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

In this year’s study, we canvassed the opinion of representatives from 75 corporate defined-benefit (DB) pension plan schemes, representing 15 per cent of this year’s survey cohort. Of these schemes, 28 are based in Europe, 28 in APAC and 19 in North America.

Our survey group was tilted towards larger organisations with 57 per cent of European schemes, 46 per cent of schemes in the APAC region and 37 per cent in North America boasting assets of $20 billion or more.

European plans the biggest fans

The use of real assets by pension plans varies according to geography. European DB schemes are the most likely to favour big allocations, with half of schemes allocating between ten and 20 per cent of their portfolios to real assets and a further 14 per cent allocating over 20 per cent (see Figure 1).

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

By contrast, just five per cent of North American DB schemes and four per cent of APAC schemes allocated more than 20 per cent of their portfolios to real assets, although in both regions more than a third allocated at least ten per cent.

Globally, 57 per cent of schemes expect to up allocations to real assets over the next two years, led by funds in Europe and APAC, while 24 per cent expect no change and 19 per cent envisage their allocation dropping (see Figure 2).

Figure 2: 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)

Real estate equity is the most popular asset class 

Real estate equity is the most popular investment sub-category in all three regions, with North American funds allocating on average 39 per cent of their real asset portfolio to it, followed by European funds on 30 per cent and 20 per cent in APAC. Real estate long income and infrastructure equity were the next most widely held type of assets (see Figure 3).

Real estate equity is the most popular investment sub-category globally

As for the preferred way of gaining exposure to real assets, multi-asset pooled funds are the most popular choice globally (48 per cent), followed by single asset-class pooled funds (44 per cent) and direct investment (41 per cent), although there is a wide variation in preferences across regions. In North America, single-asset pooled funds are the most popular investment vehicle (53 per cent), followed by direct investment and multi-asset pooled funds (both 47 per cent). Single-asset-class pooled funds and segregated mandates are the most popular methods in APAC, while multi-asset-pooled funds are the preferred way of gaining access in Europe.

Figure 3: How is your institution's real assets portfolio allocated today? (per cent)

Expected returns

Our survey group is broadly optimistic in terms of the returns it expects real assets to generate in the coming years, with survey participants especially bullish when it comes to both infrastructure equity and real estate equity.

DB schemes were especially bullish when it comes to both infrastructure equity and real estate equity

The former is expected to deliver weighted-average annualised returns of 4.1 per cent, 4.7 per cent and 5.6 per cent over one, three and five years respectively, with nine per cent of funds expecting an annualised return of ten per cent or more in five years (see Figure 4).

Real estate equity is seen delivering 4.8 per cent over three years and six per cent over five, making it the asset class with the highest expected return over that timeframe, just ahead of global equities, with 13 per cent of respondents anticipating an annualised return of ten per cent or more in five years.

By contrast, nature-based solutions and structured finance are expected to deliver far more subdued performance. However, with respect to nature-based solutions, this may be explained in part by a lack of familiarity with this nascent asset class – around a quarter said they “don’t know” what annualised returns to expect over all timeframes.

Figure 4: 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 returns, 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.

Risks and barriers

When it comes to risk, the threat of a global recession and the impact of high interest rates are uppermost in investors’ minds, with 55 per cent of schemes citing the former as among their main three concerns and 53 per cent the latter. From a regional perspective, worries over the threat of a recession were slightly greater in APAC, where 57 per cent of respondents put it in their top three concerns, more than in North America where the comparable figure was 53 per cent (see Figure 5).

Similarly, concern over high interest rates was higher in APAC (57 per cent) compared with North America (48 per cent). In both cases, European schemes were close to the global average. North American schemes were more concerned about liquidity risks and overleveraging than their counterparts elsewhere.

Figure 5: 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)

While return expectations may suggest managers are largely bullish on real assets’ prospects, it is worth noting that for many, concern over high valuations was among the biggest barriers to fresh investment (see Figure 6). In total, 51 per cent of schemes said this was among the top-three factors preventing them from allocating more money to real assets. That made it the second biggest obstacle after high transaction costs, which were especially concerning to North American schemes, 58 per cent of whom said this was one of the top three barriers to greater investment.

In Europe, regulation and governance constraints were more commonly cited as a concern than elsewhere, with respectively 32 per cent and 29 per cent of schemes citing these factors as among the top-three barriers to investing.

Other important considerations cited included the difficulty in finding suitable opportunities, the fact there were better opportunities in public markets, and problems with benchmarking performance.

Figure 6: What would you identify as the biggest barriers to your institution either investing in, or increasing its allocation to real assets? (per cent)

Diversification remains chief motivation

Diversification remains the single most important rationale for investing in real assets with 69 per cent of funds citing it as among the three most important benefits today, up from 64 per cent last year. A slightly smaller majority (57 per cent) believes diversification will continue to be one of the most important reasons to invest in two years’ time (see Figure 7).

From a regional perspective, diversification is viewed as being a comparatively bigger benefit in Europe (75 per cent cited it as among the top three reasons) and North America (74 per cent) than in APAC (61 per cent).

Real assets’ ability to generate inflation-linked income is another important attraction, with nearly half of schemes citing this as among their top three motivations for investing. This is an especially powerful draw for European managers, with 71 per cent citing it is as among the asset class’s top-three benefits. However, its importance is expected to fall over the next two years, with 47 per cent of investors globally believing it will still be one of their top three motivations.

Other leading considerations were real assets’ ability to generate capital growth and deliver long-term income, the latter especially in APAC where 46 per cent of schemes said this was a major attraction.

Figure 7: 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)

Views on sustainability

While the majority of DB schemes in our cohort are paying some attention to ESG/sustainability issues, there are marked regional variations, with North American schemes as a rule paying less attention to the issue.1

Overall, 15 per cent of schemes globally said ESG/sustainability is a critical and deciding factor in investment decisions, with a further 43 per cent citing is as one of several factors they considered. Less than ten per cent of schemes failed to consider it at all (see Figure 8).

However, whereas 29 per cent of European schemes said it was critical, and none said they did not consider it, the situation in North America was reversed. There, just five per cent consider it critical whereas five times as many fail to pay it any attention.

Figure 8: Which of the following best describes your organisation's approach to ESG/sustainability within real assets? (per cent)

As for the type of investments which were most likely to have a positive social and/or environmental impact, social infrastructure – within the health and education sectors, for example – was the most popular choice in all three regions, with two thirds of investors globally ranking this in the top three. Climate-transition-aligned investments in real estate and infrastructure came next on 52 per cent. This was an especially popular choice in North America, where 58 per cent of schemes ranked it in their top three choices, and Europe where 57 per cent did likewise.

A focus on nature-based solutions was in the top three considerations for APAC

A focus on nature-based solutions such as forestry and biodiversity was comparatively important in APAC, where it was in the top three considerations for 46 per cent of schemes. Urban regeneration infrastructure projects was the third most popular choice globally on 45 per cent.

The fact it can present attractive opportunities was the most cited reason to invest according to ESG/sustainability criteria, with more than a third of schemes citing it as the top consideration (see Figure 9). From a regional perspective, this was true of 43 per cent of schemes in Europe and 38 per cent of APAC schemes. Although just eight per cent of APAC schemes said likewise, 46 per cent of North American schemes said they saw increasing evidence of improved financial performance, which helped make this the second most important factor from a global perspective.

By contrast, respondents’ interest in sustainable real assets had little to do with a desire to align investments with their own corporate values, with just 11 per cent of European schemes and eight per cent of North American schemes ranking this the top consideration. None did in the APAC region.

Figure 9: What is driving your organisation to invest, or increase your overall allocation, to sustainable real assets? (per cent)

When asked about their organisation’s policy on making a commitment to achieving net-zero emissions, just 11 per cent of schemes said they were already reporting on their progress towards their net-zero commitments (see Figure 10). APAC schemes spearheaded this effort, with 18 per cent of schemes already reporting data, compared with just four per cent in Europe. While most of the rest of the schemes polled were at varying stages along that path, nearly 20 per cent said they had no plans to make any commitment, with apathy greatest in North America (26 per cent) and Europe (21 per cent).

Figure 10: What is your organisation's policy on making a commitment to achieving net-zero emissions? (per cent)

Manager preferences

In terms of the most important factors behind manager selection, schemes ranked the manager’s ability to evidence risk and/or the impact of their investments as the most important consideration, with 64 per cent of respondents describing this as important or very important.

The next most important consideration was whether the manager was able to provide granular data on fund holdings, closely followed by the manager’s performance track record. Just over half of respondents described the quality of ESG/sustainability integration as important or very important.

In the main, most schemes appear happy that their chosen managers are delivering on these objectives. For example, 82 per cent described themselves as either satisfied or very satisfied in terms of access to granular holdings data, led by 93 per cent of APAC schemes.

However, corresponding figures for the ability to evidence risk and/or impact and investment performance fell to 71 and 70 per cent respectively. In terms of the former metric, while 87 per cent of APAC schemes were satisfied with their managers, the same could be said for just a third of North American schemes.

As for the manager’s investment performance, the opposite was true. Whereas 90 per cent of North American schemes were happy with their manager, the same was true for two-thirds of APAC schemes and 55 per cent in Europe.

When asked to name the most material risk to investing in sustainable real assets, greenwashing was seen as the biggest concern with 51 per cent of schemes globally citing it. Difficulty in evidencing or measuring positive impact was another prominent concern with 47 per cent of schemes citing this as an issue.


  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?

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