Irish pension schemes have reduced their equity allocations by almost a third in the past three years as they diversify into fixed income and real assets - property and infrastructure - as new sources of returns.
Mercer's 2020 European Asset allocation insights shows average equity allocations for Irish defined benefit schemes fell to 27% this year, compared to 39% in 2017.
Today's research also shows that hedge funds are falling out of favour as they fail to justify their high fees.
Mercer said its research shows that allocations to fixed income investments like corporate bonds over the last three years period have risen from 48% to 50%.
The allocation to alternative assets like property, private equity and infrastructure has doubled to 22% from 11%, Mercer said.
Mercer's report surveyed 927 institutional investor clients across 12 countries, reflecting total assets of around €1.1 trillion, including over €20 billion invested by Irish pension funds.
It shows that the trend of reduced equity allocations is reflected more widely by investors across Europe and the UK, with the average equity holding falling to 22% this year from 25% in 2019.
Meanwhile, the number of investors across Europe reporting an allocation to hedge funds also fell, Mercer noted.
Over the last decade, hedge funds have tended to fall out of favour, as they have struggled to justify their relatively high fees, investment complexity and lower liquidity.
Mercer said that investors are looking for other routes to access non-traditional asset classes. In Ireland, exposure to hedge funds is now at 2.1% compared to 1.3% three years ago.
Olivier Santamaria, Head of Investment Consulting for Mercer (Ireland) Limited, said investors are facing high levels of uncertainty for the rest of 2020.
"Pending the outcome of the tug of war between poor economic fundamentals on the one hand and financial markets expectations of a strong recovery on the other, risk management remains a key priority," Olivier Santamaria said.
"We expect schemes to continue focusing on building more robust portfolios through increased diversification and better matching of the liabilities," he said.
"In periods of high volatility, some investors may be ready to be more opportunistic as market dislocations often present an attractive entry point for those prepared to ride out short-term volatility," he added.