Institutional investors are increasingly turning to real assets
to increase investment returns and manage macro-environment risks,
but would rethink allocations if interest rates rose significantly,
according to a new survey from BlackRock (NYSE:BLK).
The survey polled 201 executives on their attitudes and
allocations to real assets. It found 46 per cent of respondents had
increased allocations to real estate, infrastructure, commodities,
timber and farmland in the past three years, while 60 per cent
expect to do so in the next 18 months.
Matt Botein, Global Co-Head and CIO, BlackRock Alternative
Investors, commented: “Increasing life expectancies around the
world are causing institutions to seek longer-dated assets to match
their mounting liabilities. We believe real assets can
provide this match, while also delivering attractive yields in the
current environment. The growing number and magnitude of recent
real asset allocations clearly represents more than short-term,
tactical decisions. We believe real estate, infrastructure and
other real assets will become core to investors’ portfolios over
the next few years.”
Continued interest in real estate
Survey results show that real estate continues to gain traction
amongst investors, but sectorial and geographical distinction,
along with a clear definition of objectives, remains crucial to
rewarding risk exposure.
Real estate was the most common form of real asset investments -
96 per cent of respondents currently invest - with 59 per cent of
them opting for a conservative exposure to the asset class through
core equity. That said, many investors are also increasing
allocations to value-added equity (47 per cent) and opportunistic
equity strategies (34 per cent), which are more capital intensive
forms of real estate investing and have higher potential return
profiles.
Cautious about interest rates
Low rates have been a tailwind for real-asset investments.
Nearly half (47%) of respondents say that low interest rates
influence their investments. Almost two-thirds (62 per cent) said
they would rethink some of their allocations to real assets if a
‘significant’ rise in interest rates were to occur. This
sensitivity to interest rates varied by sector: 59 per cent of
respondents believed their real estate to be most sensitive to
rising rates, compared with 41 per cent and 33 per cent concerned
about infrastructure and commodities exposure respectively.
Marcus Sperber, Global Head of BlackRock Real Estate, commented:
“According to the survey results, the main draw of real assets
generally, and property in particular, has been the ability to
provide a stable income in this ultra-low yield environment.
Investors are becoming increasingly concerned about the impact of
central bank policies and the subsequent impact on interest rates
on property markets. This is leading the majority of respondents to
say that a significant rise in interest rates would cause them to
rethink some of their allocations to real assets. However, one of
BlackRock’s key 2015 themes is that nominal risk-free rates should
stay low for longer. Even if central banks tighten monetary policy,
we would anticipate property to continue to provide a good
protection against inflation, as these actions should be
accompanied by strong economic growth and improving employment
rates all of which are supportive of real asset fundamentals.”
Building opportunities in infrastructure
Infrastructure is comparatively less mature than other real
assets examined by the survey but a faster-growing category
with 66 per cent of respondents owning assets. A large number of
investors are interested in additional equity investments (72 per
cent) while the newly emerging institutional infrastructure debt
opportunity is already on the radar of many investors (38 per
cent). Of those that are expecting to increase allocations, 51 per
cent are at least somewhat interested in brownfield (existing)
projects compared to 23 per cent that are interested in newer
’greenfield’ projects.
Jim Barry, Global Head of BlackRock Infrastructure Investment
Group, said: “The message we hear repeatedly, all over the globe,
is that governments are looking to partner with private investors
to fund critical projects. The scale of the infrastructure need
globally presents great opportunities, in our opinion, for
investors who are looking for long- term income streams. While more
conservative strategies such as developed market brownfield
investments remain preferred by most investors, we saw significant
interest in emerging markets with 45% of respondents considering an
allocation in the next 18 months, perhaps reflecting increased
sophistication of investors already active in the asset class.”
Inflation protection
Inflation protection is one of the main the reasons investors
owned real assets. Of the respondents who are increasing investment
in infrastructure, 29% cite inflation protection as their
motivation.
Botein said, “Many institutional investors are exceptionally
overweight financial assets and underweight real
assets. Expected inflation tends to be priced into nominal
returns. Unexpected inflation is, however, exactly what one wants
to guard against. Put another way, the time to buy insurance is not
when one's house is on fire, but rather when fire is broadly
thought to be impossible. We believe that investors in real assets
today are generally able to obtain competitive returns while
benefitting from significant inflation protection."
The survey was commissioned by BlackRock and conducted by the
Economist Intelligence Unit in September 2014.
A copy of the report is available here.
About the survey
In September 2014, The Economist Intelligence Unit, on behalf of
BlackRock, conducted a global survey of 201 executives from
institutional investment organizations in 30 countries to ascertain
their level of interest in and strategies related to real-asset
investment.
In terms of geographic distribution, 80 respondents were located
in North America, 80 in Europe, the Middle East and Africa and 41
in Asia-Pacific. Approximately one-third of the organizations
represented in the survey have assets under management (AUM) of
more than $75bn, with a similar proportion reporting between $1bn
and $5bn.
About BlackRock
BlackRock is a leader in investment management, risk management
and advisory services for institutional and retail clients
worldwide. At September 30, 2014, BlackRock’s AUM was $4.525
trillion. BlackRock helps clients meet their goals and
overcome challenges with a range of products that include separate
accounts, mutual funds, iShares® (exchange-traded funds), and other
pooled investment vehicles. BlackRock also offers risk management,
advisory and enterprise investment system services to a broad base
of institutional investors through BlackRock
Solutions®. Headquartered in New York City, as of September
30, 2014, the firm had approximately 12,100 employees in more than
30 countries and a major presence in key global markets, including
North and South America, Europe, Asia, Australia and the Middle
East and Africa. For additional information, please visit the
Company’s website at www.blackrock.com
This material represents an assessment of the market environment
at a specific time and is not intended to be a forecast of future
events or a guarantee of future results. This information should
not be relied upon by the reader as research or investment advice.
The opinions expressed are as of December 3, 2014 and may change as
subsequent conditions vary. Investment strategies discussed may not
be suitable for all investors. Consult with your financial adviser
prior to making investment decisions.
©2014 BlackRock, Inc. All rights reserved. BLACKROCK,
BLACKROCK SOLUTIONS and iSHARES are registered and
unregistered trademarks of BlackRock, Inc., or its subsidiaries in
the United States and elsewhere. All other marks are the property
of their respective owners.
GMC - 0050
Media:Ed Sweeney,
646-231-0268Ed.Sweeney@BlackRock.comorStephen White,
+44-207-743-1299Stephen.White@BlackRock.com
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