Global institutional investors set to increase allocations to infrastructure and real estate
30 May 2013
News, Asia, Global
By Asia Asset Management
Institutional investors are most likely to continue to increase allocations to alternative asset classes, especially direct infrastructure, private equity and listed real estate, according to the AMP Capital Institutional Investor Report released on May 29.
The survey of global institutional investors who manage a collective US$1.9 trillion revealed a net increase in allocations to alternative investments in Q1 2013.
Almost a third of survey respondents anticipated an increase in their allocation to alternatives in 2013 with listed and unlisted real estate and infrastructure making up one of the fastest growing segments.
Almost 40% plan to increase their investments in direct/unlisted investments in 2013, suggesting investors are seeing private, direct investments as a source of attractive returns.
Thirty-six percent of respondents in Asia anticipate increasing their direct/unlisted investments in the year ahead, while 46% of those in Europe and 38% in the Americas foresee such a change.
Real assets already play a substantial role in investors’ existing asset allocation strategies with 30% holding more than 10% in real assets. Asked whether they were likely to increase their allocations to real assets, 72% of respondents said they would be most likely to increase investment in real estate, 56% in infrastructure, 28% in infrastructure debt and 17% in commodities (with 22% citing other real assets).
Forty-six percent of European investors expect to allocate more funds to real assets in 2013, compared with only 18% in Asia and 28% in the Americas.
Almost 50% of these European respondents expect to invest in more direct, unlisted investments, focusing on infrastructure and infrastructure debt, whereas in Asia, respondents showed the greatest interest in real estate, infrastructure and infrastructure debt.
Thirty-two percent of survey respondents said they were more likely to expand into new asset classes – including infrastructure, private equity, real estate and renewable energy – when asked what structural changes they expect to make in the year ahead. Twenty-seven percent said they expect to limit risk in various ways and 24% expect to increase their roster of managers.
There’s no sign the ‘great rotation’ from bonds to equities has eventuated amongst institutional investors with 79% of institutional investors polled replying that they had no plans to move out of cash and fixed income this year. Global and domestic government bond holdings were increased by 29% and 28% of respondents respectively in Q1 2013. Portfolio rebalancing in Europe will not come at the expense of cash or fixed income allocations and only 9% of institutional investors in Europe plan to move out of cash or fixed income compared with 23% in the Americas and 27% in Asia.
Institutional investors in Asia increased their investment in domestic government bonds, listed bond funds, global government bonds, mezzanine debt and other debt instruments in Q1 2013. This growth in fixed income allocations in Asia is likely to continue in the second quarter, while interest in direct/unlisted investment among respondents in Asia is comparable with respondents in Europe and the Americas.
AMP Capital Chief Executive International and Head of Global Clients Anthony Fasso said: “The trend for large institutional investors globally to increase their allocations to alternative asset classes is set to continue.
“This suggests that investors are seeing private, direct investments as an attractive source of alternative returns with less volatility than long-term equity and bond investments, despite the often illiquid nature of direct investments such as private equity, infrastructure and direct real estate,” he said.
“A rotation out of bonds and into equities has not been widely adopted among global institutional investors. Rather we see them moving out of cash and into both bond and equity investments, and making shifts within their fixed income investments by moving away from sovereign bonds and into high yield corporate debt,” Mr. Fasso said.
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