About 69% of defined contribution schemes plan to increase investments in real assets over the next two years, up from 51% in 2022, a global study has found. Just 6% expect to reduce their illiquid assets in that period, down from 29% of respondents in 2022. 

 

The sixth ‘Real Assets Study’ research paper by Aviva Investors shows DC schemes around the world are now much more likely to invest in real assets. Aviva partly attributes this to regulators, governments and investors addressing structural and operational issues. 

 

About half (52%) of corporate DC schemes said they prefer direct investment to access real assets, with 41% saying their preferred route is multi-asset pooled funds and a similar proportion (42%) also citing single asset pooled funds. Investors could choose up to three answers.  

 

Among corporate DB schemes, there was a slight preference for multi-asset pooled funds, while public sector schemes had a clear preference for direct investment.  

  

“DC pension funds represent an increasingly large portion of the pension market, yet this important group of investors have not been able to access – or allocate to – real assets as they would like, or to the extent that optimises investment outcomes,” said Daniel McHugh, chief investment officer at Aviva Investors.  

 

"The emergence of Long Term Asset Funds has lowered these barriers, giving better access to a more diverse range of investment opportunities and this has driven demand sharply upwards,” he added. 

 

Just over half (53%) of global DC pension funds currently only offer access to real assets via allocations within default funds, but 45% expect members will be able to self-select their exposure to real asset funds in future.  

 

As reasons for investing, DC schemes cited capital growth (50%) and diversification (49%), as well as capital preservation (47%), according to Aviva Investors. 

 

There are marked differences between institutions in Europe and the US. Overall, investors in Europe are largely unchanged in their view of whether they will increase or decrease real assets, with 63% planning an increase – up from 61% in 2022 – and 12% expecting to cut exposure, down from 14%. North American investors, on the other hand, are less enthused by the asset class in 2023 than they were in 2022. The survey found that 13% now plan to decrease, up from 6% in 2022, while 60% expect to increase exposure, down from 70%. A lack of opportunities and valuations were cited as the reasons for this. 

 

  

The survey also looked at how investors consider sustainability and environmental, social and governance factors within real assets. It found that when appointing a manager for a sustainable real assets, European institutions consider the ability to evidence risk and/or impact the most important factor, followed by investment performance and the quality of the ESG/sustainability integration process.  

 

Past performance was by far the most important aspect for North American investors, with much less attention paid to the integration process. Asia Pacific investors gave equal weight to evidencing risk and past performance. 

 

The study covered 500 institutional investors in 2023, including corporate DB (15%), DC (20%) and public sector (15%) pension funds, insurers (28%) and financial institutions (22%) from Europe, Asia Pacific and North America, with a combined $3.8tn (£3tn) of assets under management. 

 

How much should a DC default fund have in real assets in your view?