Aviva Investors explains the growth and protection benefits investors gain from real assets
"The future is already here - it's just not evenly distributed" - William Gibson
Gibson's quote speaks to a truth lying behind all trends - people experience change at different speeds. While we are not the first asset manager to create a real assets* business, we will go further in terms of integrating the component parts into a genuinely unified platform that can deliver better outcomes for our clients.
Delivering better client outcomes
Starved of yield and in search of diversifying assets that provide stable cash flows capable of protecting against volatility and inflation, many investors are increasingly drawn to real assets. Our Alternative Income Study found pension funds and insurers across Europe are planning to increase their allocations to alternative assets in the coming years.
In the case of pension funds, with a relatively low regulatory burden, illiquid assets enable the continuation of de-risking journeys and the closure of funding gaps. Insurers, despite facing far tougher regulation, also continue to allocate to real assets and, in the main, plan to increase their allocations. Many investors are seeking expert consultants, advisers or partners to help them allocate effectively to what is an opaque asset class.
Meeting this growing client need was the driving force behind the creation of a real assets business. Given the level of client demand, with a large amount of money chasing a limited number of opportunities, the ability to originate quality real asset deals is critical. Furthermore, real assets are unlike liquid markets in that a fully transparent marketplace does not exist; deals must be sought out and negotiated directly.
The first tangible benefit a combined business brings to clients is improved insight on deals. With equity and debt teams working collaboratively, we gain a competitive advantage. Real estate is an example. On the equity side, we have a strong location strategy where we focus our efforts and investment in core cities where people want to live, play, work and learn. As a result, we have established knowledge, relationships and an information advantage that can be utilised when making lending decisions.
Second is our speed in deploying capital. Clients who wish to access these asset classes want to have their money invested in a timely fashion without sacrificing strong risk underwriting. Having access to more types of assets better equips us to deploy capital faster to a given risk appetite.
The third benefit relates to the market side of real assets. The ability to offer equity and debt financing means we can offer owners of real assets or borrowers looking for financing far more flexible solutions.
Combining perspectives and expertise
Combining our real estate and alternative income businesses brings obvious cost and operational synergies. In terms of governance, risk and reporting, we can also simplify existing committees and reporting requirements.
But there are many other activities to consider. For example, a development project in infrastructure and a development project in real estate have similar risks and require similar project management and supplier governance. We can also have a single credit risk team working collaboratively across real estate and alternative income to more effectively assess tenant covenants, deal structures and overall risks. Furthermore, our combined research team now has a more holistic view of real assets and can analyse relative value across the capital structure as well as between sectors.
Then there are the scale benefits. Having scale enables us to offer our clients unique deal flow as well as co-investment opportunities with existing large clients (including Aviva plc). Our fair allocation policy ensures all our clients are treated consistently, aligning long-term interests and demands. Our reputation as a long-term investor facilitates the re-financing of existing debt and the development of existing real estate assets, creating off-market deal opportunities.
Changing the world we live in: Societies of the future
What is clear is that the real estate and infrastructure projects we invested in over the last 20 years will be very different from those we invest in over the next 20.
The long-term and illiquid nature of real assets means it is critical to consider a wide variety of sustainability factors when investing. This underwriting discipline is similar across all real assets and is another beneficiary of merging our platform. As such, integrating environmental, social and governance factors into all our real asset investment decisions and reporting is high up our agenda.
And while renewable infrastructure projects may be green and sustainable by definition, we must also balance future sustainability projects with their impact on local communities. By establishing stronger links with communities, politicians, councils and local interest groups, we can better understand and meet their needs.
Helping to build the infrastructure and physical surroundings that will support future growth is a responsibility we relish, and something we aim to do while effecting positive societal and environmental change at the same time.
For more information please visit www.avivainvestors.com
Source: Aviva Investors ‘Alternative Income Study 2018'
*Real Assets Definition: As Real Asset definitions can vary wildly, we provide ours for clarity "Real Estate and Infrastructure and associated financing".
Important information: Except where stated as otherwise, the opinions and source of all information is Aviva Investors Global Services Limited (AIGSL). As at November 8, 2018. These opinions should not be viewed as indicating any guarantee of return. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature.
In the UK & Europe this material has been prepared and issued by AIGSL, registered in England No.1151805. Registered Office: St. Helen's, 1 Undershaft, London, EC3P 3DQ. Authorised and regulated in the UK by the Financial Conduct Authority.