Mercer has released its 2025 Large Asset Owner Barometer surveying asset owners representing over USD2 trillion in assets collectively.
Eimear Walsh, Mercer’s European Head of Investments, says: “Equity, fixed income and currency markets are experiencing 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.”
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 (35 per cent v. 31 per cent in 2024), inflation (31 per cent v. 22 per cent), and monetary tightening (30 per cent v. 23 per cent). Over a three-to-five-year period, the perception of vulnerability to most risks increased slightly.
Notably, regulatory risks over this period were cited by 32 per cent of LAOs, up significantly from 20 per cent in last year’s survey. This suggests 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.
Over the past year, LAOs have taken various 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). Nearly half (45 per cent) of respondents increased their allocation to private markets, a trend set to continue in 2025.
Looking ahead over the next 12 months, 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. This is particularly pronounced among the largest asset owners; 70 per cent of those with more than USD20 billion under management intend to increase allocations to private debt/credit in the next 12 months, and 63 per cent intend to invest more heavily in infrastructure.
“Only five per cent – one in 20 – of the asset owners surveyed manage their investments entirely in-house,” says Rich Nuzum, Mercer’s Executive Director of Investments and Global Chief Investment Strategist. He adds, “In an increasingly complex investment environment, we see a significant appetite among large asset owners for outsourcing investment management, with the most complex asset classes often being handled by outside teams.”
European LAOs are more positive about investing in their domestic market than UK and US peers
While broadly confident about their resilience, European LAOs exhibit a higher degree of concern about risks than their peers in the US; 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. Thirty-four percent of European-based LAOs expect to increase allocations to European equities over the next 12 months. On average, LAOs in the US and UK are more likely to decrease allocations to their domestic equity markets.
There is 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, compared with 27 per cent of those based in the US.
Asset owners believe AI will impact markets, but adoption remains low
More than two-fifths (43 per cent) of LAOs surveyed believe that AI will be a highly influential factor in shaping the macro environment over the next five to 10 years, ahead of geopolitics (34 per cent) and the energy transition/climate change (34 per cent). Despite this sentiment, more than two-thirds (69 per cent) of LAOs say they have neither implemented nor started developing an AI/GenAI policy.
More LAOs incorporate sustainable investing goals, but climate transition targets decline
The largest asset owners (with AUM exceeding USD20 billion) are more likely to incorporate sustainability goals into their investment objectives, with 81 per cent including these goals in their policies, compared to 64 per cent among smaller asset owners. Furthermore, over the next 12 months, nearly a quarter (24 per cent) of LAOs intend to increase their allocation to ESG/sustainable funds, and 29 per cent expect to increase their exposure to impact strategies.
Despite this, the number of LAOs intending to set climate transition and net-zero targets is declining. Over one-third (39 per cent) are not planning to set net-zero targets (v. 29 per cent last year), and nearly four in 10 (39 per cent) are not planning to set climate transition targets (v. 8 per cent last year).
