Institutional investors prioritize private alternatives, energy innovations and infrastructure In new market regime
- Majority of investors (55% Global/40% NORAM/62% EMEA/63% APAC) believe
that they can significantly influence the progress of energy transition through
investments; alternative energy and new infrastructure projects top the list
- More than half (55% Global/60% NORAM/49% EMEA/59% APAC) plan to
increase exposure to private alternatives, with private credit and private equity
allocations as leading choices
- Corporate debt is the top pick across the fixed income spectrum; almost half of
investors (48%) plan to increase allocations to investment-grade fixed income;
40% plan to reduce equities
Many investors are significantly reformulating their approach to risk
management and asset allocation as they diversify their portfolios in response to heightened
geopolitical tensions, higher rates, ongoing market volatility and upcoming elections.
“In our regular client engagements and in our recent survey of more than 800 institutional
investors, we took a pulse on how $18 trillion of assets will be put to work and managed in the
next one-to-two years,” said Mike Perry, Head of Nuveen’s Global Client Group.
“Three clear themes are dominating investors’ focus as they position portfolios in the new
regime. First is the huge appetite for exposure to energy innovations and infrastructure projects
as the energy transition plays out. The second is private credit and private equity being
prioritized among growing allocations to alternatives,” Perry said. “Lastly, as a way to position
themselves to take advantage of these timely opportunities, investors are holding portions of
their portfolios in higher-quality, liquid fixed income instruments.”
Investors See Their Influence in the Energy Transition
More than half (55%) of global investors responding to Nuveen's annual EQuilibrium Global
Institutional Investor Survey feel they can significantly influence the energy transition through
their investments, with 57% indicating that they have or are seeking exposure to alternative
energy (renewable, nuclear, hydrogen). In addition, 51% are interested in allocating to new
infrastructure projects, including new energy storage/grids and battery storage.
Across the Asia Pacific region (APAC), interest in nature-based solutions among corporate
pension funds was above average and, in Germany, pension funds showed higher than average
interest in carbon credit markets. North American public pensions showed higher than average
interest in legacy infrastructure upgrades.
Almost 90% of investors (88% Global/81% NORAM/93% EMEA/89% APAC) are focused on the
energy transition in some way. The smallest group, representing 9%, are first movers in the
transition. The largest cohort (37%) is "keeping pace,” structuring portfolios to reflect the
current energy mix in the economy, while 23% are “getting started” and 19% are doing what is
needed to meet regulatory requirements.
“Investors clearly understand their influence, and see government policy and technical
innovation as the biggest tailwinds for investments in the energy transition for the year ahead,”
said Perry. “Thirty-nine percent consider politicization to be the biggest headwind,
highlighting the importance of partnering with active managers who have robust experience
sourcing and navigating the most attractive opportunities.”
Private Markets Deemed Attractive
Investors are continuing to allocate to private markets, with 55% (60% NORAM/49%
EMEA/59% APAC) planning to increase allocations over the next five years with private credit
and private equity allocations as leading choices. The trend, however, is less pronounced than in
last year’s survey, when 72% (73% NORAM/67% EMEA/79% APAC) planned to increase to
privates.
Some investors also are planning to increase allocations to private real estate (24%),
commodities (22%), hedge funds (21%), private placements (19%), timberland and farmland
(both 12%).
Public pensions in APAC are leading the way, with 72% planning to increase private investments
over the next five years. North American insurers and endowments/foundations are not far
behind, at 68% and 71%, respectively.
Private credit and private equity were deemed the most attractive asset classes among investors
looking to lean into alternatives, led by North American public pensions (57% plan to increase
private credit) and Japanese investors (59% plan to increase private equity). While interest in
private credit and private equity is generally strong across all regions, it was not the top pick
everywhere: private infrastructure was the top pick for German investors (53%).
Many Investors Looking to De-Risk
Nearly two thirds (65%) of investors (62% NORAM/68% EMEA/63% APAC) surveyed say we
are in a new market regime that is reshaping how they manage risk and return. Eight of 10 (81%
NORAM/81% EMEA/78% APAC) say we have left the era of ultra-low interest rates and are
entering a higher-for-longer interest rate environment.
Half of investors (50% Global/53% NORAM/48% EMEA/50% APAC) plan to increase portfolio
duration in 2024; in last year’s survey, just 39% of investors were planning to increase duration.
At the same time, the percentages of investors planning to increase “inflation risk mitigation”
and “cash” have decreased compared with last year’s survey (from 64% to 41% and from 41% to
37% respectively).
For liability-driven investors, higher interest rates and the resultant improvements in funded
statuses represent an opportunity to de-risk portfolios by adding duration.
The normalization of interest rates has created new opportunities for many investors to de-risk,
moving away from equity markets toward high-quality public and private fixed income.
Compared with last year’s survey, significantly more investors are decreasing equity exposure
(40% Global/33% NORAM/44% EMEA/44% APAC) than increasing (28% Global/25%
NORAM/26% EMEA/37% APAC).
Almost half of investors (48% Global/49% NORAM/49% EMEA/44% APAC) say they plan to
increase allocations to investment-grade fixed income, likely reflecting investor expectations
regarding a coming economic slowdown. Thirty-eight percent plan to increase allocations to
private fixed income, where investment grade credit is the top pick.
About one in five investors also indicated that, over the next two years, they planned to increase
allocations to public securitized debt (CLOs, MBSs, etc.; 22%) and below investment grade fixed
income (high yield, broadly syndicated loans, etc.; 21%).
“Across all fixed income segments, corporate debt is attracting interest from investors.
Corporates were the top choice for investors allocating to investment-grade and below
investment-grade fixed income markets as well as private fixed income markets. Investors are
seeing greater value than before in these fixed-rate debt instruments. And for liability-driven
investors, high-yielding fixed coupon bonds have become an attractive way to enhance their
liability matching,” said Perry.
While investment-grade corporate credit was the top choice overall for planned private fixed
income allocations, there was dispersion across investor types. Insurance companies show a
stronger preference for private infrastructure debt while endowments and foundations picked
private opportunistic and North American public pensions strongly preferred senior middle
market loans.