Institutional investors less confident about meeting return targets

Yield generation is the top challenge, a Fidelity survey shows; 40% of those surveyed say they have to take on more risk to achieve the same returns.

Institutional investors managing more than $12 trillion in assets are less confident about their ability to outperform against return targets over the next three years, according to a survey by Fidelity.

Only 54% expressed confidence in their ability to do so, the survey found, while 40% say they are being forced to take on more risk to achieve the same level of return. Thirty-nine percent say they are taking on more total risk in their portfolios than three years ago, and 37% say they’re not comfortable with the total level of risk in their portfolios.

Institutional investors in the study overall reported an asset allocation of 63.5% to active, 28.9% to cap-weighted passive and 7.6% to non-traditional passive (e.g., factors, non-cap weighted and “smart/strategic beta”).

Respondents reported that by 2025, they expect to make additional changes: For active, 31% expect to increase their allocations, 47% expect no change and 22% expect to decrease their allocation. For cap-weighted passive, 23% expect to increase their allocations, 54% expect no change and 23% expect to decrease. For non-traditional passive, 23% expect to increase their allocations, 69% expect no change, and 7% expect to decrease their allocation.

Fidelity surveyed 500 executives, including CEOs, chief investment officers and treasurers, at U.S. institutions, including public and corporate pension plans, insurers, defined-contribution plan sponsors, family offices and sovereign wealth funds.