Inflation and sustainability topped the list of concerns in 2022 for institutional investors investing in real assets, according to a study by Aviva Investors.
Aviva Investors' 2023 real assets study, published Tuesday, also found that 64% of institutional investors plan to increase real asset allocations over the next two years. Regional differences were also evident, with nearly 25% of North American investors having more than 20% of their portfolios in real assets, compared to 19% in Europe and 17% in Asia-Pacific.
Real estate equity continued to be the most popular real assets strategy, although preference for it dipped to 30% from 31% in the survey two years ago, while infrastructure equity allocations rose to 13% from 12% over the same period.
The fifth annual survey, conducted in late 2022, polled 500 global investors with a combined $3.5 trillion in assets. Along with corporate and public pension funds and insurers, the latest survey included global financial institutions, sovereign wealth funds, endowments and foundations. That reflected broadening investor interest in real assets, Daniel McHugh, CIO for real assets at Aviva Investors, said in the study's foreword.
Geopolitical uncertainty and inflation were key features of 2022, Mr. McHugh said, as it became increasingly expensive to hedge against inflation through traditional asset classes. "The ability of real assets to provide inflation-linked income has woken investors up to the attractiveness of these strategies beyond simply being a diversification play," he said in a news release on the study, which found 53% of respondents allocating to real assets to provide inflation-linked income, compared to 33% three years ago.
More institutional investors also allocated to real assets for sustainability reasons, with 28% of respondents doing so to capture positive ESG impacts, compared to 17% three years ago.
The study found 93% of the investors actively considering ESG and sustainability in their real assets investment decisions, and 17% considering them a critical factor.
While 67% felt a responsibility to invest sustainably, 79% favored a real assets fund or strategy that prioritizes financial returns while integrating ESG factors. A returns-based approach was favored by 90% of North American respondents, compared to 71% in Europe and 82% in Asia.
For 56% of respondents, investments supporting the energy transition are expected to secure the best financial returns, the study found.
