Partner Insight: Growing demand for real assets scuppered by low supply

clock • 2 min read

Real estate debt is the most popular field for insurers, with 54% of those polled expecting to increase their investments in the next 12 months, and 61% of those in the Nordics eager to increase their allocations.

In fact, demand is strong overall, with insurance groups and pension funds all strongly favouring infrastructure equity and structured finance by expecting to increase investments over the next 12 months.

However, supply is considered a problem.

Click here to view the Real Asset Study 2019

Despite expecting the largest increase in investment to be in real estate debt, 37% of insurers believe supply to be low. Similarly, a quarter believe infrastructure equity and structured finance supply to be constrained. The barriers are many and varied. Illiquidity is cited as the biggest issue, with large infrastructure and real estate assets traditionally difficult to trade.

This illiquidity partially explains the rise of new vehicles like the UK's IPSX, an index that seeks to allow institutional investors to trade in and out of listed shares in individual assets. Investment in European real estate during 2019 was anticipated to be led by Asian investors, according to PricewaterhouseCoopers and the Urban Land Institute's 2019 Emerging Trends report.

This showed that 69% of respondents to its survey thought investment from Asia would increase, with Japanese pension funds expected to lead the way after the nation's Government Pension Investment Fund, with $1.2 trillion of assets, was permitted to invest in real estate for the first time. The weak pound is also expected to drive global investors towards UK infrastructure and real estate assets.

However, the difficulty in benchmarking performance, length of time to deploy capital and even a lack of in-house expertise on alternatives can form other barriers. Some global investors overcome these by investing in large-scale new social-infrastructure projects or place-making, gaining access to prime projects from their inception.

You can download the full report Real Asset Study 2019, In search of resilience in an uncertain world, in PDF format here.

( RA19/1476/14112020)

 

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