Government Deficits And Geopolitics Shift Risk Appetite For UK Investors

Optimism is returning to fixed income markets, yet UK institutional investors are recalibrating their strategies amid evolving global and domestic risks, according to TwentyFour Asset Management’s Fixed Income Investor Survey 2025.

The London-based specialist fixed income boutique, surveyed 200 UK institutional investors, revealing that while allocations to fixed income are expected to increase, geopolitical tensions and rising government deficits are reshaping risk tolerance and portfolio structures.

Key highlights from the survey:

• Geopolitics continues to weigh on UK institutional investors’ minds. 61% say that the environment has shifted their risk appetite, with half adopting more defensive/risk-off stances, citing the ongoing war in Ukraine, escalating Middle East tensions, and trade and fiscal policies from the Trump administration.
• More than half of those surveyed  (52%) say policy uncertainty in the US is forcing them to increase their allocations to other regions. There is still a heavy domestic bias among investors, with the majority of portfolios weighted to the UK. 46% of portfolios are exposed to this market, and over the next 12 months the UK is expected to absorb even more, with its allocation rising to 48%.
• Government deficits are back on the agenda, with 76% saying this will play a material role in their asset allocation this year. Investor confidence has wobbled around government bonds, leading to sharp sell-offs this year, yet despite these bouts of volatility, 88% intend to maintain or increase exposure to government bond funds over the next 12 months.
• Despite the new US administration leading a backlash against ESG policies, nearly 9 in 10 institutional investors surveyed still expect to see an increase in their AUM dedicated to sustainable investment strategies in the next 12-24 months.
• Sustainable bond funds are also the most likely to see an increased share of institutional investor portfolios over the next 12 months, as they expect these strategies to deliver superior long-term performance for their clients.
• A majority (55%) surveyed plan to recalibrate their exposure to private credit funds, with the majority of this group planning to decrease their use of this asset class in portfolios. Of investors that confirmed they were interested in this area, most are looking at asset-based lending over other private credit sectors.
• Overall, 84% of respondents expect fixed income instruments to outperform cash over the medium term, underscoring a positive outlook for the asset class as investors seek income, diversification, and protection against market volatility.

Ben Hayward, CEO of TwentyFour Asset Management, commented, “It’s no surprise that global trade tensions and broader geopolitical instability have created much uncertainty, yet it’s clear that investors are continuing to direct capital toward fixed income, as elevated yields can not only improve returns, but also give portfolios some protection against volatility. In these conditions we think active managers can really prove their worth by targeting the right opportunities while managing the broader market risks.”

About the survey

In May and June 2025, TwentyFour Asset Management conducted a survey of 200 UK institutional investors about their use of fixed income funds now and their plans for the future. Investors represented a range of sectors: investment consultancy, wealth manager/discretionary fund manager, private banks, pension funds, insurance companies, multi-manager/fund of funds, outsourced CIOs, family offices, local authorities, charities, and endowments. The AUM of companies surveyed ranged from £300 million to more than £1 billion, and all organisations make use of fixed income funds in a significant capacity.