Investor sentiment

Institutions say 2025 will be the year that valuations matter

December 03, 2024 - 31 min read

Executive Director, Natixis Center for Investor Insight – Natixis Investment Managers – US Distribution

Two thirds (64%) of institutional investors believe that equity valuations do not currently reflect the fundamentals of the company and 77% believe 2025 will be the year that valuations matter.
73% of Australian institutions are bullish on private equity in 2025, up from 46% in 2023
Seven in ten (73%) Australian institutional investors believe that a lower growth environment will be the new normal in China.

Australian institutional investors’ top portfolio concerns for 2025 are inflation (55%), volatility (45%), and valuations (36%), with more than three quarters (77%) of institutions believing 2025 will be the year that valuations matter.

New research by Natixis Investment Managers (Natixis IM) found two thirds (64%) of institutional investors believe that current equity valuations don’t reflect fundamentals, and half of institutions think passive investing distorts relative stock prices and risk return trade-offs.

Institutions agreed the popularity of passive investments increases systemic risk to markets (50%) and are projecting an uptick in volatility in stocks (64%), bonds (64%), and currencies (59%).

Natixis IM surveyed 500 institutional investors which collectively manage US$28.3 trillion in assets for public and private pensions, insurers, foundations, endowments, and sovereign wealth funds from around the world, including Australia.

Given the changing interest rate and credit environment, 73% of institutions say that the markets will favour active management in 2025, and eight in ten (82%) say that active management is essential to fixed income investing.

Nearly nine in ten (86%) said that their actively managed investments outperformed their benchmarks in the last 12 months.

Natixis Investment Managers Country Head Australia & New Zealand Louise Watson, said

“After a bumper year for equity markets, where many have achieved outsized returns, it makes sense that institutional investors are carefully managing risk as we approach the new year. Equity markets have been surprisingly buoyant in a year packed with ongoing conflict, global elections, uncertainty around inflation and interest rates and simmering geopolitical tension. Looking to 2025, institutions are faced with a melting pot of conflicts, more volatility, and the possibility that markets are teetering on a valuation cliff. It’s no surprise then that professional investors question how much of these market highs have been fuelled by passive money and carefully manage their active and passive allocations. Smart investors are looking ahead and making tactical allocation shifts now to position defensively and diversify into new opportunities and minimise the risk of inflated equity markets.”

Private market boom?

73% of Australian institutions are feeling bullish about the prospects for private equity in 2025, up from 46% the previous year. Almost half (47%) of Australian institutions are planning to increase investments in private markets in 2025, while nearly three in four (73%) anticipate that a 60:20:20 portfolio diversified with alternative investments will outperform the traditional 60:40 stock and bond mix.

But, institutions are proceeding with caution as nine in ten (91%) are increasing due diligence around private assets due to concerns around deal quality.

Economic threats

Institutional investors said the top economic threat was the expansion of current wars (41%), followed by concerns of a tech bubble (32%), China’s economy, and higher for longer interests rates.

Unsurprisingly, Australian institutional investors are bearish on US market outperformance (36%), instead 64% are placing bets on the outperformance of other international markets. Meanwhile, more than half (55%) think small caps will make headlines in 2025, as 63% think lower rates will enhance performance.

Overall, 60% of Australian institutional investors expect inflation will remain at target and rates will stabilise at a lower level (55%). Furthermore, they’re expecting 1-3 rate cuts in 2025 (77%) and nine in ten (91%) think the timing of rate cuts will be critical to ensuring inflation doesn’t reignite.

Seven in ten (73%) of Australian institutional investors believe that a lower growth environment will be the new normal in China and half (50%) believe that economic malaise in China will hold back growth in emerging markets.

Instead, 86% of institutions agreed that Asia Ex-China will be the best Emerging Market opportunity for 2025, and 73% say that India will surpass China as the top emerging market for investment.

2025 Institutional Outlook Survey full report

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About the 2025 Institutional Outlook

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 Centre for Investor Insight

The Natixis Centre for Investor Insight is a global research initiative focused on the critical issues shaping today’s investment landscape. The Centre 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 managers¹ with more than $1.4 trillion assets under management² (€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 S.A. (Luxembourg), Natixis Investment Managers International (France), and their affiliated distribution and service entities in Europe and Asia.

¹ Survey respondents ranked by Investment & Pensions Europe/Top 500 Asset Managers 2024 ranked Natixis Investment Managers as the 19^th largest asset manager in the world based on assets under management as of December 31, 2023.

² Assets under management (AUM) of current affiliated entities measured as of September 30, 2024, are $1,427.2 billion (€1,279.0 billion). AUM, as reported, may include notional assets, assets serviced, gross assets, assets of minority-owned affiliated entities and other types of nonregulatory AUM managed or serviced by firms affiliated with Natixis Investment Managers.

³ A brand of DNCA Finance.

Provided by Natixis Investment Managers Australia Pty Limited (ABN 60 088 786 289) (AFSL No. 246830). Natixis Investment Managers Australia Pty Limited (ABN 60 088 786 289) (AFSL No. 246830) is authorised to provide financial services to wholesale clients and to provide only general financial product advice to retail clients.

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Institutions say 2025 will be the year that valuations matter

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About the 2025 Institutional Outlook

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