A survey delves into the details of what institutions, such as family offices, think about the economic outlook, private markets, and technologies such as AI.

A survey of 216 North American institutional investors, including family offices, found that almost two-thirds (63 per cent) of them think that the US elections on November 5 are just short-term noise, and 73 per cent of them are invested in private markets. 

Endowments and foundations are the keenest on private markets, with 80 per cent taking this view, according to a Global Investor Insights Survey from Schroders, the UK-listed wealth and investment firm. 

The respondents, which are collectively in charge of $74.5 trillion in assets, were polled in June and July. Geographically, 114 of those polled are in the US, 92 are from Canada and 10 are in Bermuda. Across the whole global survey, 2,830 were surveyed.

Monetary policy and economic uncertainty are top-of-mind concerns in terms of institutional portfolio performance. North American institutional investors anticipate that central bank policy (75 per cent), high interest rates (71 per cent) and the potential for an economic downturn (62 per cent) will have the highest influence over clients and overall portfolio performance over the next 12 months. Inflation risk was also a key factor for 63 per cent of pension funds, as was geopolitics for insurance companies (62 per cent) and endowments and foundations (70 per cent).

β€œMany institutional investors understand that the immediate impact the election has on the markets is temporary and that a well-informed, long-term view is crucial in constructing a resilient investment strategy. However, that still leaves nearly two in five institutions that are changing their risk profile, demonstrating that many anticipate long-term policy changes tied to the results,” Adam Farstrup, head of multi-asset, Americas, said. β€œWe may not know the outcome of the election, the next turn in markets, or the next geopolitical surprise – however, building a broadly diversified portfolio meant to weather various market cycles and events is key to pursuing strong returns amid all economic concerns, known and unknown.”

Artificial intelligence
AI is beginning to make its way into institutions and their investment processes. A majority of North American institutions across segments have either a somewhat positive or very positive sentiment toward incorporating AI into their work, particularly within investment research and portfolio construction internally (59 per cent) and for internal operational processes within an organization (54 per cent). 

Despite this, not that many institutions have actually incorporated it. Only about a third have adopted AI for internal operational efficiency (34 per cent) and for investment research and analysis (31 per cent). Additionally, nearly one in five (20 per cent) North American institutions are not using AI but have plans to do so over the next one to two years.

Within the asset class, overall, respondents identified private equity and private debt as the top two areas where they would be increasing allocation over the next 12 months.

In addition to the energy transition, the survey also identified technology as a key theme driving private equity investment. Sixty-three per cent of respondents identified the technological revolution, defined as a period where new technologies are rapidly adopted and spread causing significant changes in society and the economy, as a theme or sector that they are seeking to proactively allocate to via private markets in the next one to two years.