A recent survey published by TIME Investments finds that over 40 per cent of investors are planning to increase allocations to real assets this year.
“Infrastructure funds are by far the most popular,” says Henny Dovland, Senior Business Development Manager, TIME Investments. “We are seeing advisers looking at significant increases across the market, which could continue, particularly now that the chancellor has announced his budget dates and is promising an infrastructure revolution in the UK.”
One of the reasons for the rise in popularity, she says, is because investors are increasingly concerned about climate issues. “Sustainable investment is a key trend with climate ranking above people and poverty, and there are a lot of renewable energy assets that fit into the real assets and infrastructure sector.”
“Added to this, we are getting close to finding that these types of assets in an unsubsidised environment are attractive.” All renewables historically have benefited from subsidies in the UK, and TIME Investments are currently acquiring existing operational assets, such as wind turbines and solar parks that are already grid connected, for their portfolios.
Dovland is also seeing a surge in interest in real estate assets, in particular, long income property funds. She acknowledges that UK real estate had a “really tough” 2019 – December was the second worst month on record for open ended commercial real estate funds – but she states that long income property is the non-volatile, predictable, most consistent part of property portfolios.
Long income property tends to be buildings that act as profit centres. They are not a cost to the business and they generally have lease terms of around 20, 30 or 40 plus years. Some traditional commercial property funds hold a small proportion of long income property and will often refer to this sector as the ballast part of the portfolio.
“Looking at conversations with advisers in the last 12-18 months, many of them are looking to replace the bond exposure either completely or in part,” she says. The survey found that advisers are recommending that investors should allocate 25 per cent of their portfolios to real assets.
“This is because fixed interest is not doing the job for their client portfolios. A number of them are making long income property allocations as a replacement or a proxy for what was historically their fixed interest exposure.
“There is an expectation that over next five years, it will be harder to deliver the level of investment returns to investors that we have seen over the last decade. Therefore, this is a segment of the market where advisers and investors are going to, because the traditional split portfolio is not doing the job,” she explains.
The survey also found that there is a strong bias towards investing in the UK. Of the respondents, 40 per cent indicated that they would be looking at UK real assets and only 25 per cent looking at global.
“Now we are through the election and there is perhaps a bit more clarity, the UK is becoming more attractive again,” she adds.