Financial advisors and retail investors often look to what institutional investors—the pension funds, endowments and foundations—do with their assets; they are, after all, the largest investors in the country and are known to have the most sophisticated investment teams behind them. And right now, these investors believe the equity markets have reached their peak.
According to a survey of 177 institutional investors by Preqin, 74% of investors say equities are at the top, up from 56% a year ago. Only 6% say we’re in an expansion phase, down from 21% six months ago.
In addition, 73% of private equity investors and 65% of real estate investors believe assets are overvalued. About half of those investors expect a correction in 2020 or beyond.
Despite the outlook, these investors seem to be sticking to their allocations, with nearly two-thirds indicating no plans to change allocations due to the market cycle.
“The important question for investors is when—and how—they can weather a correction,” said Amy Bensted, head of data products at Preqin. “Alternative assets will be key for many. Although pricing concerns in private capital continue—particularly in private equity and real estate, investors will be relying on these funds, and their proven long-term returns, to deliver during a downturn; nearly 90% of LPs plan to increase or maintain their exposure in response to the potential correction in equity markets. Hedge funds will have a defensive role; 64% of investors are positioning their hedge fund portfolios to more defensively, as asset protection becomes a priority for them as concerns around a negative shift in public markets grows.”