Institutional allocators are signalling a more cautious stance on passive equities and private credit, while showing renewed interest in hedge funds, according to a report by Reuters citing a mid-year allocator survey by Goldman Sachs Prime Brokerage.
The survey, conducted in July and shared with clients this week, polled 333 institutional investors – including pension funds, sovereign wealth funds, and endowments – overseeing over $1tn in assets.
According to the findings, 27% of respondents plan to reduce exposure to long-only passive equity strategies in H2 2025, up from 19% in the first half.
Passive strategies, which typically track broad market indices, have come under pressure amid mounting geopolitical risks, inflationary shocks, and volatility triggered by US trade tariffs.
In parallel, allocator appetite for private credit – long a favoured asset class – appears to be cooling. Just 31% of surveyed investors expect to increase allocations to the strategy in 2025, down from 41% last year.
The pullback reflects growing concerns around valuation transparency and a more uncertain macroeconomic backdrop, which has led some investors to reconsider their exposure.
Two allocators overseeing a combined $2tn say they are reviewing positions where mark-to-market clarity is lacking, with one noting potential redemptions from funds that do not provide adequate visibility on portfolio values.
In contrast, hedge funds are attracting increased institutional interest. 37% of respondents indicated plans to allocate to hedge fund strategies in H2 – unchanged from H1 – while only 6% plan to decrease exposure, down from 10% earlier in the year.
However, Goldman noted that liquidity constraints across private markets remain a headwind. Many allocators, despite an intent to reallocate capital, are constrained by capital lock-ups in illiquid strategies that are no longer generating distributions.
