Market Context: 2025 in a Holding Pattern
The first half of 2025 has unfolded with a mix of cautious optimism and strategic recalibration. iConnections published a Midyear Global Investor Survey reflecting sentiment halfway through the year. Equity markets have shown resilience, but not conviction—with roughly one-third of investors expect the S&P 500 to finish the year up between 5% and 10%, with another quarter anticipating flat performance. A narrow subset sees small single-digit gains, while fewer than 20% expect outright declines. The muted consensus reflects an environment marked by dispersion, political noise, and macro complexity. As rate expectations evolve and geopolitical volatility resurfaces—including renewed U.S.-Iran tensions—investors remain alert but not panicked. Instead, they are tactically managing risk, preserving optionality, and searching for relative value.
This cautious posture is mirrored in global positioning. While North America continues to dominate as the primary regional focus—nearly 90% of allocators plan to allocate there—allocators are simultaneously rotating capital within portfolios. About half of respondents reported redeeming from funds this year, but most did so selectively, executing three or fewer redemptions. Public market strategies absorbed the bulk of these exits, while private market allocations remained largely intact. The data suggest a rebalancing strategy, not a retreat—investors are moving capital with purpose, not retreating from the field.
View Latest ReportAlternatives: Still a Core Pillar
Against this backdrop, allocators reaffirmed their conviction in alternative investments. Nearly 60% of respondents indicated plans to increase allocations to alternatives, while close to 40% intend to hold steady. Fewer than 5% signaled a reduction. This stability highlights alternatives as a long-term solution, not a temporary trade. As the traditional 60/40 model continues to be stress-tested, alternatives are being leaned on for downside protection, income generation, and access to emerging structural themes.
In terms of strategy preferences, investors are expressing clear directional signals. Liquid credit led all categories, punching well above its weight at the Global Alts New York conference. This surge in attention reflects a demand for yield and liquidity in a market still adjusting to higher base rates. Global macro strategies followed closely—investors are attracted to the flexibility and global reach these managers can provide amid ongoing geopolitical shifts and policy divergence.
Private equity and relative value strategies remain foundational, but engagement with them has been more proportional to their availability. Investors are still active in these areas, but with increasing scrutiny. Selectivity around entry points, fund structures, and time horizons has intensified. Meanwhile, multi-strategy and event-driven strategies punched below their weight, suggesting allocators may be dialing back complexity in favor of clarity and control.
Regional Sentiment and Allocator Caution
Outside the U.S., Europe remains the next most favored destination for capital, with more than half of respondents indicating plans to invest there. Valuation differentials, divergent monetary policy, and sector diversification have piqued allocator interest. However, enthusiasm is tempered—political fragmentation and growth uncertainty remain headwinds. Elsewhere, engagement with emerging markets is minimal: fewer than 15% of investors plan to allocate to Southeast Asia, China, or India, reflecting persistent concerns around policy stability and investability.
Investor interest in the Middle East remains exploratory. Half of respondents are not currently invested and have no plans to enter the region, though more than one-quarter are considering doing so. Sentiment is split on public vs. private opportunities, and geopolitical developments—including the latest military escalation between the U.S. and Iran—are likely to further complicate investor calculus. Nonetheless, as the global energy and infrastructure narrative evolves, allocators are keeping one eye on the region’s long-term potential.
Themes Driving the Second Half
Looking ahead, allocators expect 2025 to be shaped by several dominant forces. Political and regulatory change topped the list, cited by nearly 80% of respondents—likely driven by upcoming elections in the U.S., EU, and elsewhere. Geopolitical risk was not far behind, underscoring the fragile state of global affairs. The AI supercycle emerged as a significant thematic driver, with more than half of respondents calling it a central force in investment sentiment. Notably, 72% of surveyed investors already use AI in either investment or operational workflows, suggesting that adoption has moved beyond experimentation into embedded practice.
Conclusion: Staying Constructive Amid Complexity
Despite a noisy and fragmented global backdrop, investors are not pulling back—they are repositioning. Liquidity is being managed tactically, allocations are being rotated, and alternatives are holding firm as the spine of institutional portfolios. The road ahead remains uneven, but the allocator mindset appears clear: stay nimble, stay invested, and be selective. In a year defined by uncertainty, discipline—not defensiveness—is the prevailing tone.
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