Wealth Management Investment Outlook

Although wealth managers may be concerned about potential disruptions to their business and to the macro/market environment, their investment outlook implies relative stability in their strategy. Allocation strategies and asset class calls remain mostly unchanged from 2024, even in the face of a changing risk picture.

Market volatility tops list of portfolio risks

Concerns over the potential economic threat of political volatility are echoed in what wealth managers see for portfolio risks in 2025. After the relative calm of 2024, when volatility was 35% lower than the levels experienced in 2023 and 2024¹, 54% globally and 64% in the UK list market volatility as a top portfolio risk this year.

Inflation is also on the minds of wealth managers with more than half (54%) calling it a portfolio risk. The concern over rising prices runs strongest among those in Asia (60%) and the US (59%). This may be one part a hangover from recent inflationary spikes on both sides of the Pacific and another part concern over how geopolitics, supply chain disruptions and diverging central bank policy could lead to new bouts of price hikes.

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Top portfolio risks for 2025

Inflation concerns go hand in hand with interest rates, which 38% rank as a key portfolio risk in 2025. Much of this is due to concerns about how shifting central bank rate policy will impact duration calls as well as fixed income returns overall.

Equities pose unique risks in today’s environment. After a two-year run-up, driven in large part by tech stocks, valuations are a key risk for 43% of those surveyed. Concern runs greatest among those in the US (59%), where tech stocks have driven a disproportionate 39% of equity market returns in 2024 vs. 18% in 2014 . Concern over this outsized contribution to market returns is also reflected in the 29% globally who also worry about concentration risk.

Return assumptions remain unchanged

Despite prospects for greater volatility and uncertainty about interest rates, two-thirds (68%) of analysts report that they will not adjust return assumptions for 2025. On average, wealth managers assume returns of 7.4% for a moderate risk portfolio this year, with those in Asia (8.5%) reporting the highest assumption globally.

The challenge may not lie in their own assumptions, but in the misaligned expectations of clients, which 60% report as either a major (13%) or minor (47%) concern for their business. Our most recent survey of individual investors illustrates how big the rift between perception and reality can be. Back in 2023, investors said they expected long-term returns of 12.8% above inflation³, leaving a gap of more than 42% between what investors expect and where wealth managers have set their assumptions.

The gap is even greater in the US, where investors expected 15.6% above what was then 3% inflation³ and wealth managers share an average return assumption of 7.7%. In France, wealth managers and clients are more closely aligned, with individuals setting expectations of 8.9% above inflation³ and wealth managers setting the bar at 6.7%.

How will firms adjust assumptions for 2025?

Graphic table showing how firms will adjust in 2025. Most will remain the same around the world.

Is 60/40 still the right mix for moderate-risk portfolios?

With two-thirds keeping their return assumptions unchanged in 2025, few report any significant changes to allocation strategies. On average, analysts report that moderate risk portfolios are composed of 44% equities, 33% fixed income, 17% alternatives, 5% cash and 1% other, but there are some key differences regionally.

Moderate portfolios in the US appear to be drifting from the traditional 60/40 stock-to-bond mix, but the real change is how private assets are being deployed. On the surface, a basic mix of 53% equities and 27% fixed income may not fit the moderate risk mold, but a 15% allocation to alternative investments may be picking up the slack with something that more closely resembles a 40/20/20 allocation mix.

In this case, it’s likely that alternatives, in general, and private assets, specifically, are doing dual duty. On one hand, private assets have the potential for higher returns and bigger yields. On the other hand, since private assets are not marked to market, they have historically been less volatile. In essence, the move toward increased allocations to private assets shows analysts are willing to trade liquidity for other potential benefits.

Alternatives are playing a bigger role in portfolios in other regions as well. Latin American portfolios have just 32% allocated to equities. Instead, a 42% allocation to fixed income is likely in place to take advantage of higher bond yields available across the region, while a 21% allocation to alternatives is focused on enhancing returns overall. Allocation calls in France and Europe, in general, follow a similar strategy, although alternative allocations are at 14%, and analysts will keep 7% in cash. Globally, portfolios are relying on a mix of 88% public assets and 12% private, a spread that is likely to narrow as the focus to private assets intensifies.

Alternative allocations overwhelmingly favor private assets

Alternative allocations are best summarized as “All Private. All the Time,” as allocations to private equity (28%), private debt (18%), real estate (17%) and infrastructure (13%) now add up to 77% of all alternative allocations for wealth managers. Adoption is greatest in Latin America, where private assets now account for 88% of alternatives.

The key question surrounding this focus on private investments is simple and direct: “Why?” When it comes down to it, there is no one reason. Instead, wealth managers are finding that private assets can help them meet a number of portfolio objectives with diversification (68%) at the top of the list.

Beyond a source of noncorrelated returns, there is a number of specific functions to be fulfilled. Return enhancements (57%) is high on the list, as private assets have historically delivered substantially higher returns as a trade-off for the illiquidity of private investment. Because private assets are more long term and not exposed to the vagaries of the public markets, 40% say private assets help reduce portfolio volatility.

Private assets generally offer higher yields as well, which leads 33% to cite their role in generating income as reason to incorporate private assets in client portfolios. Another 24% say private assets help enhance risk management, while 17% point to the tax efficiency provided in private markets.

Private assets still pose challenges for individual investors

Not everything is smooth sailing in fulfilling these important portfolio functions with private investments. In fact, liquidity (57%) is the number-one challenge facing firms as they look at long lockup periods that give the investment time to develop. However, illiquidity can work in the favor of some investors, as 75% of wealth managers globally say the long-term nature of retirement savings makes investing in private assets a sound strategy.

75% say the long-term nature of retirement savings makes investing in private assets a sound strategy

The liquidity challenge is central to client education, which 42% say can be a hurdle to incorporating private assets. While investors may hear about higher returns and ask their advisor for opportunities, they may not realize how investment qualifications, lockup periods, and other factors unique to private investment come into play. In fact, 20% of those surveyed point to the accredited-investor threshold as a specific challenge. Given the complexities, another 20% point to advisor training as another hurdle that needs to be cleared.

With demand for private assets growing among both individuals and institutional investors, the competition for deal flow is tight, and 38% say access to top opportunities can be an obstacle to implementation. Adding to the challenge are the 65% of wealth managers who note that crowding in private asset categories/themes is an underappreciated risk (65%).

Additional hurdles to implementation include operational issues, such as compliance and reporting requirements (33%). Limited fund structures (30%) are also a challenge, but they are ready to take on new vehicles as they become available.

How wealth managers access private markets

More money chasing fewer deals, coupled with high investment minimums and long lockup periods, has created demand for innovative solutions for private market investment, and wealth managers are taking note.

Wealth managers’ preferred vehicles for private assets

Overall, 51% of firms still look to traditional drawdown funds as their vehicle of choice. But 48% also report that they are using evergreen and open-end funds for clients. Another 35% rely on semi-liquid funds, such as interval funds, which offer limited liquidity with quarterly tender offers and similar options. In fact, 65% say this fund structure makes it easier to meet client demand for private investment. Another 62% say the proliferation of semi-liquid options is making it more attractive to add private assets to client portfolios.

While another 28% turn to Feeder/access funds and 27% are turning to liquid alts, firms are hungry for more innovative solutions. For example, 35% of firms in Europe and 28% in UK are planning to add new ELTIFs and LTAFs to their investment platforms. Nearly two-thirds (66%) believe that retail-friendly private asset vehicles help enhance diversification. Overall, 63% think turnkey solutions, such as multi-asset model portfolios, would also make it more attractive to incorporate private assets (63%).

In looking for new investment vehicles, 87% said a continuously offered fund with up to 5% periodic liquidity and a lower liquidity premium would be somewhat appealing (67%) or very appealing (20%). And 83% think a private limited partnership fund with a traditional capital call and lockup period and a higher liquidity premium would be somewhat (68%) or very (15%) appealing.

Sustainable investing facing a new kind of disruption

Sustainable/environmental, social, and governance (ESG) investing serves as a prime example of how politics can be disruptive to investing. Over the past decade, investor demand for sustainable investment grew considerably. But those investments, which can be wrongly defined by old-school exclusionary screens associated with socially responsible investing, have been caught in the crosshairs of the culture wars. As a result, sentiment in some regions is changing dramatically.

For example, while 86% of wealth managers globally will maintain (42%) or increase (44%) the sustainable investments available on their platforms, the numbers vary widely. In France, 81% say they are looking to add to their offering, while only 14% in the US plan to do the same.

Sustainable investing is a multi-faceted issue

When it comes down to it, those exclusionary screens are implemented by only 38% of firms. Instead, 45% deploy ESG integration strategies that consider nonfinancial data alongside traditional consideration, such as valuations and profitability. This includes 63% in the UK and 57% in Europe. For many, this approach simply amounts to an added layer of risk management in their due diligence process, and 60% say consideration of ESG factors is an integral part of sound investing.

More than a quarter (27%) go beyond this strategy by investing in those companies with best-in-class performance on related issues. Meanwhile, another 38% employ active ownership, seeking to engage management with the companies they invest with on relevant issues. But in terms of investing in a way that can measurably affect an issue and deliver a measurable profit, 36% rely on impact investing strategies.

In fact, almost half (49%) believe there is alpha to be found in ESG investing. But these efforts are becoming more focused as 73% believe major transitions such as energy, demographics and governance represent significant investment opportunities for their clients.

Disrupting the disruptors

Wealth managers face a wide range of challenges in 2025, ranging from meeting demand for new services and quenching clients’ thirst for private investment to finding the best ways to integrate artificial intelligence (AI) into their investment and business processes. Despite all the potential roadblocks these and other challenges present, wealth managers are positive they can deliver the results needed to keep the business growing.

When it comes down to it, their success will be based on their ability to anticipate which disruptive forces represent new opportunities and which pose genuine threats to the business. This will require a fresh look at the products and services they offer clients, a clearer read on the macro environment, and a dynamic strategy to actively manage client assets.

About the survey

The 2025, Natixis Investment Managers Wealth Industry Survey was conducted in December 2024 and January 2025 and included 520 individuals in 20 countries throughout North America, Latin America, the United Kingdom, Continental Europe, Asia and the Middle East.

Disclosure

¹ Bloomberg.

² Bloomberg, as of 12/31/24.

³ Natixis Investment Managers, Global Survey of Individual Investors, conducted by CoreData Research in March and April 2023. Survey included 8,550 individual investors in 23 countries.

The views and opinions expressed may change based on market and other conditions. This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted.

Actual results may vary.

All investing involves risk, including the risk of loss. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.

Natixis Distribution, LLC is a limited purpose broker-dealer and the distributor of various registered investment companies for which advisory services are provided by affiliates of Natixis Investment Managers.

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