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Portfolio construction

Five institutional investment trends – Midyear 2023

June 25, 2023 - 13 min read

Natixis Investment Mangers Solutions portfolio consultants monitor asset classes, investment products, and market activity both in real time and from a historical perspective. Compelling institutional trends are summarized below.

1. Returns recover, dispersion narrows. Performance recovered in Q4 2022 and Q1 2023, with nearly all institutional investment programs posting positive quarterly returns. With less dispersion between asset class returns, the difference between top and bottom quartile returns was largely tighter as well.


E&F performance by percentile || Public performance by percentile
chart 2 Source: Natixis Investment Managers Solutions, InvMetrics

2. Unicorn births slow, but AI soars. The total valuation of global unicorns – privately held companies valued at $1 billion or highers – shrank from $3.9 trillion at 12/31/2022 to $3.8 trillion at 6/30/2023. However, the underlying companies involved primarily in artificial intelligence saw a 35% increase in valuation in 1H 2023, rising from $342 billion to $463 billion. This increase was largely driven by two firms: Bytedance, the Chinese parent company of TikTok, and OpenAI, which announced a multi-billion dollar partnership with Microsoft. (


Unicorn valuation growth
alt text Source: Natixis Investment Managers Solutions, CB Insights

3. Implied volatility benefits options strategies. Implied volatility, as reflected by the VIX index, was elevated vs. history for much of 1H 2023, leading to higher than average premiums from options selling. This benefited options-based strategies, which outpaced returns from many traditional equity and fixed income products. A blend of the CBOE BuyWrite and PutWrite Indices, representing long exposure to both puts and calls on the S&P 500®, would have outperformed a 60/40 portfolio comprised of MSCI ACWI and Bloomberg Aggregate Indices.


VIX vs. S&P 500 monthly option premium income || 1H 2023 performance (index = 100)
alt text Source: Natixis Investment Managers Solutions, Bloomberg

4. Real estate recomposition. Amid concerns around the impact of remote work on commercial real estate, allocations to office properties have declined rapidly. The NCREIF Fund Index – Open End Diversified Core Equity (NFI-ODCE), which tracks institutional private core real estate strategies, is now led by the industrial property type at 31.4%. Office, the largest weight in the index for many years, fell to 20.8%. On the public REIT side, office allocations have plummeted to 4% of the index, suggesting a more muted impact from the office industry going forward.


Real estate allocations by property type, NFI, ODCE || REITs industry allocations, S&P 1500
alt text Source: NCREIF, FactSet

5. Inflation pressures hit NDTs. Nuclear decommissioning trusts, with liabilities often tied to projected future energy storage costs, saw the first meaningful increase to inflation assumptions in the past 30 years. In addition, two nuclear power plants, Oyster Creek (NJ) and Pilgrim (MA), announced four-year extensions to planned decommissioning dates, citing poor investment performance and higher than expected inflation in 2022.


Average cost inflation assumption
alt text Source: NISA Investment Advisors, LLC (inflation assumptions), Nuclear Regulatory Commission/Holtec Decommissioning (extensions)

The S&P 500® Index is a widely recognized measure of US stock market performance. It is an unmanaged index of 500 common stocks chosen for market size, liquidity, and industry group representation, among other factors. It also measures the performance of the large-cap segment of the US equities market.

This content is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the author only and do not necessarily reflect the views of Natixis Investment Managers, or any of its affiliates. There can be no assurance that developments will transpire as forecasted and actual results will be different. Data and analysis does not represent the actual or expected future performance of any investment product. We believe the information, including that obtained from outside resources, to be correct, but we cannot guarantee its accuracy. The information is subject to change at any time without notice.

The data contained herein is the result of analysis conducted by the Natixis Investment Managers Solutions consulting team on model portfolios submitted by Investment Professionals. The Moderate Peer Group consists of model portfolios that have been analyzed by the consulting team and have been designated as moderate by Investment Professionals.

Natixis Investment Managers Solutions collects portfolio data and aggregates that data in accordance with the peer group portfolio category that is assigned to an individual portfolio by the Investment Professionals. At such time that a Professional requests a report, the Professional will categorize the portfolios as a portfolio belonging to one of the following categories: Aggressive, Moderately Aggressive, Moderate, Moderately Conservative, or Conservative. The categorization of individual portfolios is not determined by Natixis Investment Managers Solutions as its role is solely as an aggregator of the pre-categorized portfolios. Please note that risk attributes of the Moderate Peer Group will change over time due to movements in the capital markets. Portfolio allocations provided to Natixis Investment Managers Solutions are static in nature and subsequent changes in a Professional’s portfolio allocations may not be reflected in the current Moderate Peer Group data.

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Institutional investing trends

This summary discusses recovering returns for institutional investors and soaring AI company valuations at midyear, while fears of WFH impact on office properties are realized.

Learn more

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