Our research* shows that since 2008, European investors increasingly favour real assets, such as infrastructure and property. Before then it was mainly the preserve of large Australian and Canadian funds.
The search for yield and safe havens has created new patterns in investor behaviour, and these have grown stronger since.
Investors now recognise the value of real assets as vehicles generating real returns. Historically many investors shied away from such assets because of their lack of liquidity. However, the demand for yield is such that they are prepared to forego liquidity on larger parts of their portfolio to meet their investment targets, whether they are seeking return or inflation protection. As a result, institutional demand for infrastructure and utilities is on the rise.
Examples of this include the Universities Superannuation Scheme (USS) doubling its portfolio of infrastructure assets with the recent purchase of a £400 million stake in Heathrow Airport. The USS now has around £1.5 billion worth of infrastructure assets in its portfolio – approximately double the amount it had 18 months ago.
Similarly, Legal and General are forward funding a student accommodation scheme in Elephant and Castle as part of the broader regeneration project designed for the area. Both examples emphasise investors’ growing appetite for real assets and the steady cash flows provided by these investments.
As bank lending declines and government spending is squeezed even further, there should be a wealth of opportunities for investors to invest in interesting real asset projects, at different levels of risk and in various parts of the capital structure. These assets will become mainstream allocations for most European pension funds.
*2013 CREATE-Research Report, commissioned by Principal Global Investors: ‘Investing in a Debt-Fuelled World’. The full report is available at: create.principalglobal.com and www.create-research.co.uk.
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