Geopolitical risks see institutional investors rush to stockpile cash, survey finds

Institutional investors and wealth managers are rapidly accumulating cash reserves while pulling back from US and UK equities, a Marsh Investments survey reveals. The consultancy surveyed 430 asset owners managing a total of US$5.76 trillion and discovered that 37.8% of global asset owners intend to increase cash allocations within the next year, up from only 9% in a comparable survey last year.

Net cash allocation intentions rose by an impressive 35.5 percentage points to a positive 22%, marking the largest year-on-year swing among any asset class in the survey.

US and UK equities were the only two asset classes where investors planned to decrease exposure, with net allocation intentions falling to negative 10.3% and negative 16.5%, respectively. Marsh Investments' global chief investment officer, Niall O’Sullivan, highlighted that asset owners are adopting a strategic barbell position, prioritizing downside protection and diversification while retaining the flexibility to seize market opportunities.

Geopolitical risks and inflation emerged as the two most prominent concerns impacting near-term investment decisions, cited by more than 70% of respondents. Mike Sebastian, Marsh Investments' global head of multi-asset investing, expressed a positive short-term outlook on equities, supported by robust corporate earnings, though the medium-term outlook was less certain. He cautioned investors about potential volatility due to geopolitically driven yield moves, rising energy costs, and tight credit spreads.

Over half of the respondents indicated plans to boost infrastructure holdings and nearly half sought increased exposure to emerging market equities. The survey also found that asset owners were adjusting their geographic exposure, with 53% of investors in the Asia-Pacific region modifying their holdings in the past year, compared to nearly half of respondents globally.

Private markets gained wider engagement, although investors demonstrated increased caution. Approximately 44% of respondents maintained their current commitments while tightening selection criteria. Garvan McCarthy, Marsh Investments' global chief investment officer of alternatives, noted that private markets have become more accessible yet more challenging to manage effectively.

He emphasized that the next stage of investing would favor asset owners capable of pacing commitments, maintaining underwriting discipline, and thoroughly assessing the impact of individual exposures on overall liquidity and risk.