Investors are distinctly pessimistic about markets and the economy as they grapple with concerns of potential trade wars, persistent geopolitical tensions, and rising inflation. Yet when it comes to their own chances of generating outsized returns, most are decidedly confident that they can navigate through the storm, thanks to private assets, according to results of Commonfund’s latest annual survey.
Of the 203 institutional investors that Commonfund polled at its annual Forum event in Orlando this month, most respondents — 62 percent — believe that U.S. stock market returns will be lower in 2025 than the S&P 500’s 10-year annualized return of 12.4 percent as of February 14, 2025. Compared to last year, when 35 percent of investors shared that view, this is a huge drop in confidence.
Return expectations have fallen markedly year-over-year, with just 20 percent anticipating similar returns to previous years — a significant decline from 45 percent in 2023. The share predicting negative returns has increased to 6 percent, up from just one percent last year.
“It was distinctly pessimistic,” Commonfund CEO and CIO Mark Anson told Institutional Investor, adding that nearly “two-thirds expected returns to be less than the 10-year average — which was a flip-flop from the prior year. So, year over year, there was a big change.”
“Political Issues Trumped Everything Else”
The pessimism is driven by fears over geopolitical risks, which eclipsed such economic concerns for investors as inflation and rate hikes. The majority of respondents — 56 percent — cited a potential trade war as their primary issue, while 51 percent pointed to rising U.S.-China tensions and ongoing conflicts in Ukraine and the Middle East.
“Political issues trumped everything else,” Anson said. “We have a new administration in the White House; that means new economic policies are being trotted out and everyone’s a little more cautious as to how that will impact the stock market.”
Sentiment on the U.S. economic outlook under the new administration shows a clean divide: 22 percent report bullish expectations, while an equal 22 percent also express bearish views.
Despite economic uncertainty, most investors are confident in their own organizations’ abilities to achieve target returns. Seventy percent of investors were bullish about achieving target returns over the next decade, with 16 percent saying they were “very bullish” about their return prospects.
“That’s a nice contrast,” Anson said, noting that while there’s “general pessimism toward overall returns in the market,” investors still “feel pretty good” about their specific strategies. He added this confidence is driven by increased optimism in alternatives and an enthusiasm for private markets.
Private Markets, AI Fuel Investor Optimism
Across all asset classes, investors see private markets dominating 2025 total return expectations: 61 percent expect private equity to deliver the best returns, followed by private credit (37 percent) and venture capital (32 percent). In contrast, 2024’s top picks were private equity (50 percent), stocks (48 percent), and venture capital (35 percent).
Of the things that excite investors the most in 2025, artificial intelligence (AI) and tech innovation topped the list, at 35 percent, followed by geopolitical resolutions (17 percent) and interest rate stability or cuts (16 percent). Eleven percent of investors cited optimism around philanthropic and mission-driven investment growth.
Additionally, respondents revealed a bit more optimism in cryptocurrency performance since the steep drop-off in 2023, with 12 percent expecting crypto to deliver the best returns over the next 12 months, compared to seven percent in 2024 and two percent in 2023.
Concerns about the market aside, Anson said the mood among investors who attended Communfund’s annual conference was “generally and genuinely upbeat,” reiterating that allocators “are waiting to see how these economic policies will play out.”
