Institutional market trends: What may shape 2026

MATT HUNYADI: Hello, everyone. This is Matt Hunyadi. 

MARK CINTOLO: And I'm Mark Cintolo.

MATT HUNYADI: And we're from the Portfolio Analysis Consulting Team here at Natixis Investment Manager Solutions, here to recap our latest institutional trends report.

MARK CINTOLO: In this episode, we'll discuss the return environment, asset allocation shifts, and discuss what could be a big year in initial public offerings.

MATT HUNYADI: So strong returns overall in 2025 for the calendar year. This was led by equity markets. By region performance, emerging markets led the way, then international developed. For the domestic side of things, S&P 500 led the way. Most of this was driven by Mag Seven. You had the 493 lag behind that. And you have broader small cap indices coming in last place. Though we would say that the performance rank order has been flipped for 2026 so far.

MARK CINTOLO: Yeah, some strong returns on the equity side. And then on the fixed income side, we really saw yield plus returns across almost all bond categories, and really, across traditional assets. Almost every asset class was flashing green by the end of the year.

MATT HUNYADI: For private markets, our information is a bit lagged, but we would expect it when thinking about the full year for '25, that this would follow some of the broader asset class themes that we've seen for the year. So when all said and done, likely the same kind of result.

MARK CINTOLO: And put these all together, and when you look at institutional returns over the one-year period ending 9/30, almost all institutions were at or near double digit returns.

MATT HUNYADI: So let's start off here and dive into the return environment and some of the key megatrends that drove market returns for 2025. Our megatrends framework covers some of the technological, societal, geopolitical themes and return drivers that we think can have potential to be meaningful return drivers over the next 5 to 10 years.

MARK CINTOLO: Yeah, and here we see two themes that meaningfully drove return differences in 2025, tariff policy and artificial intelligence.

MATT HUNYADI: For tariff policy, our high protection basket represents companies with a larger share of the revenues from the US. Conversely, the low protection basket represents companies with a lower share of revenues from the US, along with a higher sensitivity to potential demand destruction.

And second, we have our artificial intelligence theme. Our first order basket represents key megacap growth industries and building blocks for powering data centers and related infrastructure. Our second order basket are those industries that will be disproportionate beneficiaries of AI technology being integrated into their business model.

So how would tilts to these themes have impacted returns in 2025? The high protection basket benefited from a market grappling with US trade policy that was more punitive than expected in early April. This trade unwound slowly into July before falling out of the market's focus.

And on the AI front, returns post Liberation Day favored the first order basket, while the second order theme barely kept pace with the market. So, as you can see, these themes were each big drivers of return differences over the first several months of the year, but performed similarly towards the end as we saw equity markets grind higher.

MARK CINTOLO: So, Matt, we'd expect that institutional investors would react to these higher returns by rebalancing away from the asset classes that outperformed, what becomes an overallocation to that asset class. What are we seeing from flows?

MATT HUNYADI: Absolutely. So this shows asset category flows for separate accounts through quarter 3 of 2025. And this is ranked from outflows on the left of the page towards inflows to the right of the page for 2025. So a few things here that we'd highlight.

The first being you've seen accelerating outflows for liquid alternatives in 2025. The primary driver behind that is macro trading strategies, trend following strategies. International equity could be an early representation of investors taking profits after a strong year of returns boosted by currency effects. Lastly, for fixed income and money markets, you saw inflows. You also have seen inflows in non-traditional equity, which is likely led by the derivative income category.

MARK CINTOLO: So how did 2025 flows look compared to the 2024? Well, in 2024, we also saw negative equity flows in a year with strong equity market performance and flows, in part, due to the rebalancing effect. We do note that the accelerating outflows in liquid alternatives and the decelerating inflows into money market and cash-like strategies are notable for 2025.

MATT HUNYADI: Speaking of alternatives, the Natixis Institutional Outlook Survey asked over 600 institutional investors which alternative categories they plan to increase or decrease allocations to.

MARK CINTOLO: This chart looks at the answers for US respondents. And we're showing the categories most skewed to the upside on the left and the categories most skewed to the downside on the right. For example, 45% of US institutional investors who already invest in private debt plan to add to it, while only 6% said they plan to reduce. This net score of positive 39% represented the largest differential of any asset class in the survey. So let's focus on a few of these findings, starting with private debt.

MATT HUNYADI: Yeah so private debt has been a popular choice here for years now. The magnitude of skew here surprised me a bit. We've seen some headlines suggesting many public pension plans were reducing allocations. Wonder if some institutions are still ramping up private debt exposure. So they're saying yes, we'll likely add because we're still below our long-term target. And then the story for those at their long-term targets is more mixed.

MARK CINTOLO: Now looking at the middle of the page, private equity interest remains strong but somewhat mixed. Last summer, we had flagged that certain endowment and foundations subject to tax increases as part of the One Big Beautiful Bill Act might look to trim here.

And there were some high-profile secondary sales from Yale and Harvard. But with secondaries, one plan's decrease could be another's increase. And it's also possible that private equity investors are expecting some natural liquidity events in the form of IPOs and increased M&A activity in 2026, which would reduce the need to trim from new commitments.

MATT HUNYADI: And the mixed results in the allocation plans for gold, precious metals could indicate some selling pressure after a very strong year for returns in 2025. When you're looking at areas like precious metals, you had silver up nearly 148% for the calendar year 2025. Platinum was up close to 130%. And you even had gold that was up in the 64%, 65% range in terms of returns.

MARK CINTOLO: So to summarize, we're seeing continued interest in private markets, particularly private debt, and more muted interest in liquid alternatives, including commodities. Let's move on to another private markets topic we've touched on in past trends reports - unicorns.

We continue to see growth in this group of privately held companies worth $1 billion and higher. The valuation growth shown here is understated, since the figures are typically based on known past fundraising rounds and aren't updated daily. And in fact, a couple of benchmarks designed to estimate the underlying returns of this cohort suggest that 2025 returns were strong.

MATT HUNYADI: Yeah, let's provide a little bit more context here. So for 2025, the global and US unicorn indexes beat the S&P 500 by 18%, 31%, respectively. To give a little bit more context here, the S&P was up nearly 18% in 2025. So this is saying for, say, the US unicorn index, for example, that is up nearly 50% for 2025. So two companies in particular that could make headlines in 2026 that we're keeping track of here are OpenAI and SpaceX.

MARK CINTOLO: Yeah, there's a thought that one or both of these companies could IPO in 2026 at a combined valuation of $2 to $3 trillion. If this happens, we could be looking at a new carve-out equal to 5% of the current market cap of the Russell 1000 index and an even larger percentage of growth indices at that valuation level.

This means you could see meaningful flows as passive strategies recalibrate. A portion of active strategies could shift too, knowing the change in the benchmark composition, both from closet indexers and those that want the active exposure in the two new names.

MATT HUNYADI: Yeah, so the flows could be coming from a few different places. And perhaps that puts selling pressure on other megacap names out there. This is definitely something to watch for this year in 2026.

And speaking of IPOs, initial public offerings showed signs of life with increases in count and combined valuation for the second year in a row, providing some hope that 2026 could be a breakthrough year. For private investors, this increased IPO M&A activity gives some hope for thawing out of distributions in 2026.

MARK CINTOLO: So how did companies who IPO'd in 2025 fare? Well, as we've just seen with the unicorn indices, the returns while private continue to be strong. But post-IPO has been a mixed bag. And where there were decent returns stories, a lot of those returns occurred on the first day with some big winners, as is often the case.

The post day one returns were not all that great. And those names, in aggregate, have actually lagged the S&P 500. So here's a list of notable 2025 IPOs.

MATT HUNYADI: So we have Medline here, happened very late in the year, and at an over $6 billion valuation was the largest IPO since 2021. This was up significantly in just a handful of trading days before the holidays.

In the middle of the table here, you have a few crypto plays. Figma trailed the market. But Circle did really well on the flip side. Bullish nearly doubled on its first day, but ended up round tripping by year end. And at the bottom of the page here in the table are two consumer plays and an AI infrastructure play that were down meaningfully.

MARK CINTOLO: So if you're worried that too much of the growth is accruing to the private side, this is more recent evidence to support the theory. To us, this underscores the importance of private market allocations and the need for active management in public markets. That concludes our discussion on some of the latest trends impacting institutional investors.

MATT HUNYADI: For more of our research and investment insights, visit our website, ion.natixis.com. And as always, feel free to reach out to us with any questions, comments, or for tailored insights to your specific portfolio.

MARK CINTOLO: On behalf of the Portfolio Analysis and Consulting Team at Natixis Investment Manager Solutions, thanks for your continued partnership. And thanks for listening.