Institutional investors around the world are taking concerted action to better position their portfolios for the future from increasing investments in infrastructure and private assets to better quantifying the risks and opportunities of climate change. 

A new Nuveen survey of 800 global institutional investors found 59% of investors are either “actively rethinking” (31%) their portfolio strategies, “redefining and reallocating” (27%) or setting the reset button on their portfolios. 

“Across the board, global investors are reassessing their views on risk and return, and preparing for a new market regime,” said Mike Perry, Head of Nuveen’s Global Client Group.  

“Institutional investors typically take a measured, incremental approach to portfolio changes. That makes the degree to which investors today are contemplating or making very significant changes even more striking.”  

Insurance companies are more likely than other institutional investors to be “actively rethinking,” “reallocating” or “setting the reset button”, with 70% doing so.  

Nearly half (48%) are reformulating how they calculate capital market assumptions, 38% are making significant tactical allocation changes and 27% are making foundational changes to their strategic asset allocation. 

Investors are responding to an extraordinarily turbulent investment landscape, marked by surging inflation and extreme market volatility, war, climate disasters, and political and social unease. 

Investors picked energy supply disruptions, population demographic shifts and deglobalisation as key megatrends that will impact their portfolios over the next five years.  

In APAC, 84% of investors agree that our world is changing dramatically and portfolio strategies need to keep pace; 77% say that the influence of geopolitics, in particular, on investment strategies is much more significant today than it has been over the last 30 years.  

More than two-thirds of investors of APAC asset owners (67%) agree that the current investment environment is like nothing they’ve ever witnessed.  

Recognising the need to make significant changes given current market environment, 62% of APAC investors are actively rethinking, redefining and reallocating or setting the reset button on their portfolios.  

“The current environment has prompted investors to identify and take advantage of opportunities in sectors they may have previously overlooked,” said Perry.  

“They’re also focusing on newer, evolving portfolio goals, such as climate risk and impact.” 

Globally, most institutions (64%) are dialling up inflation risk mitigation; 64% expect to employ inflation-fighting strategies for two or more years.  

“The investor consensus is that inflation will continue to be a threat to portfolio returns through at least 2024,” said Perry.  

78% of APAC public pensions are likely to be implementing inflation risks mitigation. Investors around the globe are looking at a variety of assets to help weather inflation.  

While the top pick was private infrastructure, other popular choices were public equities, commodities, inflation-linked bonds and private real estate.  

Investors are also continuing to lean into private markets.  

Even with the decline in public market valuations causing portfolio balances to shift more heavily toward private markets, most global investors are planning either a gradual (63%) or significant (8%) increase to private assets over the next five years.  

More than half (54%) of APAC investors plan to increase portfolio liquidity over the next 12 months, with 79% planning to increase allocations to private markets over the next five years.  

This number is even higher for APAC insurers, 90% of whom have indicated plans to increase allocations to the private markets. 

Compared with recent years, interest in alternatives has surged: in 2020 and 2021, about 25% to 35% of global investors said they planned to increase allocations to the major categories of alternative asset classes.  

In 2022, the numbers grew to the 43% to 58% range. For APAC investors, private equity was the most commonly picked asset for investors planning to increase their alternative allocation (chosen by 62% of those surveyed), followed by infrastructure (chosen by 61%).  

They also considered real estate (54%) and private credit (45%) in the planned increased allocation to alternatives.  

Investors indicated that they are using infrastructure for a host of solutions. Private infrastructure was the top pick for inflation-risk mitigation and infrastructure debt was one of the top choices for allocations to alternative credit for APAC investors.  

In addition, infrastructure was picked most often as the asset class investors are prioritizing for their climate risk strategy.  

“Investors are turning to infrastructure to help protect portfolios from inflation among other critical needs, such as increasing yield and mitigating climate risk,” said Perry. 

“Infrastructure’s ability to play multiple roles is a key driver of increased allocations.” 

Globally, most investors either currently (61%) or plan to (22%) consider climate risk when making investment decisions.  

“These considerations can result in actions such as investing in new green energy opportunities, reducing allocations to companies or industries with high carbon emissions, and actively engaging with management teams to advocate for more climate-aware policies,” said Amy O’Brien, Nuveen’s Global Head of Responsible Investing.  

Of investors considering or planning to consider climate risk, two in three (67%) say climate risk is a key factor in risk management today more so than five years ago.  

Globally, 44% say they report on climate risks and metrics and 38% say they are still exploring how to build a reporting framework.  

Only 16% say they do not report on climate risk to stakeholders or regulators.  

“Though most investors are early on in developing specific climate risk reporting procedures, the high percentage of investors focusing on climate risk illustrates just how central it is to many investors’ portfolio objectives,” said O’Brien. 

78% of investors in APAC consider, or plan to consider, the impact on the environment and society when making investment decisions, this is slightly higher than the global figure, which sits at 74%.  

Of this group in APAC, 67% agree that impact investments will be an increasingly important allocation for them in coming years.  

45% of global investors say they expect to get the same return from an impact investment as from a comparable traditional investment; 23% don’t and 32% are neutral. 

“Impact investing is still a new area for many investors, but as the number and variety of investments expand and the track record gets longer, it’s becoming more and more important, and investors are becoming more knowledgeable and comfortable with the space,” said O’Brien.  

“Allocation to impact investments is an issue of both financial performance and credibility – and we can solve for both of those through more robust and standardized measurement, transparency, and reporting.”  

Among impact-focused investors globally, 48% of investors globally align impact with their climate strategy goals, so unsurprisingly the top picks for impact investing were energy innovations (69%) and infrastructure projects (62%).  

But social investments were also selected, with 33% of investors indicating interest in affordable housing.