Pension plans and other institutional investors worldwide are becoming more confident that they can achieve their target returns over the next five years.

The latest survey from Pyramid Global Advisors found that 91% of pension plans and other institutional investors believed that they can realize their target returns within five years.  The respondents are anticipating returns that are significantly higher than the 65% recorded in 2012.

Pam Holding, chief investment officer at Pyramis Global Advisors said, “A recent spike in market volatility comes after years of strong equity returns and below average volatility. Our global survey suggest that while institutional investors have divergent views on volatility, most want to keep their winning streak going by continuing to grow their portfolios and improve funded status. “

The 2014 Pyramis Global Institutional Survey included 811 respondents in 22 countries, which represent more than $9 trillion in assets under management (AUM).

Institutional Investors’ market volatility expectations

The survey found that the expectations of pension plans and other institutional investors vary in terms market volatility, perspectives on alternatives, investment objectives and investment opportunities in different regions.

Pension plans and institutional investors in Asia (91%) and Europe (79%) expected that the market volatility are quite low over the long-term with a decrease in the frequency of boom/bust cycle.

In the United States, only 7% of institutions expected volatility to decline while 42% anticipated an increase in volatility. In Canada, 10% of pension plans expected a decrease while 60% predicted an increase in volatility.

Pension Plans market volatility expectations Institutional Investors

Institutional Investors’ top concerns

The study indicated that U.S. institutional investors are less concerned about capital markets than in the previous years. Asian and European institutions expressed that the market volatility is their main concern. Pension plans and institutional investors in Europe are also worried about the low return environment in the region.

Asian pension plans and institutional investors are focuses on accounting and regulatory changes. Canadian institutions are focused in risk management.

In the United States, 28% of pension plans are concerned on their current funded status. Majority of pension plans are planning to improve their funded status.

Pension Plans top concerns

When it comes to perspectives on alternative investments, 79% of Asian pension plans and other institutional investors are planning to increase allocation to illiquid alternatives while 57% and 22% in Europe and U.S. respectively.

Derek Young, vice chairman at Pyramis Global Advisors said, pension plans in the United States are “currently re-evaluating the complexity, risks and fees associated with hedge fund.” According to him, the survey indicated that U.S, institutions are preparing to return to a more traditional, back-to-basics portfolio.

Asian institutions are highly-focuses in growth with 64% identified capital growth as their primary investment objective. U.S. pension plans’ top investment objective is funded status growth while those in Europe are focused on preservation. Canadian pension plans are equally focused on preserving and increasing their funded status.

Pension Plans investment objectives

The survey found that pension plans are seeking investment opportunities in emerging Asia over the medium term.