Institutional investors are optimistic about 2025, even as they continue to see valuations and interest rates as the leading risks to their portfolios, according to a survey by Natixis Investment Managers.
The survey of 500 institutional investors found that while the macroeconomic environment shows signs of stabilisation, concerns about equity fundamentals and central bank policies remain significant.
Economic downturn fears have receded, with the proportion of respondents anticipating a recession in 2025 falling to 30% globally from 51% in 2024. In the UK, 33% still expect a recession, but the majority predicted a soft landing for the economy. Inflation worries have also eased, with 68% globally confident that inflation will meet target levels in 2025, though UK respondents remain slightly more cautious about potential volatility.
Valuations have emerged as the top market risk for institutional investors, with 67% globally and 81% in the UK concerned that equity valuations are misaligned with company fundamentals. After two years of a tech-driven bull market, three-quarters of respondents surveyed said they believe 2025 will shift toward greater market scrutiny of valuations.
Despite this optimism, investors (72%) view central bank policy as the determining factor for sustaining the current market rally. Interest rates emerged as another major concern for 43% of respondents globally, while volatility remains a pressing issue for 44% of UK investors.
Six in ten institutional investors shared they believe that a 60:20:20 allocation incorporating alternative investments will outperform the traditional 60:40 stock-bond mix. Private equity was the standout choice, with 73% of global respondents, and 62% in the UK, expressing bullish sentiment for the year ahead. Anticipated interest rate cuts are seen as a key driver, with 78% of global investors, and 75% in the UK, predicting improved deal flow in private markets. Additionally, about three-quarters of respondents expect an increase in private debt issuance to meet growing borrower demand.
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Emerging markets, particularly in Asia excluding China, are gaining renewed attention from institutional investors. Over 62% of respondents globally and in the UK said they see Asia ex-China as the top emerging market opportunity for 2025. This reflects a shift away from China, where nearly 79% globally, and 81% in the UK, believe slower growth will become the “new normal.”
Active management is expected to remain a priority for institutional investors in 2025. Nearly 70% globally believe the markets will favour active management, a sentiment echoed by 77% in the UK. Fixed income, in particular, according to the survey, is an area where active management is deemed essential, given the evolving interest rate landscape.
The proportion of institutions actively de-risking their holdings has fallen to 48%, while 40% are now taking on more risk. According to the researchers, this shift reflects optimism in their ability to adapt to economic pressures and seize opportunities in a changing global market.
Andrew Benton, executive managing director and head of Northern Europe and Meaca, Natixis Investment Managers, said, “Institutional investors are approaching 2025 with a greater sense of optimism. While they see an array of risks on the horizon, they appear confident in theirs and the market’s ability to withstand geopolitical pressures and for potential macroeconomic shifts to come out on top. The survey results also show a strong desire for active management to help navigate volatility, particularly across fixed income markets in 2025”
