A majority of institutional investors are expecting a market crisis to hit in the next one to five years, and most are worried about the systemic risk posed by passive investments, according to a poll by Natixis Investment Managers.

Citing interest rates and volatility spikes as key portfolio risks for next year, 70 per cent of the survey respondents predict that the next global financial crisis will occur within the next five years.

Institutional investors are also of the view that the volatility that roiled global markets in the fourth quarter will continue in the new year, and foresee the end of the longest-running United States bull market in history.

In addition, institutions expect bond markets to be more turbulent, and for equity markets to be volatile as interest rates rise next year.

In particular, they see the potential for asset bubbles in cryptocurrencies, technology, stocks and real estate.

"And more so than market volatility itself, they believe geopolitics, trade wars and the process of unwinding quantitative easing will all have a negative impact on portfolio performance," Natixis said.

Separately, two-thirds of institutional investors believe that the popularity of passive investments has increased systemic risk, with a majority highlighting that flows into passive strategies have artificially suppressed volatility.

More than half of them also think that passive investing has distorted relative stock prices and risk-return trade-offs.

According to the survey, respondents have given no indication of making significant changes to their current allocation comprising 70 per cent active investments, and 30 per cent passive over the next three years, with most expressing a preference for active management ahead of anticipated market volatility next year.

But even as they anticipate a 180-degree turn from the low-rate, low-volatility environment, more than half of those surveyed believe these investors are prepared to handle the risks in the new year.

Mr Oliver Bilal, head of international sales and marketing at Natixis, said: "Institutional investors seem to have found their optimum allocation between active and passive, and we are now starting to see a slowdown in the growth of allocation to passives.

"Our survey shows this coincides with investor concern over the impact passives could have on market infrastructure and investment returns. We believe that over time, passives will pose huge concentration risk, which could lead to systemic risk and see them truly tested when the next market downturn happens."

"At the same time, appetite for active strategies is a clear indication that in times of market turbulence, institutional investors want a skilled professional at the helm," added Mr Bilal.

The Natixis Investment Managers survey polled 500 global institutional investors comprising managers of corporate and public pension funds, insurance funds and sovereign wealth funds. The locations included North America, Latin America, United Kingdom, Continental Europe, Asia and the Middle East.