Institutional Investor Monitor – Q1 2026: Cautious Optimism and Portfolio Resilience are key

We’ve been speaking to investors through Q1 and while the tone of conversations has shifted in March due to the geopolitical situation, it’s clear investors see 2026 as a year of transition rather than crisis.  

Portfolios have largely weathered recent shocks such as tariffs, and are set up to continue to do so, while allocators are increasingly focused on structural market risks and operational discipline. 

We’ve summarised the key themes emerging from our recent conversations below:

Resilience Over Reaction 
Despite geopolitical tensions, rate uncertainty, and elevated valuations, investors are notably measured in their outlook. Rather than reacting tactically, they emphasise portfolio resilience. 

A primary concern is high asset valuations, particularly in public equities. Investors acknowledge markets have remained robust despite repeated macro shocks over the past 2-3 years, but there is a growing unease about how long this can persist. It’s not just fear of an AI bubble, it’s broader than that, and the possibility of a market correction is recognised, though not actively traded around as portfolios have been built for resilience. 

Interest rates are another focal point. Several investors are actively increasing allocations to core bonds to stabilise portfolios. 

Geopolitical risks are acknowledged but have been largely deprioritised so far in decision-making. The prevailing view is that such risks are difficult to predict or hedge, hopefully temporary, and portfolios are already constructed to absorb shocks rather than anticipate them. However, this is one to watch as the ongoing tensions create additional inflationary pressure and uncertainty. 

In private markets, concerns are more structural. Investors are closely monitoring exit environments, seen as critical to unlocking liquidity. There is also increasing scrutiny of private credit, where rapid capital inflows are raising questions about underwriting standards and potential systemic risks. Several investors are openly taking a wait-and-see approach and watching headlines closely. 

The ability to maintain a regular pipeline of exits will be a critical measure of success and a driver of manager selection over the next 1-2 years. 

Overall, the tone is pragmatic rather than defensive. 

Manager Selection: Stability Over Short-Term Performance 
With the return of market volatility, we asked how this affects manager selection processes. It’s fair to say this hasn’t yet played out but what surprised us was investors openly talking about how organisational (in)stability is more likely to trigger a new manager search than pure performance issues. Investors are generally patient with underperformance if a manager is adhering to their stated processes, but personnel departures are a critical red flag, stability is key. 

For larger institutions, the manager selection typically starts with a quantitative screen of organisational stability and investment performance, followed by more qualitative assessments of investment processes with a focus on how investment decisions are made, through to presentations and due diligence. 

At smaller institutions, the process can be more data-driven and efficient. One investor we spoke to recently, who runs a $1bn+ University Endowment fund relies almost entirely on quantitative analysis and consultant research, with minimal emphasis on in-person meetings. This investor was comfortable not actually meeting a manager, even via zoom, until after they had been hired. 

Across all institutions, a few consistent themes emerge: 

  • Best-in-class over consolidation: Investors overwhelmingly prioritise selecting the best manager for each mandate. While they recognise potential fee savings from manager consolidation it is not a driver of choice. 
  • Trust and alignment matter: At the final stage, softer factors such as trust, clarity of communication, and alignment with institutional objectives often determine the outcome. 
  • Fees are important but not decisive: Investors will negotiate and exclude outliers, but are willing to pay higher fees for managers they strongly believe in. In private markets especially, fee flexibility is often limited. 
One investor gave us a fascinating insight into what makes a manager stand out in a pitch. He described how one manager spoke eloquently about the real reason they were all in the room together, which was to help make retirement outcomes better for the plan’s thousands of members. 

“I've been here almost 14 years there's probably only once or twice been a time where our board members have commented like, ‘they actually said the word ‘retiree’ in their presentation’. It's a lot rarer than you would think.” 

This resonated strongly with the plan’s IC members and was in stark contrast to other managers which typically gave dry presentations focused on the investment process. 

A simple but effective differentiator for appealing to a prospective client’s emotional side? 

In conclusion- Discipline, But Demand for Transparency 
These interviews reveal that the investor base remains disciplined, as we would expect. But with volatility rising and negative headlines in Private Markets, investors are looking for reassurance about firms’ investment processes, they want managers to be transparent about portfolio holdings, valuations and exits, and to be kept informed of any strategy updates in response to markets. 

Even if the message is primarily one of “keep calm and carry on”, investors appreciate channels of communication being open, transparent and frequent.  

   
 

Addendum

AI Adoption: Interest High, Implementation Cautious

Artificial intelligence is on the agenda, but adoption among investors remains limited and uneven.

Most institutions are using AI only in incremental, low-risk ways, for productivity tasks such as summarizing documents, proofreading, or supporting research. In some cases, AI is being used to review legal documents or compare fund terms, but rarely as a core input into investment decision-making.

Barriers to adoption are significant. Data security is a concern, especially for public institutions which manage sensitive personal information. Others cite a lack of internal resources or technological infrastructure. We sometimes forget that many institutions, while they may invest billions of dollars, only have small investment teams and make up only a fraction of their organization’s overall headcount. Investors in these types of organizations acknowledge they are unlikely to be early adopters.

But even among larger investors it’s clear that AI adoption for investment purposes is a slow burner. One mega-plan we spoke to described how their internally built AI model is only able to view internal sources of information, or other information which is directly fed to it as it’s not able to look at external data sources.

In contrast, expectations for asset managers are much higher. Investors increasingly expect managers to have a clear AI strategy, whether for investment research, operational efficiency, or portfolio company value creation, and they want to learn more from them.

Two managers stand out as leaders, both of which have longstanding expertise in quantitative or machine learning strategies. However, most managers are perceived to be in early adopter stages, often deploying AI for internal efficiencies (e.g. summarizing research or automating workflows) rather than generating differentiated investment insights.

Some investors are still wary of overhype. There is concern that both managers and markets may overestimate the near-term impact of AI.

 
   

 


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