The latest Fidelity Global Institutional Investor Survey denotes “remarkable anticipated shifts” in the use of alternative investments, domestic fixed income, and cash holding.

Globally, 72% of institutional investors say they will increase their allocation of illiquid alternatives in 2017 and 2018, with significant numbers planning to do the same with domestic fixed income (64%), cash (55%), and liquid alternatives (42%).

Zooming in on the U.S., there appears to be some uncertainty among institutional investors with regards to equity markets. For example, compared to 2012, the percentage of U.S. institutional investors expecting to move away from domestic equity has fallen significantly from 51% to 28%, while the number of respondents who expect to increase their allocation to the same asset class has only risen from 8% to 11%.

“With 2017 just around the corner, the asset allocation outlook for global institutional investors appears to be driven largely by the local economic realities and political uncertainties in which they’re operating,” suggests Scott Couto, president, Fidelity Institutional Asset Management. “The U.S. is likely to see its first rate hike in 12 months, which helps to explain why many in the country are hitting the pause button when it comes to changing their asset allocation.”

Couto says institutions are “increasingly managing their portfolios in a more dynamic manner,” which means they are making more investment decisions today than they have in the past. In addition, the expectations of lower return and higher market volatility are driving more institutions into less commonly used assets, such as illiquid investments.

“For these reasons, organizations may find value in reexamining their investment decisionmaking process as there may be opportunities to bring more structure and accommodate the increased number of decisions, freeing up time for other areas of portfolio management and governance,” he says.

NEXT: Low return challenges 

Overall, Fidelity finds the top concerns for institutional investors are the low-return environment and market volatility—even more now than in recent years. In 2010, just 25% of survey respondents cited a low-return environment as a concern and 22% cited market volatility.

“As the geopolitical and market environments evolve, institutional investors are increasingly expressing concern about how market returns and volatility will impact their portfolios,” adds Derek Young, vice chairman of Fidelity Institutional Asset Management and president of Fidelity Global Asset Allocation. “Expectations that strengthening economies would build enough momentum to support higher interest rates and diminished volatility have not borne out, particularly in emerging Asia and Europe.”

Despite their concerns, nearly all institutional investors surveyed believe that they can “still generate alpha over their benchmarks to meet their growth objectives.” The majority (56%) of survey respondents say growth, including capital and funded status growth, remain their primary investment objective, similar to 52% in 2014, according to Fidelity.

On average, institutional investors are targeting to achieve approximately a 6% required return. On top of that, they are confident in generating 2% alpha every year, with roughly half of their excess return over the next three years coming from shorter-term decisions such as individual manager outperformance and tactical asset allocation.

“Despite uncertainty in a number of markets around the world, institutional investors remain confident in their ability to generate investment returns, with a majority believing they enjoy a competitive advantage because of confidence in their staff or access to better managers,” Young explains. “More importantly, these institutional investors understand that taking on more risk, including moving away from public markets, is just one of many ways that can help them achieve their return objectives. In taking this approach, we expect many institutions will benefit in evaluating not only what investments are made, but also how the investment decisions are implemented.”

NEXT: Behaviors to address

The vast majority of survey respondents say board member emotions, board dynamics, and press coverage “have at least some impact on asset allocation decisions,” with around one-third reporting that these factors have a significant impact.

“A large number of institutional investors have to grapple with behavioral biases when helping their institutions make investment decisions,” the Fidelity study concludes. “Around the world, institutional investors report that they consider a number of qualitative factors when they make investment recommendations.”

“Whether it’s qualitative or quantitative factors, institutional investors today face an information overload,” Couto says. “To keep up with the overwhelming amount of data, institutional investors should consider revisiting and evolving their investment process.”

Top institutional investors often assess quantitative factors such as performance when making investment recommendations, while also managing external dynamics such as the board, peers and industry news as their institutions move toward their decisions.

“A more disciplined investment process may help them achieve more efficient, effective and repeatable portfolio outcomes, particularly in a low-return environment characterized by more expected asset allocation changes and a greater global interest in alternative asset classes,” Couto concludes.