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Aviva: real assets appetite continues to grow amid turbulent backdrop

Some investors are becoming wary of overpaying for a small pool of assets for which their contemporaries compete, but in which few will invest.

This has led some to consider alternative routes of access – through pooling of assets with other investors to get access to larger projects (co-investment), or by exploring a more diverse range of assets to invest in, writes Aviva in its Real Assets Study.

As one investor told Aviva:

“Speed of deployment in the real assets arena can be challenging generally – and even more so in uncertain times. If there is a limited number of good quality assets, not everyone will be able to deploy as quickly as they think. Deployment and lack of supply overall is a risk.

“Assets with smaller pools – like equity-release mortgages – might trade more frequently than big-ticket portfolios of loans. A lot of people in my industry are thinking about investing in the same things, and if you go back to the last boom it can create a situation where investors have taken on a level of risk that, in 2-3 years’ time, will turn out to be egregious.”

While sovereign wealth funds led the way in real assets investment at the beginning of the decade, pension funds and insurance companies have become active investors in this area in recent years. At the same time, new types of projects demand greater emphasis on risk management and transparency.

The political arena is also driving interest in real assets, with both the Trump administration in the United States and the Boris Johnson-led government in the United Kingdom pledging large-scale infrastructure investment on the back of historically low interest rates.

The definition of a real asset investment is also evolving and expanding as innovation continues. Promises of improved digital infrastructure are not only likely to prove a vote winner, but are also set to provide secure new income streams for investors. These include 5G infrastructure, data centres, and charging points for electric vehicles. Transport infrastructure continues to be fertile territory, with electric vehicles in the vanguard.

Darryl Murphy, Head of Infrastructure Debt at Aviva Investors, says:

“The growth of electric vehicles has taken place much faster than expected and could have a significant influence on infrastructure over the next 10 years.

“Real estate is also complex, fast-changing and affected by political and societal changes. With retail property – particularly in the United States and Britain – impacted by a structural shift towards e-commerce, safe havens such as real estate debt secured against non-retail real estate are growing in their appeal.

“With real estate generally judged to be in the late stages of its current cycle, there is growing interest in ’alternative’ asset classes such as build-to-rent residential or medical property. Overall, real assets look set to continue to grow, albeit grappling with the same global issues other asset classes face in 2019.”

james.wallace@realassetmedia.com