Partner Insight: Diversification and income drive investor appetite for real assets 

Challenging markets reinforced the value of real assets in providing diversification and uncorrelated returns.

Sarka Halas
clock • 1 min read
Partner Insight: Diversification and income drive investor appetite for real assets 

Market turmoil, inflation shocks, high interest rates, and rolling geopolitical crises spurred many investors to stay on the sidelines last year. 

These challenging conditions impacted all asset classes, including real assets. Yet investor appetite remains strong and real assets continue to play a significant role in the investment strategies of global institutions.  

Globally, nearly two-thirds of investors expect to increase their allocation to real assets over the next two years, with investors in Asia most likely to add to their portfolios. Real estate equity remains the most popular strategy by far, though exposure has fallen slightly, from 31% of the average institutional real asset portfolio three years ago to 27% today. 

Diversification remains a key driver 

Most investors say that diversification is a primary reason for allocating to real assets. The tumultuous performance of markets in 2022 and early 2023 appears to have reinforced the value of the asset class as a source of uncorrelated returns in portfolios.  

But as inflation falls in the major global economies, inflation protection is set to dip in importance over the next two years - from being a key reason to invest in real assets for 53% of respondents in 2022 to 50% this year and 43% in two years.  

As inflation trends down, long-term income and positive ESG impact are set to rise in importance among real asset investors; these are seen as key drivers of allocations in two years' time by 51% and 39% per cent of investors respectively. Changing inflation expectations and bond market gyrations could be factors here, with real assets seen as providing a secure income in volatile times.

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