While many institutional investors are underweight real assets, BlackRock anticipates a growing number will embrace real estate, commodities and infrastructure investment.
A survey of 201 executives in the institutional investment sector – commissioned by BlackRock and conducted by The Economist Intelligence Unit – found that 46 per cent of respondents increased allocations to real assets in the past three years, with 60 per cent indicating they will do so in the next 18 months.
Commenting on the findings, BlackRock Alternative Investors global co-head and chief investment officer Matt Botein said the results are significant, if unsurprising.
“Increasing life expectancies around the world are causing institutions to seek longer-dated assets to match their mounting liabilities,” Mr Botein said.
“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.”
Of the specified real asset classes – listed as real estate, infrastructure, commodities, timber and farmland – real estate was the most popular, with 96 per cent of respondents currently maintaining some exposure, 59 per cent of which utilise core equity.
Inflation risk is a key trigger for the surge in interest in real assets, with infrastructure investors especially concerned about inflation.
“Many institutional investors are exceptionally overweight financial assets and underweight real assets,” said Mr Botein.
“Expected inflation tends to be priced into nominal returns. Unexpected inflation is, however, exactly what one wants to guard against.
“We believe that investors in real assets today are generally able to obtain competitive returns while benefitting from significant inflation protection.”