Decision makers at global financial institutions share their views on asset allocation, sustainability and risk in their real asset investments.
Global financial institutions (GFIs) represented 15 per cent of our survey cohort. European-based GFIs accounted for almost three-quarters of this investor type, with a large presence from Italian, German and UK-based organisations.
GFIs’ current real assets weightings were broadly consistent with levels seen in our overall global results, albeit with some modest differences. We observed fewer GFIs (14 per cent) with substantial allocations (20 per cent or more) than the overall survey population (20 per cent). In contrast, GFIs (38 per cent) showed a much greater preference for five to ten per cent weightings than the broader cohort (29 per cent).
Inflation-linked income eclipses diversification as a driver of real assets allocations
GFIs see inflation-linked income as the number one driver behind their allocations to real assets
Set against the current backdrop, GFIs see inflation-linked income as the number one driver (56 per cent) behind their allocations to real assets, just ahead of diversification (55 per cent). This represented a major change in motivations versus three years ago. Diversification was then clearly the prime factor (66 per cent), and inflation-linked income (36 per cent) was a more minor consideration.
North American-based GFIs (75 per cent) were particularly focused on the inflation-proofing qualities of real assets. Elsewhere, both Asian (50 per cent) and European GFIs (47 per cent) cited the positive ESG impact potential as a material motivation in holding real assets.
What is your primary reason for allocating to Real Assets? (per cent)
North American GFIs leading demand for greater real assets exposure
Future demand for real assets from GFIs looks robust
In common with the wider survey, future demand for real assets from GFIs looks robust. Fifty-nine per cent of institutions expect to build their exposure over the next two years, and just 11 per cent anticipate cutting their real assets weightings. Regionally, appetite for increased exposure was greatest among North American GFIs: 75 per cent expected to up their allocations versus 59 per cent of European GFIs and 50 per cent of Asian GFIs.
Turning to the relative popularity of different real assets strategies, real estate equity (27 per cent) was the preferred approach, as it was with the full survey cohort (30 per cent). GFIs reported slightly higher use of real estate debt than the overall survey population but modestly lower use of infrastructure equity, although the latter was more popular with Asian GFIs.
How is your institution's Real Assets portfolio allocated? (per cent)
Direct investment desired
Almost one-half of GFIs (49 per cent) favoured direct investment as a means of accessing real assets, making it the clearly preferred route. This approach was especially popular with North American GFIs (63 per cent). Multi-asset pooled funds (40 per cent) also enjoyed support, with Asian GFIs (58 per cent) seeing these funds as the best way of allocating to the asset class.
What is your preferred way of investing in Real Assets? (per cent)
Exploring attitudes to responsible investment, four-fifths of GFIs (80 per cent) agreed that their organisation had a responsibility to invest sustainably. Backing for this statement was highest among European GFIs (85 per cent) and lowest among North American institutions (63 per cent).
Values and financial performance benefits underpin sustainable investment move
Alignment with corporate values and board pressure seen as key reasons to allocate to sustainable real assets
GFI respondents pointed to alignment with corporate values and board pressure (66 per cent) and increasing evidence of improved financial performance (63 per cent) as the chief reasons to allocate to sustainable real assets. Asian GFIs (75 per cent) were most influenced by the potential for better financial performance.
Creating social value is important for many GFIs
GFIs reported a clear preference for strategies that prioritise financial returns while integrating ESG factors, with Asian GFIs reporting the strongest preference for returns-led approaches (83 per cent). Strategies with a positive, measurable impact against a specified ESG objective also ranked highly (62 per cent), materially up on the broad survey cohort (53 per cent).
Plenty of interest in strategies focused on creating positive social value
There was also plenty of interest (58 per cent) in strategies focused on creating positive social value, most notably among North American GFIs. To this end, institutions found social infrastructure (73 per cent), such as health and education-related projects, the most appealing ways of achieving positive social impacts.
When it comes to real asset investments offering the potential to achieve a positive social impact, which are the most appealing? (per cent)
Evidence of managers’ sustainable impacts is crucial but not always available
As with our overall results, GFIs remain focused on returns when investing in sustainable real assets. Three-quarters (75 per cent) of GFIs deemed proven investment performance to be important when selecting an asset manager for a sustainable real assets mandate.
However, respondents indicated a manager’s ability to evidence impact and risk was marginally more salient (78 per cent). But only just over one-half (54 per cent) were satisfied that the managers they worked with could provide suitable verification of their ESG claims. Dissatisfaction was most prominent among Asian GFIs: only one-third (33 per cent) of Asian institutions felt their real assets managers could back up their impact assertions.
Do the asset managers you work with deliver these satisfactorily? [Enhanced/tailored reporting] (per cent)
Looking at individual sustainable real asset approaches, renewable infrastructure drew the greatest interest from GFIs. Over one-half (55 per cent) of institutions anticipate adding to their existing exposure to this area, outstripping the overall survey reading of 44 per cent. Interest in renewable infrastructure was highest among European (60 per cent) and North American (50 per cent) respondents. Elsewhere, there was material demand for decarbonising existing assets (37 per cent) and enthusiasm for upping current exposure to data centres (32 per cent).
GFIs show commitment to the net-zero cause
GFIs reported a higher level of commitment to net-zero carbon emission targets than our wider survey cohort. Sixty per cent of institutions have already made a net-zero pledge, with almost one in five GFIs (18 per cent) already reporting on their progress.
A higher level of commitment to net-zero carbon emission targets than our wider survey cohort
Meanwhile, 18 per cent of GFIs have no net-zero commitment and have no intention to make such an undertaking, a lower figure than the 24 per cent for the overall survey population. Support for net-zero policies was highest among Asian GFIs (83 per cent) and lowest among North American GFIs (13 per cent), although 38 per cent of North American respondents indicated they are exploring the feasibility of adopting a net-zero policy.
Greenwashing is the biggest risk when investing in sustainable real assets
Finally, turning to the challenges associated with sustainable real asset investment, GFIs picked greenwashing (58 per cent) as the biggest perceived risk, with North American and European organisations being the most concerned about inflated ESG claims from managers.
What do you see as the most material risks to investing in sustainable Real Assets? (per cent)