20 January 2023 5 minute read

Decision makers at global financial institutions share their views on asset allocation, sustainability and risk in their real asset investments.

Important information
PDF 3.4 MB 34 pages

Aviva Investors Real Assets Study 2023

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)

Download the full study

PDF 3.4 MB 34 pages

The Real Assets Study 2023 provides investor insight on asset allocation, risks and opportunities, and preferred routes to market, as well as a deep dive into attitudes towards sustainable real assets – covering everything from net-zero targets to whether investors see a trade-off between achieving ESG impact and financial returns.

Download

Sign-up to our webcast: Real Assets Study 2023

23 Feb 2023 14:00 GMT 60 minutes

Join members of the Real Assets team as they discuss the findings of the Real Assets Study 2023 and also provide an overview on the macro environment, as well as discussing where they are seeing opportunities. The webcast will be hosted by IPE.

This event qualifies for 60 minutes CPD

Related content you might also like

Important information

THIS IS A MARKETING COMMUNICATION

Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL). Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable, but has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. Some data shown are hypothetical or projected and may not come to pass as stated due to changes in market conditions and are not guarantees of future outcomes. This material is not a recommendation to sell or purchase any investment.

The information contained herein is for general guidance only. It is the responsibility of any person or persons in possession of this information to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. The information contained herein does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorised or to any person to whom it would be unlawful to make such offer or solicitation.

In Europe, this document is issued by Aviva Investors Luxembourg S.A. Registered Office: 2 rue du Fort Bourbon, 1st Floor, 1249 Luxembourg. Supervised by Commission de Surveillance du Secteur Financier. An Aviva company. In the UK, this document is by Aviva Investors Global Services Limited. Registered in England No. 1151805. Registered Office: St Helens, 1 Undershaft, London EC3P 3DQ. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119178. In Switzerland, this document is issued by Aviva Investors Schweiz GmbH.

In Singapore, this material is being circulated by way of an arrangement with Aviva Investors Asia Pte. Limited (AIAPL) for distribution to institutional investors only. Please note that AIAPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIAPL in respect of any matters arising from, or in connection with, this material. AIAPL, a company incorporated under the laws of Singapore with registration number 200813519W, holds a valid Capital Markets Services Licence to carry out fund management activities issued under the Securities and Futures Act (Singapore Statute Cap. 289) and Asian Exempt Financial Adviser for the purposes of the Financial Advisers Act (Singapore Statute Cap.110). Registered Office: 1 Raffles Quay, #27-13 South Tower, Singapore 048583.

In Australia, this material is being circulated by way of an arrangement with Aviva Investors Pacific Pty Ltd (AIPPL) for distribution to wholesale investors only. Please note that AIPPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIPPL in respect of any matters arising from, or in connection with, this material. AIPPL, a company incorporated under the laws of Australia with Australian Business No. 87 153 200 278 and Australian Company No. 153 200 278, holds an Australian Financial Services License (AFSL 411458) issued by the Australian Securities and Investments Commission. Business address: Level 27, 101 Collins Street, Melbourne, VIC 3000, Australia.

The name “Aviva Investors” as used in this material refers to the global organization of affiliated asset management businesses operating under the Aviva Investors name. Each Aviva investors’ affiliate is a subsidiary of Aviva plc, a publicly- traded multi-national financial services company headquartered in the United Kingdom.

Aviva Investors Canada, Inc. (“AIC”) is located in Toronto and is based within the North American region of the global organization of affiliated asset management businesses operating under the Aviva Investors name. AIC is registered with the Ontario Securities Commission as a commodity trading manager, exempt market dealer, portfolio manager and investment fund manager. AIC is also registered as an exempt market dealer and portfolio manager in each province of Canada and may also be registered as an investment fund manager in certain other applicable provinces.

Aviva Investors Americas LLC is a federally registered investment advisor with the U.S. Securities and Exchange Commission. Aviva Investors Americas is also a commodity trading advisor (“CTA”) registered with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFA”). AIA’s Form ADV Part 2A, which provides background information about the firm and its business practices, is available upon written request to: Compliance Department, 225 West Wacker Drive, Suite 2250, Chicago, IL 60606.