What are the allocation priorities for investors with $18T in assets?

With some $18 trillion in assets, how are some of the world’s largest investors reading the market and planning their allocations for the next 18 months?

A new report from Nuveen asked 800 institutional investors across the world, with one-third from North America, about their asset allocations and expectations for the markets to determine where the big money is being focused.

With energy transition high on the agenda, 55% of respondents (40% in North America) believe they can significantly influence its progress through investments with alternative energy renewable, nuclear, hydrogen) and new infrastructure projects (including energy storage/grids/battery storage) prioritized. However, only 9% are "first movers," with the largest cohort (37%) simply keeping pace.

North American public pensions showed higher-than-average interest in legacy infrastructure upgrades.

"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," said Mike Perry, head of Nuveen's global client group. "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."

PRIVATE MARKETS

Another key focus for global institutional investors are private markets, with 55% globally planning to increase allocations (60% in North America) with private credit and private equity leading the allocations, especially among North American pension plans (57%).

Smaller shares of respondents are looking at increasing their exposure to real estate (24%), commodities (22%), hedge funds (21%), private placements (19%), timberland and farmland (both 12%). 

The report also found a strong requirement and intention to de-risk as respondents firmly believe the era of low interest rates has been replaced by higher rate for longer. This will include moving away from equity markets toward high-quality public and private fixed income.

Half of investors plan to increase portfolio duration in 2024, a turnaround from last year, when 39% were planning to increase duration. The share of investors planning to increase "inflation risk mitigation" and "cash" have decreased.

"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.