On the go: Demand for real assets is growing, but investors say difficulty finding suitable opportunities is the biggest challenge facing funds on the hunt for illiquidity premium.
Institutional investors expect to increase allocations to real assets over the next 12 months, with direct real estate, infrastructure equity and structured finance tipped the most sought after investments in the face of a challenging political and economic environment, Aviva Investors’ 2020 Real Assets Survey has shown.
The findings revealed that 51 per cent of insurance and 37 per cent of pension fund executives said they expect their investments in real assets to increase, but 43 per cent of insurers and 40 per cent pension funds also raised fears that regulatory interference was proving challenging to investment activities.
Both groups (37 per cent of insurers and 30 per cent of pension funds) cited Brexit and the lack of regulatory harmony across Europe as a concern, while 49 per cent of insurers and 45 per cent of pension funds said they perceived financial instability a likely and concerning event.
Some 30 per cent of insurers and 26 per cent of pension funds also said difficulty finding suitable opportunities was the biggest barrier to investing in real assets or increasing their existing allocations over the next 12 months.
The findings were based on the responses of 500 insurance and pension fund investment decision-makers across 11 countries in Western Europe, Southern Europe and the Nordic region.
Pension funds increasingly look to private assets over public markets
With continued uncertainty, especially over Brexit, global growth and the likelihood of interest rates remaining lower for longer, investors are increasingly looking to private assets for diversification and potential illiquidity premium over public markets.
Nevertheless, Mark Versey, chief investment officer at Aviva Investors Real Assets, commented: “Beyond Brexit, our survey showed investors are concerned about regulatory interference more broadly; it is critical that any regulatory regimes are supportive investment in real assets, especially given their importance to the real economy, society and the transition to a low-carbon world.”
Investments in patient capital, especially for defined contribution pension schemes, can provide benefits to members’ portfolios alongside listed market investments, due to their ability to offer strong diversified growth, but the UK government has been slow in paving the way for more schemes to invest in such assets
Much of the government's work on encouraging patient capital has focused on equity structures and venture capital, as opposed to debt structures which generally underpin the majority of such investments.
As Nest adds private credit, should platforms ditch daily dealing?
Asset management platform providers have been urged to open up defined contribution schemes’ access to private market funds, following the announcement of a third private credit mandate by Nest.
Mr Versey warned: “New entrants and rising allocations from existing investors increase the risk of overcrowding and of returns being squeezed in well-trodden areas of the market.
“Investors need to consider this when building strategies to ensure they achieve the best possible outcomes.”
Recently, the government doubled down on its view that no change to the level of the charge cap is needed to encourage DC schemes to access venture capital investments.
