Lurking Risks Temper Institutional Investors’ Positive Outlook for 2025, Finds Natixis Investment Managers Survey

BOSTON--(BUSINESS WIRE)--Dec 4, 2024--

Institutional investors are heading into the new year with the expectation that 2024’s positive market conditions will continue, but they are keeping their eyes on a wide range of economic threats, according to new survey findings published today by Natixis Investment Managers (Natixis IM).

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Institutional investors across the globe see a wide range of economic threats on the horizon, with US/China tensions driving the most concerns (34%) followed by the expansions of current wars (32%), underlying economic concerns including global recession (29%) and China’s economy (23%). In the US, institutional investors’ fears are focused more on the expansion of current wars (33%) persistent inflation (30%) and valuations (30%) than US/China relations (26%).

Natixis IM surveyed 500 institutional investors in October 2024 who collectively manage $28.3 trillion in assets for public and private pensions, insurers, foundations, endowments, and sovereign wealth funds worldwide. Survey participants also include 86 institutional investors in the US responsible for managing $5 trillion in assets.

Despite these concerns, US institutional investors have an optimistic economic outlook:

“Subsiding recession fears in 2024 have given way to enthusiasm for strong returns on the horizon, but investors are still looking over their shoulder at the geopolitical and economic risks,” says Dave Goodsell, Executive Director of the Natixis Center for Investor Insight. “While the US election gives some clarity to institutional investors of the direction that economic and foreign policy could go, there is still a lot of ‘wait and see’ as investors calibrate their portfolios to account for the opportunities the market has to offer versus the risks it could see in 2025.”

Geopolitical Risks: Diverging Focuses for US and Global Investors

Institutional investors globally and in the US are concerned about the geopolitical landscape going into 2025, but the risks that concern them most vary depending on the region. In the US, institutions are worried about the expansion of current wars in Ukraine and Gaza (33%), while the rest of the world – including the UK (42%), France (38%), Germany (53%) and Singapore (53%) – list US/China relations as their top macroeconomic threat.

US institutional investors express pessimism around reaching a resolution to the current geopolitical conflicts. In the Ukraine war, 78% of US institutional investors believe it will grind on through 2025, while only 22% think it will end with a peace dividend. Regarding the Gaza war, 60% of US institutional investors believe it will spread across the region, while 40% believe a settlement will be reached. However, both US institutional investors (74%) and institutional investors across the globe (66%) believe the growing alliance between Russia, North Korea and Iran will lead to greater economic instability.

While 61% of global institutional investors express concern about a trade war, that number drops slightly to 58% of US institutional investors. China’s economic and regulatory environment has become less attractive for US institutional investors as:

Beyond the immediate market implications of geopolitical conflict, US institutional investors see additional risks. Almost two-thirds (64%) of US investors believe geopolitical tensions will ratchet up disputes over new frontiers, such as space or the Arctic. In technology, 69% of US institutions believe that AI will open a new avenue of geopolitical risks to investors.

Economic and Sector Outlook Reflects Investors’ Measured Confidence in Markets

Despite geopolitical concerns, the positive economic backdrop – lowering inflation, anticipated rate cuts, etc – drives US institutions’ optimism about markets in 2025. US investors express bullishness across equity and bond markets.

Valuations a top concern for portfolio allocations

While investors remain confident in the market, they have a healthy understanding of risks. After an extended run-up, valuations are a top portfolio concern, especially in the US, where almost two-thirds (63%) of US institutional investors say they are one of their top portfolio risks in 2025. Further, one in four (40%) of US intuitional investors see inflation as a top risk, and while 2024 markets provided a relatively smooth ride in key asset classes, US institutions project an uptick for volatility in stocks (57%), currencies (44%) and bonds (40%).

US institutions are looking for long-term performance, so little change is expected in their allocation projections for 2025 and the long term. Strategy remains focused on meeting an average long-term return assumption of 8.3%. In addition, key pressure has been alleviated by higher interest rates and US institutional liability ratios have settled at 86%.

Further, US institutional investors are approaching their portfolios by:

Investors Bullish on Private Markets but Opportunities are Hard to Find

Alternative assets remain of particular interest, especially private markets, with US investors 60% bullish on private equity and (59%) bullish on private debt. In fact, 65% of US institutional investors believe that a portfolio with 60% stocks, 20% bonds and 20% alternatives will outperform the traditional 60:40 portfolio. With rate cuts expected in 2025, 80% of US institutional investors are anticipating that they will improve deal flow in private markets, with 74% of US institutional investors believing that more private debt will be issued in 2025 to meet demand.

While excitement remains over private markets, over half (56%) of US institutional investors also find that the popularity of private is making it hard to find investment opportunities. Further, 67% of US institutional investors say that growing investment in private assets is increasing risks in institutional portfolios, resulting in 70% of US institutional investors confirming they have increased their due diligence on private assets has increased as they are concerned about deal quality.

On AI and technology, 71% of US institutional investors believe that using AI as an investment tool will unlock new investment opportunities that were otherwise undetectable. Further, three-quarters (76%) of US institutional investors believe US policy will foster AI growth at home to compete with China. However, US investors are a little more split on what AI’s market story will be in 2025: 59% believe the AI story for 2025 will be that it supercharges tech growth, but 41% see the story as the AI bubble bursts.

A full copy of the report on the Natixis Investment Managers Institutional Investor 2025 Market Outlook can be found here: https://www.im.natixis.com/en-us/insights/investor-sentiment/2024/institutional-outlook

Methodology

Natixis Investment Managers, Global Survey of Institutional Investors conducted by CoreData Research in October and November 2024. Survey included 500 institutional investors in 28 countries throughout North America, Latin America, the United Kingdom, Continental Europe, Asia and the Middle East.

About the Natixis Center for Investor Insight

The Natixis Center for Investor Insight is a global research initiative focused on the critical issues shaping today’s investment landscape. The Center examines sentiment and behavior, market outlooks and trends, and risk perceptions of institutional investors, financial professionals and individuals around the world. Our goal is to fuel a more substantive discussion of issues with a 360° view of markets and insightful analysis of investment trends.

About Natixis Investment Managers

Natixis Investment Managers’ multi-affiliate approach connects clients to the independent thinking and focused expertise of more than 15 active managers. Ranked among the world’s largest asset managers 1 with more than $1.4 trillion assets under management 2 (€1.2 trillion), Natixis Investment Managers delivers a diverse range of solutions across asset classes, styles, and vehicles, including innovative environmental, social, and governance (ESG) strategies and products dedicated to advancing sustainable finance. The firm partners with clients in order to understand their unique needs and provide insights and investment solutions tailored to their long-term goals.

Headquartered in Paris and Boston, Natixis Investment Managers is part of the Global Financial Services division of Groupe BPCE, the second-largest banking group in France through the Banque Populaire and Caisse d’Epargne retail networks. Natixis Investment Managers’ affiliated investment management firms include AEW; DNCA Investments; 3 Dorval Asset Management; Flexstone Partners; Gateway Investment Advisers; Harris | Oakmark; Investors Mutual Limited; Loomis, Sayles & Company; Mirova; MV Credit; Naxicap Partners; Ossiam; Ostrum Asset Management; Seventure Partners; Thematics Asset Management; Vauban Infrastructure Partners; Vaughan Nelson Investment Management; and WCM Investment Management. Additionally, investment solutions are offered through Natixis Investment Managers Solutions and Natixis Advisors, LLC. Not all offerings are available in all jurisdictions. For additional information, please visit Natixis Investment Managers’ website at im.natixis.com | LinkedIn: linkedin.com/company/natixis-investment-managers.

Natixis Investment Managers’ distribution and service groups include Natixis Distribution, LLC, a limited purpose broker-dealer and the distributor of various US registered investment companies for which advisory services are provided by affiliated firms of Natixis Investment Managers, Natixis Investment Managers International (France), and their affiliated distribution and service entities in Europe and Asia.

All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed-income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.

The views and opinions expressed may change based on market and other conditions. This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted. Actual results may vary.

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The Supreme Court is set to hear arguments on Wednesday in just its second major transgender rights case, a challenge to a Tennessee law that bans gender-affirming care for minors.

The nation’s top court will be weighing whether Tennessee’s law violates the equal protection clause of the 14th Amendment, requiring that people in similar circumstances be treated the same under the law. Both sides in the case claim they are acting to protect minors from harm.

At least 26 states have adopted laws restricting or banning such care for minors, and most of those states face lawsuits.

Here's the latest:

At least 26 states have adopted laws banning gender-affirming medical care for transgender minors. Federal judges in Arkansas and Florida have struck down the bans in those states as unconstitutional, though an appeals court has put the Florida ruling on hold. The ban in New Hampshire is to take effect on Jan. 1.

Several Democratic-controlled states have policies seeking to protect access to gender-affirming care.

Additionally, at least 24 states have bans barring transgender women and girls from competing in certain women’s and girls’ sports competitions. And at least 11 have laws barring transgender women and girls from using girls’ and women’s bathrooms at public schools — and in some cases, in other government facilities.

Most laws are reviewed and upheld under the lowest level of scrutiny, known as rational basis review. Indeed, the federal appeals court in Cincinnati that allowed the Tennessee law to be enforced held that lawmakers acted rationally in adopting the law to address the risks they perceived in gender-affirming care for minors.

But when discrimination is present, judges take a closer look.

Sex discrimination gets heightened scrutiny, which requires states to identify an important objective and show that the law helps accomplish it. Racial discrimination, not at issue here, is reviewed under strict scrutiny — the highest level — and laws rarely survive such a demanding examination.

Roberts and Gorsuch joined the court’s liberal justices in the 2020 workplace discrimination case won by LGBTQ+ plaintiffs. Three conservative justices, Samuel Alito, Brett Kavanaugh and Clarence Thomas, dissented.

If the parties challenging the Tennessee law hope to win, they need at least two conservative justices on their side, along with the three liberal members of the court. Barrett has no track record on transgender issues, although she votes with the other conservatives in most of the high-profile cases.

The Supreme Court almost always issues its decisions by early summer, usually before the end of June. The transgender health case could be one of the last cases decided, which is typical of highly contentious issues. One additional potential cause for delay is the Trump administration could weigh in soon after Trump takes office. It’s not clear how that might affect the case.

Chase Strangio will be the first openly transgender attorney to argue before the nation’s highest court, representing families who say Tennessee’s ban on health care for transgender minors leaves their children terrified about the future.

Strangio will bring months of intense legal preparation to the case as well as hard-won lessons from his own experience.

“I am able to do my job because I have had this health care that transformed and, frankly, saved my life,” he said. “I am a testament to the fact that we live among everyone.”

Strangio grew up outside of Boston and came out as trans when he was in law school. Now 42, he’s an American Civil Liberties Union attorney whose legal career has included representing former Army intelligence analyst Chelsea Manning, challenging a ban on transgender people serving in the military and helping win an LGBTQ+ worker-discrimination case at the Supreme Court. He’s also the father of a 12-year-old, the son of a father who supports Trump, and has a close relationship with his Army-veteran brother.

▶ Read more about Strangio and his history as a transgender advocate

The Supreme Court’s only other major case on transgender rights was in 2020 when the court ruled that workplace discrimination against LGBTQ+ people was sex discrimination in violation of the federal civil rights law commonly known as Title VII.

The court concluded, in separate cases involving a gay man and a transgender woman, that they were discriminated against because of their sex. Justice Neil Gorsuch, an appointee of Donald Trump’s in his first term in the White House, wrote the 6-3 opinion for the court. Chief Justice John Roberts was the only other conservative member of the court in the majority.

The nation’s top court will be weighing whether Tennessee’s law violates the equal protection clause of the 14th Amendment, requiring that people in similar circumstances be treated the same under the law. Both sides in the case claim they are acting to protect minors from harm.

Transgender attorney Chase Strangio will represent families who say Tennessee’s ban leaves them terrified for the future and that access to this kind of care is life-saving.

Tennessee, meanwhile, will argue before the Supreme Court that treatments like puberty blockers and hormones carry risks for young people and its law protects them from making treatment decisions prematurely.

The Supreme Court is framed by the columns of the Capitol in Washington, Tuesday, Dec. 3, 2024. T (AP Photo/J. Scott Applewhite)

FILE - Advocates gather for a rally at the state Capitol complex in Nashville, Tenn., to oppose a series of bills that target the LGBTQ community, Feb. 14, 2023. (AP Photo/Jonathan Mattise, File)

FILE - People attend a rally as part of a Transgender Day of Visibility, Friday, March 31, 2023, by the Capitol in Washington. (AP Photo/Jacquelyn Martin, File)

FILE - The Supreme Court is seen in Washington, Nov. 2, 2024. (AP Photo/J. Scott Applewhite, File)