Post-Covid, institutional investors to increase real assets exposure: study

On the 11/03/20 at 7:10AM


Tuba Raqshan

The opportunities in the structural changes brought about by Covid-19 has left institutional investors with a growing appetite for long-term income and debt exposure.

Institutional investors globally will be looking to increase their allocation to real assets over the next year, according to Aviva Investors' Real Asset Study covering more than 1,000 managers of insurance companies and pension funds (representing €2trn AUM). The report revealed that 49% of insurance companies and 37% of pension funds plan to increase their allocation to real asset investment strategies.

Insurers (54%) and pension funds (45%) had their sights upon long-term property income as the preferred asset class over the next 12 months. Insurers were keen on increasing their exposure to debt strategies, with an increase in planned investments in infrastructure debt (48%), real estate debt (46%) and corporate debt (46%). The same is true for pension funds, which plan to increase their exposure to real estate debt (39%), corporate debt (39%) and infrastructure debt (37%).

Long-term trend towards working from home will offer greatest investment opportunity among real assets, according to insurers (57%) and pension funds (53%). The growth of data centres (51% ofinsurers, 43% of pension funds) and developments in the logistics sector (49% of insurers and 43% of pension funds) were other opportunities.

Cash flow adequacy is the main attraction behind this real asset strategy for 77% of insurers and 64% of pension funds, followed by capital preservation (60% of insurers and 52% of pension funds), inflation protection (55% of insurers) and illiquidity premium (51% of pension funds).

Transparency around ESG factors are important for insurers (59%) and pension funds (56%). These institutional investors are also placing increasing importance on social responsibility, with 55% of insurers and 45% of pension funds keen on including health assets in their portfolio, followed by investments in social housing (51% of insurers, 42% of pension funds) and education (46% of insurers, 42% of pension funds). With the intention of aligning their portfolios with zero net emissions targets, 58% of insurers and 48% of pension funds are interested in "low-energy real estate assets".