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Institutional investors double their equity exposure over the past year

Equity holdings in multi-asset funds surpassed their long-term average

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Institutional investors have doubled their exposure to equities over the past year according to Bfinance’s latest Manager Intelligence and Market Trends report.

After interviewing asset managers from around the world, the study found that equities now make up 38% of multi-asset portfolios, surpassing the long-term average of 35%.

Institutional investors appear to have returned to their pre-Covid bullishness, with the firm’s Risk Aversion Index falling to its lowest level since before the pandemic in 2020.

The report noted that this rally to equities has happened without any major central bank cutting their interest rates. When they do, it said this could add fuel to already-improving risk sentiment.

For now, high interest rates and other economic uncertainties remain a key consideration for institutional investors despite their renewed appetite for equities.

The report said: “Considerable macroeconomic uncertainty persists and continues to affect decision-making. Investors continue to acclimatise to a world of higher interest rates as central banks continue their persistent battle with elevated levels of inflation, particularly in more developed markets.”

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Even so, institutional investors are looking ahead and taking a more active interest in listed companies, with searches for equities rising from 17% to 33% over the past year.

In last year’s report, investors were primarily interested in global equities (59%), but this dropped to 42% by 2024. Instead, they have taken more interest in equities from other developed countries (26%) and emerging markets (24%).

Improving risk sentiment may have broadened institutional investors’ search for equities, but private equity was of the highest interest to them over the past year.

While searches for private equity did drop from their highs of 58% last year, it remains the most popular asset class among institutional investors at 43% today.

Although it does remain the most in-demand asset class, the report said there was an ongoing “industry-wide softening” towards private equity.

It read: “While this sector still demands the lion’s share of all search activity, it is a significant drop on the 58% recorded in the previous 12-month period.”

This story was written by our sister title Portfolio Adviser

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