Institutional Investor Study Shows Risk Taking Rises with Inflation Expectations

Insights derived from Fidelity’s Institutional Investor Innovation Study can help institutions assess risk and opportunity and the best path forward in a time of profound change and heightened volatility in global financial markets.

Rising concern about addressing inflation is now top of mind for institutional investors. Compared to fall of 2021, more institutions believe we've entered a secular period of higher inflation: 40% versus 24% previously. Importantly, 78% of institutions increased their near-term inflation expectations over the past year. They expect an average inflation rate over the next two years of 4.8%. Institutions indicated they would turn to traditional inflation-hedging assets, such as real estate, shorter duration bonds, commodities, or Treasury inflation-protected securities (TIPS). However, support for cryptocurrencies as an inflation hedge declined to 6% from 16% in our previous survey.

Nearly half of institutions (43%) indicated they're taking on more total risk than three years ago, up from 39% reported in the last survey. A majority of those surveyed—62%—said they are comfortable with the level of risk they are taking in their portfolios. Of those respondents, 68% attributed their comfort level to their current strategic asset allocation.

For almost 20 years, Fidelity has been conducting primary research to understand decision-making among institutional investors and provide a benchmark for firms of varying types and sizes. Using a new framework we call the Investment Innovators Curve, this year’s study seeks to help firms define and understand the philosophical drivers of their organization and their investment approach.

With macroeconomic changes potentially on the horizon, organizations are beginning to see headwinds that will pressure them to squeeze returns out of lower yields and with a higher risk profile. This may be a natural time for reflection on how your firm will navigate these changes. We believe that adapting and applying the Investment Innovators Curve can provide investors with new and meaningful insights into the levers that they and their peers push on while pursuing their portfolio objectives.

Investment leaders can consider where they sit on the Investment Innovators Curve, based on their organization’s ability and willingness to experiment with new investment approaches or asset classes. Where does your firm fall on the curve?

^{Unless otherwise noted, all data are from the 2022 Fidelity Institutional Investor Innovation Study, which polled chief executive officers, chief investment officers, treasurers, and other investment executives at 500 institutions in the United States. At the time of the survey, these institutions represented $10T (USD) in assets under management across public sector defined benefit plans, corporate defined benefit plans, insurance companies, defined contribution plan sponsors, endowments and foundations, family offices, private banks, and sovereign wealth funds. Respondents were asked a range of questions about their portfolio objectives, market perspectives, asset allocation, investment philosophy, and investment process. Fidelity Asset Management Solutions (FAMS) conducted the survey from March to May 2022. The survey was executed in association with global research consultancy CoreData Research. All respondents completed an online questionnaire, which was then supplemented by 11 in-depth qualitative interviews with survey respondents at pensions, as well as with endowments and foundations.}

^{Information provided in this document is for informational and educational purposes only. To the extent any investment information in this material is deemed to be a recommendation, it is not meant to be impartial investment advice or advice in a fiduciary capacity and is not intended to be used as a primary basis for you or your client's investment decisions. Fidelity and its representatives may have a conflict of interest in the products or services mentioned in this material because they have a financial interest in them, and receive compensation, directly or indirectly, in connection with the management, distribution, and/or servicing of these products or services, including Fidelity funds, certain third-party funds and products, and certain investment services.}

^{Pensions & Investments is an independent entity and is not affiliated with Fidelity Investments.}

^{Fidelity Institutional® (FI) provides investment products through Fidelity Distributors Company LLC; clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC; and institutional advisory services through Fidelity Institutional Wealth Adviser LLCSM.}

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