Pension funds are adapting their portfolio construction approaches as uncertainty becomes more structural, return dispersion widens, and traditional anchors for asset allocation weaken, according to a report from BlackRock.

Its 2026 Institutional Investment Direction report, which analysed pension schemes in the UK, US, and Euro area, highlighted a move away from relying on a single base case and towards a more scenario-driven and dynamic approach to portfolio construction.

Pension investors were rethinking what they invest in and how portfolios are implemented as outcomes were increasingly moulded by artificial intelligence (AI), geopolitical tensions, and greater macro volatility.

BlackRock identified three common themes across institutional investor types.

Investors were found to be stress testing portfolios across multiple growth, inflation, and geopolitical outcomes, seeking to reduce reliance on static long-term assumptions and greater resilience as traditional hedges become less reliable.

They were also broadening allocations across public and private markets to enhance diversification, returns, and generate more stable income, and focusing on implementation efficiency, including hedging US dollar exposure, using ETFs for select equity exposures, and allocating part of core exposure to systematic active strategies.

BlackRock called on scheme to assess how strategic asset allocation could perform across a range of scenarios and identify which assets were most vulnerable to regime shifts or could provide resilience.

It highlighted that private markets could help improve returns by offering higher alpha potential than public markets and provide access to opportunities.

Furthermore, BlackRock stated that shifting part of portfolios from index exposures to systematic alpha strategies can increase expected returns while helping to neutralise macro factor risks.

“The market developments of 2025 – shaped by structural trends such as AI and geopolitical fragmentation – have underscored a profound rise in uncertainty,” the report said.

“As a result, it’s become far more challenging to anchor strategic asset allocation decisions and liability estimates around a single, long-term starting point scenario.

“The nature of this uncertainty has shifted – it’s no longer just about uncertainty around a central long-run trend, but also around which scenario is materialising.”

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