Institutional Solutions Insights

The unwinding of “Trump trades,” a spike in volatility and the outperformance of European versus US equities have sparked debate about whether this is a tactical shift or the beginnings of a longer bearish trajectory for markets.

The risk of higher equilibrium inflation is a key marker of the notion that investors face a new regime. Recent policy announcements have lent more weight to the idea that the path of inflation might be upward. In this note we focus on the disparate forces that imply a higher long-term level of inflation.

This essay considers the role of tokens and crypto assets as investments.

We started the year having discussions with a large number of chief investment officers (CIOs) and allocators. In this short note, we reflect on the key common messages that came out of those discussions, points of consensus and important open questions for the outlook. We reflect on how those perspectives overlap with our view that a change in macro regime is the most likely description of the outlook. There was strong agreement among investors on a positive view for risk assets and an overweight position in the US. The area of most agreement in terms of where to increase allocations was private assets, especially private debt. We discuss the key issues that investors have raised across equities, fixed income and alternative assets, and also their views on crypto.

This note outlines five investment themes for 2025. These are not necessarily trades for the coming year, but rather issues that asset owners need to think about—even if some implications are longer term. They are topics which we believe necessitate a change in investors’ expectations and in their asset allocations.

A fast energy transition incurs social and political costs that will probably be deemed unacceptable. It is imperative for investors to consider the ramifications of an energy transition that exceeds a timeframe beyond 2050.

In this note we summarise the key talking points that came up in meetings with investors over the last four months. We hope this is a useful summary of what is on investors’ minds and of our views on these topics. The key issues that investors wanted to discuss were debt sustainability, hard versus soft landing and the appropriate allocation to real and private assets.

While there is a very active debate between investors about the tactical prognosis for the market, and with good reason, there are also controversies that relate more to market structure. We explore a number of these topics in this note and what they mean for investor positioning.

In this video, we make the case that the role of bonds and pension allocations is set to change.

Hello I’m Inigo Fraser Jenkins and in this video I discuss some of the key investment conclusions from our recent book review essay called Machines, Democracy, Capitalism and Feudalism.

The early august sell-off was, it turns out, remarkably brief. And while it is now behind us, we think it is useful to take some messages from that for adjusting investor positioning.

We gathered a group of AB’s senior investors across asset classes last week to reflect on the recent bout of market volatility and what it means for future positioning

The combination of increased longevity, higher equilibrium inflation and lower growth rates implies that the strategic asset allocation of pension systems is likely to change.

What separates managers from the pack? Karen is joined by Alla Harmsworth, Co-Head of Institutional Solutions, to discuss the world of fund manager selection.

What is the impact of AI on the strategic outlook?

What are the key issues facing asset owners in the macro environment, the outlook for capital markets, strategic allocation and the future of the investment industry?

Our latest quarterly note considers the interaction of tactical and strategic views. One complication for investors is that there has been a significant muddying of the waters between cyclical and structural inflation, even though the forces at work have been very different.

In this note, we discuss feedback from recent meetings with clients around the world, where common themes emerge: The cyclical vs structural inflation outlook has become more muddied.

In this note, we discuss five recent books that we think are important for contemporary debates about the strategic outlook. This is not a traditional book review that intends to offer a detailed overview of the whole work in each case. The publications have been chosen as recent books that fit into the debate about what we see as the core fundamental and strategic issues that will change the way investors must think about how they invest, govern their decisions, form views and, ultimately, design portfolios. It is these aspects of the books that we draw out and discuss, offering conclusions for investors

Historically, UK DC pension plans have struggled to invest in private markets. But today, new investing approaches can enable DC savers to access the return potential of markets such as private credit.

Benchmarking might sound like a curious topic, but we think the subject will attract more attention in the future. We are in an industry that loves benchmarks and is awash with them, but are the current benchmarks any good? What might a better approach look like?

In this quarterly paper we look at recent flow activity across asset classes discussing which aspects of these trends seem set to persist and what this means for asset allocation.

Three mega-forces seem set to dominate the investment landscape for the next decade or longer, with major implications for the macro regime and portfolio design.

We think the approach to benchmarking used by much of the industry should be questioned. Our thesis is that we are in a new regime, with different structural forces compared to those that existed prior to the pandemic. This raises questions about the validity of benchmarks that were set before.

Building a low-carbon equity strategy requires a wide view of the forces shaping businesses and returns, including climate change.

We spent several days in late January with a group of Chief Investment Officers and senior asset allocators. This was useful both as a way to hear the key concerns for a significant group of investors and as an opportunity to think about what one might do in response. The focus of the discussions was very much strategic, so (thankfully) the path of central-bank interest rates and soft versus hard economic landing were not among the topics. Instead, the debate was on structural macro forces, the long-term outlook for returns, how various parts of the investment industry might fare, and what all this means for the broader economy. In this short note, we will summarize a few of the key topics that we think are of general interest.

This is not an outlook in the traditional sense of what we expect to transpire in 2024. Instead, we address the key portfolio allocation questions we think will need to be discussed this year, even if their effects may not play out for years

Insurers likely face a very different investment regime today than they have in the past, with higher and more volatile interest rates as well as structurally higher inflation.

As investors prepare to turn the calendar to 2024, we explore notable issues that run the gamut from private allocations to the prognosis for active equity management.

This short note reviews what we see as some of the key allocation controversies that have come up in recent client meetings and that are likely to underpin flows in coming quarters.

This note considers the macro impact of artificial intelligence (AI), which raises profound questions about how knowledge is obtained, what we mean by “truth” and what counts as “explanation.” AI is necessarily political—it would be a mistake to narrowly frame it as a quantitative topic. While there is a narrative of boosting growth, AI could also widen the distribution of wealth, which increases second-order social risks. It also raises questions about the future of democracy and introduces new types of geopolitical uncertainty. Moreover, AI might further entrench the power of corporations versus governments and labor. The key strategic investment challenge is pricing the potential for higher growth and profit share versus the potential for greater fundamental macro uncertainty via societal pressures and geopolitics. Markets are quick to price the former but poor at the latter. AI also raises questions on the future of employment and retirement, the passivization of short-term investment strategies and who gets to control the development of new technologies.

There’s been much discussion of AI’s deflationary potential, but this issue must be viewed in the broader context of other megatrends influencing a new investment regime.

There is currently a huge debate about the appropriate role of ESG investing. We argue that, far from being an isolated topic, it is intimately linked to the big fault lines of the investment industry, i.e. active versus passive, public versus private assets, and the challenge of preserving purchasing power in a new inflation regime.

This short note draws out common themes from our recent conversations and meetings with clients across the US, Canada, Europe and the Middle East. The questions we were asked ranged from monetary policy and inflation to strategic asset allocation, the impact of artificial intelligence and market liquidity. There was almost no pushback to our suggestion that equilibrium inflation will be higher, but that does not mean investors have changed their strategic asset allocation to reflect this. There was a general view that allocations to private assets are going up, especially private debt, though there were also questions on the system wide impact of this development on liquidity and the cycle. We found no consensus at all on the tactical outlook, which many investors have found especially hard to navigate. When traveling to meet with clients, it’s striking how often common topics surface. This could, of course, suggest that we are all in one giant echo chamber, but it does seem to reflect shared concerns. Below, we summarize themes that emerged in recent meetings across the US, Canada, Europe and the Middle East. They run the full gamut from strategic to tactical and from macroeconomic to portfolio construction.

A narrow market, led higher by a small number of stocks, has been doubly painful for many investors in 2023. First, a strong consensus for more cautious positioning earlier this year removed a tailwind, and it’s difficult to outperform when leadership is concentrated in a few large cap names. In this note, we discuss what this landscape means for investors, especially as it pertains to the attractiveness of more strategic positions.

Deglobalization, a shrinking working-age population and climate change are set to define the strategic investment outlook.

Emerging-market equities seem tactically attractive versus developed-market stocks, and many investors may be underweight. Strategically, there's a case for considering China as a distinct allocation building block.

Lower bond-market liquidity and insurance investors’ unique needs raise the stakes for liquidity management in what’s likely to be a volatile environment. The responses should be multifaceted: reviewing liquidity profiles and private-market allocations, tapping supplemental liquidity sources, and ensuring that investment capabilities can find liquidity at the ground level in public markets.

The appropriate weight of private assets in portfolios is arguably the key question for strategic asset allocation today. These investments were the fastest-growing share of many portfolios for the past decade: Will the abrupt change in investment regime and greater need for liquidity halt that increase?

Balancing different time horizons always presents challenges. It may be intellectually ugly to hold different positions over short horizons and long horizons, but sometimes the macro setup suggests it's the right way to proceed.

A strategic investment outlook that implies lower real Sharpe ratios calls for revisiting the investment case for increasing exposure to private assets.

The beginning of the year always offers a chance to catch up with a broad range of clients who are in the mode of thinking about the big picture outlook: pension funds, insurers, consultants and sovereign wealth funds across Australia, Asia, Europe and North America.

In this note, we explore four key issues that asset owners will need to face in 2023, rather than a typical list of forecasts for market outcomes in the year ahead. They relate to more strategic problems-but ones that asset owners will need to grapple with this year.

As economic growth slows, investors face a pressing need to distinguish tactical positioning from strategic-allocation decisions. We share our current thoughts on positioning portfolios with respect to major return streams.

Concern about the impact of geopolitical risk is likely to remain into 2023-in terms of both the directional impact on assets and how to manage this looming risk.

A changing regime with higher and more volatile inflation and less trended markets, an evolution of ESG and questions on “appropriate” passive indices all demand a reassessment of the role of active management. This suggests asset owners may set limits on passive allocations.

Deglobalization will likely be a persistent characteristic of our world, weakening or undoing many investment trends in place since the early 1980s. Its implications for strategic asset allocations may not be reflected in portfolio structure today.

The recent crisis in the UK pension industry has implications both within the country and far beyond it, raising questions about asset allocation, macro policy and the investment environment.

Deglobalization demands attention from strategic investors, given its far-reaching implications for risk, return, correlation and-ultimately-portfolio construction. This is not adequately reflected in portfolios today.

Factors have rebounded over the past year, and we see a compelling strategic case for their place in asset allocation. That case is about more than filling a return gap.

Some investors feel that this year's massive changes in public-market valuations mean that the migration to private assets is done. We disagree.

Given the sizable moves in capital markets so far in 2022, it makes sense to revisit our strategic return expectations across a range of asset classes.

Diversification is a well-traveled topic that has become more urgent in the past few years as investors grapple with potential changes in a longstanding correlation regime and the implications for portfolio construction.

The potential for deglobalization and the reversal of other secular trends is likely to squeeze returns, requiring investors to take a fresh look at portfolio design.

With stocks down and yields up, strategic investors face pressing questions: Are bonds back? Is the real asset trade done? Do investors still need to allocate to private assets? The answers must come in the context of what we view as a regime change for inflation, which will put real return potential squarely in the spotlight.

Environmental, social and governance (ESG) investing and inflation are two of the biggest strategic trends in investing right now. We suggest the two are linked in a variety of ways, with profound implications for inflation, what we mean by ESG and the investing profession. There’s an intimate linkage and elements of tension. This was the case before the war in Ukraine, but the current conflict has thrust it into the spotlight.

Digital assets may not be realistic allocation opportunities in 2022, but that’s likely to change. That requires conversations today about governance, regulation and portfolio construction

Russia's invasion of Ukraine has triggered a global humanitarian crisis and severely disrupted the macroeconomic landscape. How should investors adapt their strategic asset allocations?

It may be easy to take a bearish stance on equities today, but there's a case for stocks to generate positive real returns on a strategic basis going forward. High household equity allocations may actually be warranted, elevated valuations don't necessarily spell doom, populist pressures on earnings growth are surmountable, and falling correlations within the equity market create more "potential energy" for active management to add alpha.

In this note, we discuss four strategic issues that could have far-reaching implications for asset owners in the year ahead. Our subject matter is strategic, not tactical, so this is in no way an attempt to provide a comprehensive "2022 outlook."

The painful banality of lower future returns will force a continuation in the huge reallocation from public to private assets. However, we think that expectations for the advantages of private assets may already be too high in some areas-private assets are an important part of the future of asset allocation, but not a panacea.

While stagflation may not be a central case in our economic forecast, it is a possible scenario with an uncertain probability attached. For investors who regard stagflation as a risk worth budgeting for, the next question is: How should that translate into strategic portfolio design?

From changing distinctions between traditional asset-class dimensions and factors to the way analysts spend their time, change is a constant in the investment industry. The implications are far-reaching, including evolutions within organizations themselves.

There's no doubt the COVID-19 pandemic has thrown a great deal of uncertainty into markets when viewed through a near-term, tactical lens. But looking beyond that time frame over the next several years, what are the strategic takeaways for equity investors?

How should asset owners think about their future engagement with asset managers? We think that both external economic forces and internal investment-industry forces will change this interaction. What should asset owners want from asset managers? What should they pay for? The common view is that asset managers are under pressure, but over the next five years, we think asset owners may feel the same pressure, too - driving change in their investment approach.