing a combined $28.3 trillion in assets, including public and private pension funds, insurers, foundations, endowments, and sovereign funds worldwide.
For Funds Society, Madrid
For Beatriz Zúñiga