Investors to increase real assets exposure

Investors to increase real assets exposure

The majority (60%) of European investors expect to see institutional allocations to real assets increase over the next three years, according to new research by Aquila Capital. Of these, one in five (21%) expect the rise to be ‘significant’ while only 7% expect institutions to reduce their exposure.

Almost half of institutional investors (44%) say they have more than 10% exposure to real assets.

Stuart MacDonald, managing director, Aquila Capital, commented: “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.”

While nearly half (44%) of investors say they have more than 10% exposure to real assets, more than four times as many respondents are positive on the investment outlook for the asset class (41%) compared with those who are negative (10%).

Property was ranked as the real asset type offering the greatest investment opportunities over the next five years (33%), followed by infrastructure (18%); commodities (15%); farmland (15%) and renewable energy (15%).

Aquila’s study identifies the key drivers behind institutions’ increasing appetite for real assets. These are long-term positive cash flows (56%); protection against inflation (56%); portfolio diversification thanks to modest correlation with other asset classes (42%); continued need for attractive risk/returns profile (27%); and growing familiarity with the asset class due to existing allocations (17%).

There are a number of factors supporting the case for real assets over coming decades, including the increasing global population (55%), increasing standards of living, especially in emerging markets (51%); out of date infrastructure in need of modernisation (50%); increasing industrialisation and urbanisation (44%); and long-term supply/demand imbalance (41%).

Aquila’s findings are echoed by Towers Watson’s latest Global Pensions Asset Study, which reports an increase in exposure to alternatives generally from 5% to 18% of portfolios over the 12 months to the end of 2013.

Research was carried out among 54 institutional investors based in the UK and Europe between February 3 and 14 2014.