Decision makers at defined-contribution pension schemes share their views on asset allocation, sustainability and risk in their real asset investments.

In this year’s study, we took the views of 99 corporate defined-contribution (DC) pension schemes, representing just under one fifth of our total survey cohort. Eighty were based in Europe with good representation from organisations in Germany, the UK, Switzerland, Spain and Italy. Fewer representatives took part from APAC and North America (15 and four respectively), including organisations from China and Hong Kong, Australia and Japan.

Our survey group varied in size. Around one half of those based in Europe had over £10 billion of assets under management, while in APAC the figure was 46 per cent. Respondents from North America were smaller in scale; all had less than £10 billion under management.

In this group, the most common real assets allocation was in the five-to-ten-per cent range. There were some generous allocations (20 per cent plus) among respondents from Europe, making up ten per cent of the survey group overall.

Figure 1: What portion of your institution’s investment portfolio is currently invested in real assets? (per cent)

Real estate equity was the most popular asset class in terms of current allocations, followed by real estate long income and infrastructure equity (see Figure 2). Clear regional preferences emerged, with North American DC schemes tending to hold significantly more real estate equity (64 per cent) than any other asset type. While organisations in Europe and APAC also like real estate equity (portfolio holdings average 24 per cent in both), schemes there tend to have a more diverse spread of other real asset classes.

Real estate equity is the most popular investment in terms of current allocations

North American DC schemes reported no infrastructure debt holdings, while respondents in APAC and Europe averaged 13 and 12 per cent respectively. There was also marked difference in appetite for structured finance. Allocations were highest in APAC (11 per cent), more than twice that reported by North American schemes (five per cent).

Figure 2: How is your institution's real assets portfolio allocated today? (per cent)

The majority intend to increase their real asset allocations over the next two years (see Figure 3). More than half (67 per cent) the DC schemes we polled in Europe are looking to add five per cent or more to their real asset portfolio allocations, as opportunities arise. The proportion of potential buyers is even higher in APAC (74 per cent) and North America (75 per cent). These potential buyers far outweigh those reporting they intend to trim exposure.

In terms of regional nuances, seven percent of Asian schemes are looking to add more than 20 per cent to their real asset allocations. It is also notable none of our Asian or North American respondents say they intend to pull back.

Figure 3: Do you expect to increase or decrease your allocation to real assets over the next 24 months and, if so, by how much? (per cent)

Motivations for real asset allocations

The most common motivation for DC schemes to invest in real assets today is diversification, mentioned among the top three reasons for investing by 65 per cent of our cohort, but a lower number (49 per cent) expect it to remain a key driver in two years’ time (see Figure 4). Using the same ranked preferences, providing inflation-linked income is the second-largest motivation today. DC schemes expect it to remain important, with 47 per cent citing they expect it to be their primary reason for investing in two years’ time. Unsurprisingly, the search for long-term income is expected to remain a key priority, with 56 per cent of respondents citing its importance two years’ out.

Other motivations expected to change in importance over the next two years include the search for capital growth (rising from 38 per cent to 48 per cent), and ESG impact (from 32 per cent to 51 per cent). Another notable change is the expectation that cashflow matching will become less significant overall. This important characteristic, prioritised by 29 per cent of our survey group today, is expected to dip in order of priority to 16 per cent in two years’ time.

Figure 4: What is your primary reason for allocating to real assets today, and what do you expect to be the most important driver in the next two years? (per cent)

Ways to invest

Most DC schemes (84 per cent) mentioned their interest in investing via pooled funds, either single or multi-asset, in their top three preferences. The interest extended to pooled funds with specific ESG objectives, which were flagged by one third of the survey group.

However, there were clear regional differences. Some of the larger European and Asian schemes would consider investing directly (54 and 47 per cent of the survey group respectively). Another obvious differentiator was the lack of interest in ESG-targeted investments from North American DC schemes. None mentioned a preference for investing via ESG-targeted pooled vehicles. 

Figure 5: What is your preferred way of investing in real assets? (per cent)

Return expectations

This year’s cohort of DC schemes believes returns are likely to increase from modest or even negative in the near term, to positive further out. While return expectations varied considerably by asset class in the short term, expectations tended to coalesce for private markets and benchmark global equities over five years, with the group anticipating a revival across all asset classes over time (see Figure 6).

DC schemes expect returns to increase from modest or even negative in the near term, to positive further out

Among DC schemes, the subdued expectations for real estate equity are worth noting, the most popular asset class overall. Twelve per cent of the cohort expect negative returns over one year, and small number also expect annualised returns to remain negative over five years. This is different to the views received from other contributors to our survey. Some global financial institutions also expected negative returns in the short term but anticipated real estate equity would rise to average over ten per cent annualised over five years, for instance.

Other points worth noting are strengthening expectations for infrastructure equity, particularly in Europe and North America, where between one fifth and one quarter of those surveyed expect annualised returns to top ten per cent over five years.

Expectations of risk-adjusted returns from real estate long income are more muted, but also positive over five years. Over 40 schemes expect to achieve in the three to 4.9 per cent annualised range, while ten per cent that believe returns could exceed the ten per cent threshold.

Figure 6: What annualised risk-adjusted returns do you expect for different real assets and public market asset classes over one, three and five years? (weighted average return, per cent)

Note: To gauge their return expectations, respondents were asked to choose between illustrative return bands, which are based on historic market data and take into account the potential for both positive and negative market conditions: negative returns; zero-2.9 per cent; three-4.9 per cent; five-9.9 per cent; ten per cent or more (or “don’t know”). Weighted average returns were calculated using the midpoint for each expected return band (e.g., for zero to 2.9 per cent, it is 1.45 per cent) multiplied by the percentage score for that band. The total for all the return bands for a period was then used to give the weighted average return. For the “negative returns” band, a figure of -1 per cent was used, and 11 per cent for the “ten per cent or more” return band. The “don’t know” responses were omitted for all weighted average return calculations.

Views on sustainability

The majority of DC schemes in our cohort are paying attention to sustainability. Most recognise the importance of ESG factors in investment appraisals; when ranking their top three considerations, 68 per cent take ESG into account (see Figure 7). Within that group, 13 per cent report sustainability to be a critical and deciding factor when making investment decisions. Only three per cent give the factor no weight at all, most prevalent among North American schemes.1

On decarbonisation, 18 per cent of those polled have no net-zero target and no plans to make one. This group included representation from Europe and North America. In every region there is still a sizable group at the scoping stage, contemplating whether it will be practical to make an explicit net-zero commitment (16 per cent overall.)

Significantly, our respondents report their interest in sustainable real assets is driven by select investment opportunities and desire for risk mitigation as well as alignment with corporate values. When asked to choose the top three most salient features to consider when investing in sustainable real assets, 68 per cent cited the ability to prioritise financial returns and integrate a range of ESG factors (see Figures 7 and 8). The capacity to deliver on more than one front, for example, both returns and sustainability, was an attribute DC schemes want their managers to deliver.

Figure 7: Which of the following are most appealing when investing in sustainable real assets?/If you were to consider ESG/sustainability, which of the following are the most appealing when investing in sustainable real assets? (per cent)

When considering opportunities underpinned by environmental and social objectives more closely, our respondents highlighted important nuances. Both return generation and ESG impact are valued highly among DC schemes, unlike some other cohorts we surveyed which laid greater emphasis on financial performance. Secondly, metrics need to be formalised; the need to achieve measurable change versus specific objectives was flagged by more than half (53 per cent) of respondents when ranking key preferences.

At a thematic level, the greatest interest in sustainable real assets was in climate transition solutions (39 per cent), followed by solutions based around “already-green” assets (31 per cent) and strategies with embedded sustainability targets (29 per cent).

Figure 8: Most appealing factors of sustainability in real assets (per cent)

Sustainability commitments

While there is interest in the return potential of climate transition solutions, more than half the respondents in our survey stated they were “not confident at all” or “somewhat unsure” of the actions needed to meet their long-term sustainability commitments.

Nevertheless, many DC schemes report they have made progress linking their net-zero target to an ESG and/or real assets allocation, as Figure 9 shows. While some schemes are still scoping out their next steps, 67 per cent of schemes in Asia say they have made headway, as have 55 per cent in Europe. North American institutions lag in this aspect of their asset management (25 per cent). 

Figure 9: Are you currently linking your net-zero target to your overall ESG allocation and/or to your real assets allocation? (per cent)

Risks and barriers

In a challenging macro environment, scheme managers are mindful of risk, with the high interest rate regime (flagged by 52 per cent of the survey group), potential for global recession (51 per cent), political risk (32 per cent) and liquidity risk (32 per cent) seen as the most pressing concerns (see Figure 10). A granular look also reveals higher fears of recession in North America than among the wider group (75 per cent) and particular concerns about impending market volatility (flagged by half the region’s respondents).

Figure 10: When it comes to investing in real assets, which of the following risks do you consider most concerning over the next 12 months? (per cent)

Putting investment to work in sustainable real assets in this macro environment is not straightforward. Although most respondents are aware of opportunities (52 per cent), anticipate improving financial performance (44 per cent overall), are looking to enhance risk management via their real assets investment (48 per cent), and believe doing so will enhance positive impact (68 per cent), many say they are finding it comparatively difficult and costly to invest. (Figure 11 flags key investment drivers).

Figure 11: What is driving your organisation to invest, or increase your overall allocation, to sustainable real assets? (per cent)

Manager preferences

Perhaps unsurprisingly, a sound investment record is the most sought-after criteria for DC schemes when selecting a manager. Over 60 per cent say this is “important” or “very important”, with the strongest performance-led views expressed by North American DC schemes (all prioritised investment performance). The comfort of granular holdings data, ability to evidence risk and/or impact, and enhanced portfolio reporting are also valued.

Not all asset managers are delivering on these counts. Our survey shows some dissatisfaction with established managers. Thirteen per cent of those surveyed were disappointment with the choice of routes to invest. Others flagged disappointment about the way ESG factors are being integrated into the investment process (six per cent) and performance shortfalls (five per cent). This suggests 2024 could bring opportunities for best-in-class operators who can bring together the expertise and operational excellence DC schemes are seeking.


  1. ESG and sustainability are related but distinct concepts. ESG refers to Environmental, Social and Governance characteristics and provides a structure for measuring companies’ or assets’ performance against these three criteria. Sustainability is a broader category that takes into account ESG performance over time, along with other activity that can be considered as taking account of profit, people and the planet. A formal definition of sustainability is provided by the UN: “Meeting the needs of the present without compromising the ability of future generations to meet their needs.”

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The sixth edition of the Aviva Investors Real Assets Study is our biggest yet. At a time of macroeconomic uncertainty, real assets continue to play a significant role in the investment strategies of global institutions. This year’s survey seeks to answer some key questions: How is the higher interest-rate environment affecting appetite for real assets? What are institutions’ return expectations across strategies? And how do views on sustainability differ between regions?

Webcast: Real Assets Study 2024

05 Mar 2024 14:00 GMT 60 minutes

Join members of the Aviva Investors Real Assets team as they talk through the highlights of the Real Assets Study 2024 and also discuss the key themes real assets investors should watch out for in 2024. This webcast is in association with IPE.

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