90% of managers bet on investment-grade debt and private credit as assets with the highest return potential

The Goldman Sachs Asset Management European pension survey shows that investment-grade debt and private credit are the asset classes that pension fund managers expect to generate the highest risk-adjusted returns in the coming year.

Key Aspects

• Overall, European pension fund managers are moderately optimistic for the coming year in terms of return expectations.
• Nearly 60% of schemes say the investment climate has improved.
• Nine out of ten managers plan to increase allocations in investment grade debt and private credit due to higher risk-adjusted return expectations
• 87% of the survey participants consider sustainable investing to be a key or important factor in their decision making, and nearly two-thirds (63%) allocate more than 10% of their portfolio to this approach.
• Seven out of every ten respondents plan to outsource some or all of their investment portfolios in the next 12 months.

Investment-grade debt and private credit are the asset classes that pension fund managers expect to generate the highest risk-adjusted returns in the coming year, according to Goldman Sachs Asset Management's European Pension Survey 'Finding Opportunities in Uncertain Markets.'

Nine out of every ten respondents plan to increase or maintain their allocations to these asset classes. In the specific case of private credit, 68% of the managers believe it has the potential to increase returns without a corresponding increase in volatility, while two-thirds (65%) plan to allocate to this asset class over the next three to five years.

The first edition of this pension market survey polled 126 senior executives and managers of defined benefit (DB) pension funds based in Europe. They were surveyed on the opportunities and challenges facing the plans and the outlook for institutional investors in the public and private markets. The results reveal cautious optimism for the year ahead, with 59% of respondents saying the investment climate has improved.

A crucial moment for European pensions

'Our survey captures the views of European defined benefit pension fund managers at a crucial time. Many are optimistic about the investment climate, but the economic outlook is uncertain, with higher long-term rates, diverging growth trajectories around the world and elevated geopolitical risk. Facing sharply rising yields and declining inflation, managers are favoring investment-grade debt and private credit. We expect to see a continued increase in fixed income allocations across public and private markets as pension funds reduce their exposure to more volatile assets such as equities towards more stable income-generating investments.' Fadi Abuali, Chief Executive Officer at Goldman Sachs Asset Management International , says.

Meanwhile, Céline van Asselt, Managing Director at Goldman Sachs Asset Management, expects that "outsourcing of asset management will increase. Today, trustees are faced with new regulatory requirements, growing reputational risks and increasingly loud parties. Pension fund resources have not grown to cope with this complexity. The investment climate remains uncertain, with higher rates expected for longer and slower growth in most advanced economies, but opportunities abound in public and private markets for investors with a diversified, risk-conscious approach."