Portfolio construction is changing

First Published by Le Temps on August 24, 2025

From Covid to Donald Trump, investors have had to deal with increasingly frequent shocks in recent years. Yet they’ve remained highly resilient and are adapting faster, says Julien Dauchez of Natixis Investment Managers.

Which themes are gaining traction in fund launches this year?

Julien Dauchez: All themes related to defense, particularly in Europe, have clearly come back to the forefront. Some governments are even considering public-private partnerships in this area. Infrastructure investments—especially those linked to electrification and artificial intelligence (such as data centers), are also booming. And there's still strong investor interest in U.S. tech.

Are you seeing changes in the types of funds being launched?

Active ETFs are trying to gain ground in Europe, especially among younger generations, thanks to the flexibility and accessibility of exchange-traded funds—such as being able to invest directly from a smartphone, even though these cannot replace the value of a financial advisor.

We're also seeing a trend toward evergreen funds in illiquid alternative strategies for retail investors. These perpetual vehicles, with no fixed end date, provide immediate exposure to private market investments, typically in private equity, although we're increasingly seeing multi-asset offerings.

They’ve experienced unprecedented growth since the beginning of the year and complement closed-end Eltif 2 funds (European Long-Term Investment Funds), which also aim to democratize access to private markets. Retail investors seem to prefer evergreen formats due to their more flexible subscription and redemption terms.

Is this flexibility absolute?

In practice, after a minimum holding period (lock-up), an investor can make additional subscriptions or redeem their shares, typically on a quarterly basis, subject to redemption gates at the manager’s discretion, for the benefit of all investors. The investor usually must give three to six months' notice, but unlike traditional institutional private equity funds, they’re not locked in for the entire life of the fund.

Even though we talk about democratization, these funds aren’t for the general public, are they?

These funds primarily target private banking clients and independent wealth managers with a certain level of wealth. However, there are exceptions. In France, since last fall, the Green Industry Law mandates that 4% to 8% of retirement savings plans with “balanced” or “dynamic” profiles be invested in private assets. In the UK, where people manage their own pension funds, offerings in private strategies like private equity and private debt are also expanding.

Returning to evergreen funds, does their different nature have an impact on performance? For example, if people exit before investments are made.

Unlike private equity investments made by institutional investors, where performance is calculated on the basis of capital called, evergreen funds intended for individual investors contain a cash reserve that has a dilutive effect on reported performance but protects investors from exposure to capital calls and distributions. This has gradually led to a bifurcation in performance measurement, with the internal rate of return (IRR) for institutional investors and the annualized rate of return for individual investors.

Isn't this democratization of private equity also a sign of tensions in this asset class, which is suffering from a lack of exits, particularly due to the low number of IPOs? It's as if we were trying to foist on private investors what professionals are struggling to sell

This is what we might have feared at the outset, but institutional investors remain loyal to their investments. They are also seeking to diversify beyond private equity into infrastructure in particular, with extremely long time horizons and where individual investors are not present at all. Demand is huge, in anticipation of the German government's €500 billion infrastructure investment plan announced earlier this year. Electrification needs are currently considerable, with the idea of an energy transition that will clearly be achieved through private investment, given that governments are heavily indebted. The democratization of private assets is a long-term trend. Individual investors are gradually gaining momentum in financing businesses and innovation.

Beyond private equity, are other alternative strategies attracting attention?

In portfolios, we are seeing a growing share of liquid alternative strategies. These include absolute return bond strategies, fixed income arbitrage [strategies that seek to take advantage of temporary price differences that may occur on bonds], global macro [based on economic and political forecasts for different countries], and long/short equity [selling overvalued stocks and buying stocks that are expected to rise]. These are non-directional strategies, relatively uncorrelated with the markets, which do not require clients to remain invested for long periods, and are generally offered in UCITS format.

Your job is to analyze portfolios. What are professional investors, such as pension funds and asset managers, currently investing in?

We have seen some very interesting shifts since the beginning of the year. First, investors have shown themselves to be extremely resilient, despite a series of exogenous shocks. There was COVID-19, then Ukraine, and more recently US tariffs, announcements about budget deficits, and the US tax law known as the Big Beautiful Bill Act. Each time, investors experience an initial shock, become more cautious, volatility increases, and then they return as soon as possible, once they have identified entry points for risky assets. We can draw an analogy with a bouncing tennis ball. The first bounce is higher, the second a little lower, and so on. Panic reactions are immediate but last for shorter and shorter periods, as if the market had a greater capacity to absorb shocks.

Has portfolio construction changed?

Absolutely. Geopolitics is increasingly shaping portfolio construction. It was previously seen as something exogenous, influencing oil prices and often originating in the Middle East. It is now a determining factor, explaining the spectacular return of gold to asset allocations. The Swiss have always held gold in their portfolios, but European, Asian, and South American managers have also increased their exposure to the precious metal, which is seen as a safe haven against geopolitical risk in a fragmenting world.

What other key trends are you watching?

Investors are returning to US equities. People may have felt that the opposite trend, toward European equities, observed in the first quarter was perhaps too extreme. US technology continues to drive growth in the United States. Capital expenditure by the “Magnificent Seven” now contributes more to US GDP growth than household consumption. This back-and-forth movement by investors reflects a return to a very down-to-earth, bottom-up approach, in which the focus is primarily on corporate earnings relative to expectations. In addition, the weakening of the dollar was another major theme of the year, as was the change in perception of sovereign debt. Investors are now concerned about budget deficits. Ten-year Treasury bonds were traditionally considered the ultimate risk-free asset, but now it is more likely to be two-year or five-year US bonds. As a result, these have yielded lower returns since the beginning of the year.