Larger asset owners, including pension funds, are doubling down on private markets as they navigate heightened economic and geopolitical risks, research from Mercer has revealed.

The research showed that large asset owners (LAOs) remain confident that their portfolios are well-positioned to withstand a range of shocks over the coming year.

However, LAOs consider themselves more vulnerable than a year ago to several key risks during the next 12 months, including geopolitical risks, inflation , and monetary tightening.

Over a three-to-five-year period, the perception of vulnerability to most risks increased slightly.

In particular, Mercer found that regulatory risks over this period were cited by 32 per cent of LAOs, up "significantly" from 20 per cent in last year’s survey.

Mercer highlighted this as indication that asset owners are unsure about the future direction of regulation after a year of significant political change and the impact this may have on portfolios.

However, the research found that most LAOs have taken measures to protect their portfolios from risks, including adjusting the duration of fixed-income allocations (53 per cent) and adjusting the geographic exposure of assets (47 per cent).

In addition to this, nearly half (45 per cent) of respondents increased their allocation to private markets.

This trend seems set to continue in 2025, as Mercer found that nearly half (47 per cent) of LAOs anticipate growing their portfolio allocation to private debt/credit, while 46 per cent expect to increase their infrastructure allocations.

Mercer European head of investments, Eimear Walsh, said, “Equity, fixed income and currency markets are experiencing extreme volatility due to trade tensions, but, from our data, we can see that large asset owners are positioned for the long term and appear broadly sanguine about shorter-term market moves.

"That said, in the year ahead, they plan to make some strategic portfolio adjustments, just as they did last year, to mitigate the risks and exploit the opportunities they see emerging.”

However, the research found that, while broadly confident about their resilience, European LAOs exhibit a higher degree of concern about risks than their peers in the US.

Indeed, 43 per cent of European LAOs believe their portfolios are vulnerable to geopolitical threats in the next three to five years, compared with just 18 per cent in the US.

Unlike LAOs in the US and UK, European asset owners appear more positive about investing in the equities of their domestic market.

According to the research, 34 per cent of European-based LAOs expect to increase allocations to European equities over the next 12 months, while LAOs in the US and UK are more likely to decrease allocations to their domestic equity markets.

However, there was also some evidence that European LAOs, which may have been under-allocated to private markets compared to their US peers, are now seeking to close this gap.

Almost half (48 per cent) of European LAOs allocated investments to private markets in the last 12 months, the research found, compared with 27 per cent of those based in the US.

---