NEW YORK & LONDON--(BUSINESS WIRE)--
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, 646-231-0268
Ed.Sweeney@BlackRock.com
or
Stephen
White, +44-207-743-1299
Stephen.White@BlackRock.com
Source: BlackRock