Pension schemes and other institutional investors are adapting portfolio construction as uncertainty becomes more structural, return dispersion widens and traditional anchors for asset allocation weaken, BlackRock says.
The pension edition of the asset manager's Investment Directions for Institutions, published today (26 February), said the market developments of 2025 – shaped by structural "mega force" trends such as artificial intelligence (AI) and geopolitical fragmentation – had underscored a profound rise in uncertainty.
As a result, BlackRock said it was becoming "far more challenging" to anchor strategic asset allocation (SAA) decisions and liability estimates around a single, long-term starting point scenario.
It suggested institutional investors were adopting a three-pronged approach to adapt pension portfolios for an uncertain future.
First, it investors were increasingly assessing how SAA might perform across a range of scenarios and identifying which assets were most vulnerable to regime shifts or could provide resilience – noting that investors were now stress testing portfolios across multiple growth, inflation and geopolitical outcomes, reducing reliance on static long-term assumptions and seeking greater resilience as traditional hedges become less reliable.
It said its analysis of how sample institutional portfolios might perform across three potential scenarios found that equity allocations – particularly US equities and US-heavy global equities – exhibited the widest dispersion of outcomes.
Economic growth outcomes for three scenarios
Source: BlackRock Investment Institute (BII), January 2026. Note: The chart shows BII's assumptions for five-year real GDP growth under the three scenarios that underpin its capital market assumptions.
Asset allocation enhancements
BlackRock added that, with equity outcomes more dispersed, investors were broadening allocations across private and public markets to improve diversification, enhance returns and generate more stable income.
It said allocations to private markets could help lift portfolio returns by offering higher alpha potential than public markets and providing access to opportunities aligned with mega forces.
As an example, it said an allocation to private debt – specifically, middle-market direct lending and IG infrastructure debt – could enhance returns and improve efficiency.
For example, it said a 30% allocation to private debt lifts a fixed income sleeve's expected return from 1% to 2%, while risk rises from 4% to just 4.6%, improving the return-risk ratio from 0.28 to 0.47.
And, at the whole portfolio level, it said this allocation increases expected returns from 4.5% to 4.7%, while the return-risk ratio improves from 0.51 to 0.52, underscoring private credit's ability to strengthen long-term portfolio efficiency.
Portfolio implementation enhancements
Finally, BlackRock said investors were focusing on implementation efficiency to both increase expected returns and help neutralise macro factor risks.
It said optimising instrument selection – for example, replacing futures with ETFs in US equity exposures – could improve cost efficiency.
It added that partially hedging US dollar exposure could provide protection against potential further dollar downside, while still preserving the benefits of the dollar's safe-haven characteristics.
