Fund managers are bullish heading into the next financial year, despite growing fears over the private credit market and the burst of the AI bubble.
According to the latest investor trends survey from wealth manager Quilter, on a scale of one to 10, the average fund manager’s risk appetite increased from 5.4 to 5.9 in the last financial quarter.
Respondents credited their growing optimism to markets shrugging off events that would have historically caused volatility, noting they see investors increasingly choosing to ignore policy swings and conflicts that would typically send them running from the stock market.
Lindsay James, investment strategist at Quilter, said: “It is interesting to see that despite some well publicised and worrying risks developing in markets, including the recent falls, fund managers are effectively shrugging their shoulders and becoming more risk tolerant.
It is clear that professional investors continue to look at the wider corporate picture and sparks of optimism remain that markets could grind higher in 2026.”
Private credit and AI fears
However, managers are worried over the private credit market, with almost two thirds identifying it as the most underappreciated risk among investors.
Managers are spotting trouble brewing in the market, after a number of “high-profile blow ups”, including the alleged fraud within US auto parts company First Brands and auto lender Tricolor, exposing large financial institutions to losses on their private credit books.
James said: “The blow up of First Brands and Tricolor have sent shockwaves amongst financial institutions and given the meteoric rise of the private credit industry it is right that questions be asked.
“If we see any wider contagion then it is likely that further volatility could emerge.”
Meanwhile nearly half of respondents hailed the overvaluation in tech stocks and the AI trade as the most underappreciated risk, however fund managers are taking note of the potential end of AI’s bull run in the US.
A number of UK firms have reduced their US allocation, diversifying their portfolio in a bid to mitigate risks, instead opting for AI assets in other markets such as South Korea which are not tied to the bubble.
Gold continues to shine
Investors have increasingly flocked to gold this year, hitting a high of nearly $4,400 (£3,360), up from just over $2,500 at the beginning of the year.
The precious metal has since climbed back down, hovering at $4,070, but investors do not predict this slight drop to persist.
Over eight in ten believe gold will rise by a minimum of 5 per cent over the next six months, while nearly one in five expect gold to rise by over 10 per cent in the same period.
Only 12 per cent expect gold to fall below the $4,000 mark.
James said: “Demand from central banks has helped to sustain the rise to date, and despite a recent correction fund managers again appear comfortable with current valuations.
“If we do start to see additional volatility in other areas of the market, investors may just be attracted to gold’s shining qualities once again.”