Trade tensions are driving volatility within markets, but large asset owners remain sanguine about shorter-term market moves and are doubling down on private credit.

Results of a new survey released by Mercer show that 70 percent of asset owners with at least $20 billion intend to increase allocations to private debt in the next 12 months, and 63 percent plan to invest more heavily in infrastructure. This is after nearly half — 45 percent — of respondents had already increased their allocation to private markets.

While large institutional investors remain confident that their portfolios are well-positioned to withstand a range of shocks over the coming year, they feel more vulnerable to geopolitical risks, inflation, and monetary tightening. To protect their portfolios from risks over the past year, 53 percent of respondents have adjusted the duration of fixed-income allocations, while 47 percent have changed the geographic exposure of their assets.

“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,” said Mercer’s European head of investments Eimear Walsh in a statement. “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.”

Mercer’s report also found that the vast majority of large investors outsource, with just 5 percent still managing investments entirely in-house, according to Mercer’s Rich Nuzum.

“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,” Nuzum added.

AI Adoption Lags

Another finding from Mercer is that 43 percent of respondents believe that artificial intelligence will be extremely influential in shaping the macro environment over the next five to 10 years — ahead of geopolitics (34 percent) and climate change (34 percent). Despite this, 69 percent have yet to implement an AI/GenAI policy or have even started developing one.

Sustainable Goals Rise, Targets Drop

Asset owners with more than $20 billion are more likely to incorporate sustainability goals into their investment objectives, with 81 percent including these goals in their policies, compared to 64 percent among smaller asset owners. Additionally, nearly a quarter of these asset owners intend to increase their allocation to ESG/sustainable funds over the next 12 months, and 29 percent expect to increase their exposure to impact strategies.

Despite this, the number of global investors intending to set climate transition and net-zero targets is declining. More than a third — 39 percent — do not plan to set net-zero targets, versus 29 percent last year. Meanwhile, 39 percent do not intend to set climate transition targets, well above the 8 percent from last year.

Europe Turns to Home Markets

European institutional investors remain confident in their portfolios' resilience but are notably more concerned about geopolitical risks than their U.S. counterparts, with 43 percent seeing threats over the next three to five years versus just 18 percent stateside. While U.S. and U.K. allocators pull back from domestic equities, 34 percent of large European investors plan to boost exposure to their home markets. They’re also racing to catch up in private markets, with 48 percent increasing allocations last year (compared to 27 percent in the U.S.).

Research for Mercer’s 2025 Large Asset Owner Barometer was conducted online from October to January, with 74 organizations from more than 16 countries responding.