Investment managers expect recovery to be volatile, according to a report released in March from Towers Watson. The 2011 Global Survey of Investment and Economic Expectations found managers expect the Eurozone and Japan to struggle the most (the survey was conducted in December 2010 and January 2011, prior to the March 11 earthquake in Japan), while Western markets are expected to lag behind emerging markets.

Despite these expectations, there is "moderate optimism," according to the report, as evidenced by managers' expectations that investors will be more aggressive in 2011. Furthermore, managers indicated they expect all economies to have moderate growth, not only in 2011, but over the next 10 years. China, in particular is expected to grow by around 9% in 2011, and at 7.5% over the next decade. Another big player will be Australia; managers expect the country to experience an economic boom in the next five years. By comparison, the United States is only expected to grow 3% in 2011, and 2.8% over the next decade.

Managers are especially bullish on public equities and emerging markets the report found, but are only "modestly bullish" on private equity, hedge funds, real estate and commodities. Managers tended to be bearish on investment-grade bonds, nominal government bonds and money markets. Most managers were neutral on high-yield bonds and inflation-indexed government bonds.

When asked which issues were most important in investment analysis, managers agreed government intervention in monetary and fiscal matters was most relevant, followed by sovereign debt default and global economic imbalance. Most managers expect investment advisors will grow in influence over the next five years, while banks will likely shrink in influence – or at least won't grow in influence.

Unemployment is a lingering concern among investment managers. As of March 4, the unemployment rate in the United States was 8.9%, according to the Bureau of Labor Statistics. Managers surveyed by Towers Watson indicated they didn't expect it to fall below 7% in the next 10 years. Most respondents agreed the second or third quarter of 2011 would represent a turning point in the job market.

For the United States and the United Kingdom, recession appears to be unlikely, though Japan and Eurozone countries are at a much greater risk, according to the report. Managers expect economic competitiveness to increase in the United States, China and Australia.

When asked about institutional investors' willingness to take on risk, most investment managers agreed investors would be modestly more aggressive in 2011, while nearly a quarter said they would be modestly more conservative. Asset allocation was overwhelmingly seen as the most important attribute to success for institutional investors, especially allocation to alternatives, although active management was also seen as a major factor. Zero percent of respondents named regulation as an important factor for investment success.

Clients are expected to focus more on their portfolios' performance in 2011, as well as asset allocation. Risk, which garnered the most attention in the 2009 survey and was the second most likely issue to be raised by clients in 2010, came in third.