Investment managers may have overly ambitious expectations forlong-term investment returns, according to a new survey fromState Street Global Advisors.

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Five-year returns on equities will be 10 percent, and bonds willreturn 5.5 percent, according to the average expectation of 400institutional investors surveyed by SSGA.

But that level of confidence “raises the question as to whetherexpectations have adjusted to a potential lower-for-longer returnscenario,” according to SSGA.

Nearly one-quarter of the managers surveyed said theirportfolios’ return expectations are currently not being met, while13 percent say today’s returns are outpacing expectations.

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What’s more, 84 percent of the managers expect returns to fallshort of expectations over the next year.

SSGA expects investment returns to be weaker for the foreseeablefuture, meaning “investors’ projections may be more difficult toachieve with traditional investment models.”

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Managers experiencing lower-than-expected returns are increasingactive management and exposure to alternative investments, the mostpopular tactic managers are using to offset sluggish returns.

“The imperative to hit return targets could be driving investorsto take on more risk as the global financial crisis becomes moredistant,” SSGA’s report said.

Only 2 percent of managers expect to increase allocations topassive equity strategies in the next two years, while 19 percentplan to increase active equity exposure.

As more fund managers increase active equity exposures, theirtolerance for underperforming underlying active equity funds is notlong: 40 percent said they tolerate underperformance for one yearbefore considering a replacement; 49 percent said they wait twoyears before considering a replacement fund.

SSGA’s report is the latest in an increasing group of analysisthat suggests retirement investors and fund managers should expectlower rates of return going forward.

Between 1970 and 2014, the annual compound return on large-capstocks was 10.5 percent, and for bonds it was 7.9 percent,according to data cited by Charles Schwab.

In a recent report, JP Morgan presumes 6.5 percentannualized returns on portfolios for pre-retirees, and 5 percentfor retirees.

Last year, Jack Bogle, Vanguard’s founder, told Morningstar’sChristine Benz that annualized returns on stocks could be as low as4 percent for stocks in the next decade, and 3 percent for fixedincome.

“You’re talking about a really tough decade for equityinvestors,” Bogle told Morningstar. “Predicting at 7.5 percent or8.5 percent return is just silly.”

In a recent interview with BenefisPro, David Blanchett, head ofretirement research at Morningstar Investment Management, said “Ithink returns going forward are going to be lower than historicalaverages. The U.S. has pretty much been the best performing marketfor stocks in the world over the last 115 years, and I don’t thinkit’s realistic to assume this relative outperformance is going tocontinue.”

And global consulting firm McKinsey and Company issued a reportlast week saying returns for U.S. and western European stocks andbonds will be substantially lower over the next 20 years thanreturns experiences the past three decades.