Global asset allocators are preparing to increase positions in fixed income and cash as they brace for ongoing economic uncertainty and heightened market volatility over the next 12 months, according to a study from PGIM. PGIM is the global asset management business of US-based Prudential Financial, Inc. (NYSE: PRU).
The finding forms part of PGIM’s latest Gatekeeper Pulse® study, which canvassed the allocation plans, investment attitudes and manager preferences of 210 gatekeepers at large global financial institutions in Europe (including UK) and Asia – all of which have assets under management of at least US$1 billion. This is PGIM’s sixth study aimed at unearthing the issues that matter most to fund selection decision-makers.
Public fixed income continues to appeal to global gatekeepers, with 37% expecting to boost allocations to the asset class during an expected rate-cutting cycle, against 14% expecting to cut positions. A similar trend is seen in private credit, with a net 22% of allocators planning to increase exposure.
The increased bond market allocations align with gatekeeper return expectations over the coming year, with 43% predicting public fixed income to deliver higher returns than in the prior 12-month period, against 20% expecting lower returns. In private credit, 34% of allocators foresee higher returns in the coming period, against 24% seeing softer returns.
Matt Shafer, the head of international intermediary distribution at PGIM, recognises the continued investor appeal of fixed income as tariffs, equity market volatility, and slowing economic growth fuel uncertainty.
“In a market defined by policy confusion and turbulence, clients are turning to fixed income for both steady income and critical downside protection,” Shafer says. “As market dynamics evolve, multi-sector strategies with the flexibility to pivot across bond segments based on relative value are seeing particularly strong demand.”
Elevated risks driving cash and alternative demand
With markets oscillating between risk-on and risk-off in recent months, it is no surprise that gatekeeper attitudes toward risk-taking remain mixed. Relative to the prior 12-month period, 32% of gatekeepers expect to increase risk positioning over the period ahead, while 40% expect their risk positioning to decline. In Asia, both figures were 37%.
Regarding top risk factors, geopolitical risks, recession fears, and elevated inflation were the primary concerns cited by allocators in Europe and Asia. Continued bouts of market turbulence are also expected, with 83% of gatekeepers globally anticipating greater volatility of returns over the coming year. Amid the uncertain macro environment, 39% of gatekeepers are set to increase allocations to cash/money market instruments over the coming 12 months, while 20% expect cash positions to decline.
Demand for alternative investments, such as private equity and private credit, remains robust despite some year-on-year softening. A net 22% of overall respondents expect to increase allocations to private credit, and a net 19% expect to boost private equity positions. Fund selectors have outlined a preference for accessing private markets via direct investments and co-investments, possibly signalling a desire for control amid the current cautious backdrop. Pooled vehicles rank next in terms of facilitating private market investments.
Within private credit, 58% of fund selectors foresee continued opportunities in middle-market private credit amid limited big-bank lending to midsized companies. However, half of respondents believe the segment is destined for lower spreads as competition to fill the void intensifies.
Another alternative asset class set to see elevated demand is infrastructure. Over the next 12 months, 45% of gatekeepers expect to boost infrastructure allocations, while only 7% are likely to trim positions. At a net 38% increase, infrastructure leads the way in terms of positive gatekeeper allocation expectations for the period ahead.
Transformative tech remains an equity bright spot
There is less global allocator optimism for equities relative to fixed income. Just 26% of gatekeepers predict public and private equity market returns to be higher than the prior 12-month period, with far more allocators (45% for public and 40% for private) expecting lower returns. Given the importance of US stocks to global markets, the weaker outlook for growth and earnings is likely the primary driver of gatekeeper caution.
This uncertainty has resulted in mixed gatekeeper asset allocation intentions, with 34% expecting to increase positions in public equities, against 27% foreseeing a decrease. For those gatekeepers looking to increase allocations to equities, global equity strategies remain the primary avenue of choice. However, nearly two-thirds of gatekeepers expect regional fragmentation in equity performance as monetary policy diverges among economies. Showing lesser alignment, gatekeepers are divided on whether small-to-mid sized stocks will close the performance gap with the large-cap category.
Even as stock markets have swung from optimism to uncertainty in recent months, Shafer expects investor appetite for equities to remain strong, particularly in areas tied to transformative technologies.
“We continue to believe generative AI will reshape the global economy, transform business models and enhance consumer experiences,” Shafer says. From an investment perspective, while there are concerns that the current AI-driven tech investment cycle could peak earlier than anticipated, we expect the next significant phase of AI growth that investors can capitalise on will come from a wave of AI-driven applications.”
As for real estate, more than half of gatekeepers anticipate no change in positioning over the next 12 months. There is a significant home bias for the 20% of allocators likely to boost positions, with European gatekeepers favouring developed Europe and their Asian counterparts preferring developed Asia.
Shafer summarises: “This latest Gatekeeper Pulse study clearly reflects the push and pull facing asset allocators today. Gatekeepers recognise the need to navigate heightened risk, but they are not retreating – they are adjusting to what is likely to be an extended period of uncertainty.
“We are seeing a more selective approach across asset classes, with growing demand for stable income solutions such as fixed income and infrastructure, along with cautious yet consistent interest in private markets and innovative equity themes. The report also highlights a rising emphasis on risk management and flexibility – attributes that resonate with clients today.”
For the full findings of PGIM’s Gatekeeper Pulse report, visit the webpage.
