An environment where interest rates remain high has been identified as the key concern for most real asset investors, according to the Aviva Investors' Real Assets Study 2024. This sentiment was shared by respondents across all regions, with 60% of investors picking this out as the key risk for their holdings.
High interest rates have already become a point of issue for investors and put some real assets, notably US commercial real estate, under pressure in 2023. It was against this backdrop that a mini banking crisis unfolded in the US, with several regional US banks collapsing as a result. Though contagion was limited, and a widespread banking crisis did not materialise, this brought into sharp focus the impact that high rates are having on real assets.
This saw high interest rates picked out as the most concerning risk among each region polled: North America, Europe and APAC. The second most concerning risk was a global recession, which was picked out by 51% of all respondents.
Finding the right opportunities
Generally, finding suitable opportunities was the most selected barrier (46%) to new allocations chosen by respondents across all regions. This reflected the fact that real asset investors are increasingly seeking to take into consideration non-financial metrics when making investment decisions.
The Aviva Investors study sought respondents' views on sustainability, and it is clear this is now far from a niche concern. It was revealed that 17% of investors globally regard ESG as a critical and deciding factor, with less than 5% of respondents not considering sustainability when making real asset investment decisions.
This reflects the wider context that ESG and sustainable investment in general has become more mainstream throughout the financial services world. Indeed, the majority of respondents overall (57%) confirmed they are committed to net zero targets.
However, there are challenges in engaging with sustainable real assets as under half (47%) of respondents reported being confident in identifying what actions are required to meet long-term net zero and sustainability commitments via this asset class. For instance, 30% of both North American and APAC investors admitted to a lack of in-house experience as being a significant barrier to engaging with these assets.
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