Decision makers at endowments and foundations share their views on asset allocation, sustainability and risk in their real asset investments.
Endowments and foundations (E&Fs) represented just two per cent of our survey of 500 institutional investors. Therefore, our findings are accompanied by a caveat about the sample size, but we believe they offer a useful snapshot of E&F attitudes toward real assets broadly and sustainable real asset investment.
Although they have fewer assets under management, our E&F respondents are meaningful investors in real assets: just under one-third (30 per cent) of E&Fs surveyed have ten per cent or more of their total portfolios invested in the broad asset class. However, that is a lower proportion than the wider survey population (53 per cent).
Future E&F demand for real assets looks stable. One-half expect to increase their exposure over the next two years, although the bulk anticipated upping allocations by less than five per cent. Just ten per cent of E&Fs foresaw a cut to their real assets weightings over the next two years.
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)
Diversification the key driver
For E&Fs, the diversification benefits arising from real assets investment offer the greatest attraction
For E&Fs, the diversification benefits arising from real assets investment offer the greatest attraction: 70 per cent reported diversification as one of their main reasons for holding real assets. Meanwhile, given the current inflationary environment, the ability of real assets to provide inflation-linked income has risen in importance, from 50 per cent three years ago to 60 per cent today.
Real estate equity (51 per cent) was by far the favoured strategy of choice for E&Fs. Our respondents also allocated to private credit (15 per cent) and infrastructure equity (13 per cent), completing the top three strategies for gaining exposure to real assets.
E&Fs favoured direct investment (60 per cent) as a means of accessing real assets investment opportunities, followed by multi-asset pooled funds (40 per cent).
What is your preferred way of investing in Real Assets? (per cent)
Pro-sustainability attitudes widespread but limited commitment to net-zero policies
Turning to views on responsible investment, 90 per cent agreed that their organisation had a responsibility to invest sustainably. E&F respondents identified a need to align with organisational values (67 per cent) and increasing evidence of improved financial performance (67 per cent) as among the key reasons for making sustainable real assets investments.
Respondents reported an overwhelming preference for strategies that prioritise financial returns while integrating ESG factors (90 per cent), higher than our overall survey result (79 per cent).
Looking at individual sustainable real asset approaches, there was greatest future demand from E&Fs for strategies focused on decarbonising existing assets (40 per cent) and data centres (40 per cent).
Just 20 per cent of E&Fs surveyed have made a commitment to net-zero carbon emission targets, with 40 per cent investigating the feasibility of adopting a net-zero policy. The remaining 40 per cent have no plans to do so.
What is your organisation's policy on making a commitment to achieving net zero carbon emissions by 2050 (or another date)? (per cent)
Greenwashing the biggest risk when investing sustainably
Lastly, E&Fs view greenwashing as currently the biggest risk (70 per cent) when investing in sustainable real assets. Our E&F participants also observed risks from unsatisfactory performance, high valuations and difficulties in evidencing or measuring positive impacts (all 50 per cent).