• 52% of North American institutional investors say they have reallocated to equities
• 42% of investors surveyed say political risk is a top challenge
• Investing in alternative assets is top way to manage portfolio risks, survey says
• More than half of institutional investors look to new markets to generate alpha in 3-5 years

A new report released today by The Economist Intelligence Unit (EIU) finds that many institutional investors in North America have shifted their portfolios in favour of equities as a result of US political and regulatory uncertainty.

Risks drive North American investors to equities, for now, sponsored by Franklin Templeton Investments, is based on a survey of North American institutional investors and part of a global study entitled Changes on the institutional investment horizon. The report shows that 81% of North American institutional investors say that uncertainty in the US regulatory environment has driven them to reallocate their portfolios to a particular asset class. For 52% of investors surveyed, this asset class is equities.

Concerns about the unpredictability of the Trump administration, the ability of Congress to pass important policies such as corporate tax reform and infrastructure spending, and the future of US monetary policy have combined to dominate the outlook of institutional investors. The report shows 42% of North American investors say political risk is the top challenge to their long-term objectives, followed by the mispricing of risk and the economic growth cycle.

Alternative investments, such as private equity, real estate and hedge funds, have emerged as a mainstream choice among institutional investors for mitigating risks. When asked about the top ways to manage portfolio risks, 47% of respondents say increasing use of alternatives, 45% say asset-class diversification and 36% say risk budgeting.

In the next 3-5 years, many institutional investors in North America are hoping to generate returns above their benchmarks, or alpha, in untapped markets. More than half of investors (52%) say new markets are where the opportunities for alpha will be, while 44% and 43% of respondents respectively are looking to new products and regulatory arbitrage.

Kevin Plumberg, editor of the report, says: “US political and regulatory risks appear to have moved to the foreground for a lot for North American institutional investors, and as a result many have found perhaps temporary refuge in rising stock markets. However, they will need to be ready tactically to stay focused on their long-term goals as near-term risks evolve.”

Press enquiries:

Ross Jenkinson, Global Head of Marketing, Thought Leadership
+44 (0) 207 576 8047
[email protected]

Kevin Plumberg, managing editor, North America, Thought Leadership
+1 415 278-0883
[email protected]

Notes to editors

The report is based a survey conducted in June-July 2017. The EIU surveyed 571 institutional investors around the world. The research, which is a part of the Changes on the institutional investment horizon programme, explored how investors are adapting to changing fundamentals and risks, the effect on investment time horizons and asset allocations and the impact on long-term objectives. In North America, the survey included 143 respondents. Of these institutions, 64% are pension funds, 17% are corporate treasuries, 15% are endowments and 4% are sovereign wealth funds.

The North America report and other content is available for download at institutionalinvestmenthorizon.eiu.com, which also features a global executive summary and reports focused on the Europe, Middle-East, Africa region and the Asia-Pacific region.  

About The Economist Intelligence Unit

The Economist Intelligence Unit is the world leader in global business intelligence. It is the business-to-business arm of The Economist Group, which publishes The Economist newspaper. The Economist Intelligence Unit helps executives make better decisions by providing timely, reliable and impartial analysis on worldwide market trends and business strategies. More information can be found at www.eiu.com or www.twitter.com/theeiu.