2025 Outlook
Executive Summary
Gary Horton
In 2025 we expect institutional investors to continue to grapple with how to overcome significant underperformance in global equity portfolios due to insufficient exposure to US equities and the so-called ‘Magnificent Seven’ technology stocks that have driven S&P 500 performance. We expect fund managers to continue to look at options such as having a stand-alone extra US equities allocation or increased exposure through ETFs.
We also expect Australia’s private markets sector to continue to thrive in 2025, as superannuation funds look to keep benefitting from the potential of higher returns, attractive illiquidity premiums and increased capital flow. There is now greater awareness among a wide range of Australian investors that this dynamic asset class can offer appealing diversification opportunities beyond traditional asset classes. Institutional investor demand is also driven by the fact that under the government’s Your Future, Your Super fund performance tests, private markets are allocated the same risk budget as lower performing bonds.
During 2024 the ‘Your Future, Your Super’ performance tests made super funds more risk averse for fear of being named and stopped from accepting new members if they underperform against their benchmark. This trend will continue in 2025, meaning institutional investors will continue to shun high-tracking error investment products in favour of passive and benchmark-aware strategies.
Another trend that we see continuing is that fund managers will continue to diversify their client base away from just institutional investors to include private wealth managers who support high and ultra-high net wealth clients and family offices. This is a consequence of super funds increasingly taking funds management in house and a reduction in the number of external investment mandates they grant.
Expert perspectives from across the firm
Equities: Will the equities rally continue and how might the Republican clean sweep affect the asset class?
Fixed income: What are the key themes for fixed income as the new year beckons?
Private markets: Will it be mostly headwinds or tailwinds for the asset class in the coming year?
