Institutional investors are worried that non-economic factors such as geopolitical strife could have more of an impact on their portfolios than financial concerns and there is not much they can do to prepare, according to Boston-based Natixis Investment Managers’ survey of the world’s largest institutional investors.
The survey, which included 500 institutional investors managing $23 trillion in 27 countries, found that respondents were worried about bad actors and the impact they could have on the economy. For instance, 70% said that a growing alliance between Russia, North Korea, and Iran will lead to greater economic instability.
Many are worried about China with 64% believing its geopolitical ambitions will split the global economy into a western and eastern sphere. There is also worry about fragmentation with 73% expecting it to increase between the West and the emerging national economies of Brazil, Russia, India, China and South Africa (BRICS).
Complicating matters is the inability for institutional investors to adequately prepare for those situations, according to Dave Goodsell, executive director at the Natixis Center for Investor Insight. Institutional investors can prepare better for high inflation or slow growth than they can an aggressive world leader.
“There’s so much you can control in your own strategy,” he said. “It’s kind of this wild card that’s something outside of the norm happening that could throw all of this up in the air [and] that is a big sense of uncertainty for folks.”
Domestic issues have institutional investors worried as well as a little more than half, or 54%, believe the results of next year’s elections will be more relevant to the global markets than they have been in years.
If there is another disputed outcome, it could impact the markets, according to the survey. Seventy-two percent believe that another controversial outcome will mean increased market volatility and 71% said a partisan divide will negatively impact global markets.
“You can’t do anything for the unexpected and I think that’s where some uncertainty comes from in this,” Goodsell said. “They’re going to do the best they can and position themselves the best they can but, you have to prepare for what you can prepare for.”
While the study focuses only on the institutional investor market, Goodsell explained that it is still relevant to retail investors and their advisors. While the asset levels might be different, the circumstances are the same.
“Institutions outline the situation that everybody faces,” he said. “They are dealing with it the way that they can because they have scale, they have assets, [and] they have the ability to do what they need there.”
Another domestic worry institutional investors have is with a potential recession and its severity. It is a mixed bag as 62% believe there will be a recession and of that group, 74% said it will be painful or very painful.