Institutional investors predict sharp rise in real assets exposure
The majority (60 per cent) of European investors expect to see institutional allocations to real assets increase over the next three years, according to research by Aquila Capital.
Of these, one in five (21 per cent) expect the rise to be “significant” while only seven per cent expect institutions to reduce their exposure.
While nearly half (44 per cent) of investors say they have more than 10 per cent exposure to real assets, more than four times as many respondents are positive on the investment outlook for the asset class (41 per cent) compared with those who are negative (10 per cent).
Property was ranked as the real asset type offering the greatest investment opportunities over the next five years (33 per cent), followed by infrastructure (18 per cent); commodities (15 per cent); farmland (15 per cent) and renewable energy (15 per cent).
Aquila’s study identifies the key drivers behind institutions’ increasing appetite for real assets. These are long-term positive cashflows (56 per cent); protection against inflation (56 per cent); portfolio diversification thanks to modest correlation with other asset classes (42 per cent); continued need for attractive risk/returns profile (27 per cent); and growing familiarity with the asset class due to existing allocations (17 per cent).
There are a number of factors supporting the case for real assets over coming decades, including the increasing global population (55 per cent), increasing standards of living, especially in emerging markets (51 per cent); out of date infrastructure in need of modernisation (50 per cent); increasing industrialisation and urbanisation (44 per cent); and long term supply/demand imbalance (41 per cent).
Aquila’s findings are echoed by Towers Watson’s latest Global Pensions Asset Study, which reports an increase in exposure to alternatives generally from five per cent to 18 per cent of portfolios over the 12 months to the end of 2013.
Stuart MacDonald, managing director, Aquila Capital, says: “This study underlines the extent to which real assets are evolving into a mainstream asset class that will increasingly feature in investor portfolios alongside other alternative investments. Our own experience supports this trend as we are seeing a continued rise in enquiries from investors in our real assets products.”
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