On the other hand, the number who believe that a recession is coming has dropped significantly over a year ago, according to the study. Last year, 15% said there would not be a recession. That number more than doubled to 37%. Despite their apprehension, they do anticipate some silver linings.
“[Institutional investors] are worried about recession [and] they still see inflation lingering a bit and yet they’re still positive on things as well,” he said. “There are a lot of things that are question marks for them and they’re trying to put these pieces together as it stands.”
Institutional investors do see areas of growth within the economy. One area is in technology and it is due to the emergence and expansion of AI, which they believe has the greatest amount of opportunity. In fact, 66% equated the push for the greatest AI to the space race.
“This is going to be driving growth going forward,” Goodsell said. “So, [institutional investors are] excited about it as an investment opportunity, and they think it’s a great opportunity for them as users of artificial intelligence because it is going to help them find opportunities they couldn’t see before and risk they couldn’t see.”
The survey also gauged the perception of the impact of AI on the industry and associated it with different movies. The top answer was Moneyball as 50% of participants see AI as a tool to help identify opportunities. Another 10% believe it will be like Disney’s Wall-E in that it will love humans and try to save the planet and only 6% fear it will become like the AI in Terminator and seek to destroy humanity.
Finally, 35% likened it to WarGames in that they are concerned about the unintended consequences or a hack that can result in economic, social, or geopolitical turmoil.
As for portfolio building, 56% of those surveyed are actively de-risking their portfolios for next year while 69% are bullish when it comes to bonds. In addition, 62% believe that the longer duration will outperform the short.
Finally, they still see the potential of the private markets with 60% being bullish on private equity and 64% are bullish on private debt with 66% saying there is still a significant delta between private and private assets.
“They see there’s a significant difference between public and private markets and they’re using that for getting some enhancement in returns and for diversification,” Goodsell said.
The institutional investors can find positives and negatives about the markets for the coming year, however in both cases, they are apprehensive because of their inability to adequately prepare for them.
“It’s this idea that there’s a sense of something that could upset this that’s not on the table at the moment whether it be an actor, whether it be something with AI, they’re just trying to figure out how to best position themselves for kind of an unknown environment,” Goodsell said.