Some 37% of pension fund investors expect to increase allocations to real assets over the next 12 months, according to Aviva Investors.
Its 2020 Real Assets survey of 500 institutional investors published today (23 October), revealed that 38% of pension funds said escalating trade wars were a concern to their real asset investments over the next 12 months, while the continued lack of clarity over the future relationship between the UK and the European Union was also a concern.
The survey - which included 250 pension fund investors across 11 countries 24% of which were UK based in May - further demonstrated that there was a preference for multiple strategies within real asset allocations.
Direct real estate (53%), infrastructure equity (53%) and structured finance (52%) were pension funds' most sought after strategies.
However, 43% of pension funds said "regulatory interference" was proving challenging to investment activities, and 30% cited the lack of regulator harmony across Europe as a concern.
A total 45% of pension funds said "financial instability" was the most likely and concerning event for real asset investment over the next 12 months; just over a quarter said "difficulty finding suitable opportunities" was the biggest barrier to investing in real assets or increasing existing allocations.
The same survey also demonstrated that 42% of pension funds considered a "favorable ESG impact" of real assets to be agreeable, and 41% of pension funds' said they considered the transparency of asset managers' ESG approach when looking at external investment providers.
Of the total pool of respondents - which also included investors from the insurance sector - 90% said they considered ESG important in investment decision making.
Aviva Investors real assets chief investment officer Mark Versey said: "Strong appetite for real assets is unsurprising given the continued global backdrop of political and economic uncertainty.
"As well as offering investors cashflow-matching characteristics and added diversification, returns for the sector have been dependable and buoyed by the illiquidity premia they can offer.
"The growing influence of ESG is another undeniable trend, however the lack of readily-available information can create difficulties in quantifying the ESG credentials of a project. This makes integration complex and something that must be undertaken on a case-by-case basis."
He added that the boundary between infrastructure, real estate and private debt is "increasingly blurred" adding that investors are looking for multi-asset portfolios with an "outcome-oriented focus".
Versey concluded: "New entrants and rising allocations from existing investors increase the risk of overcrowding and of returns being squeezed in well-trodden areas of the market.
"Investors need to consider this when building strategies to ensure they achieve the best possible outcomes."
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