U.S. institutions are increasing their investments in real assets such as real estate, infrastructure, farmland, timber and precious metals.
A study from Greenwich Associates and Cohen & Steers finds that real assets are playing an increasingly important role in institutional investment strategies as investors look to diversify their portfolios and secure new sources of hard-to-achieve returns.
A majority of institutions active in real assets have set target allocations in the neighborhood of 10% of total portfolio assets. “More than half the institutions participating in the study are underinvested relative to their targets, but catching up to allocation targets only tells part of the story,” says Greenwich Associates consultant Andrew McCollum.
The data also suggest that about one in five institutions will increase target allocations from current levels as part of changes in investment strategy. A similar number also plan to begin using new categories of real assets for the first time.
When it comes to investing in real assets, institutions value the expertise of their asset managers to an extent rarely seen in other asset classes. The premium on expertise reflects both institutions’ unfamiliarity with real assets and the inherent complexity associated with these investments.
“The experiences of institutions with significant investments in real assets strongly suggest that institutional investors will be more satisfied with their results if they invest with managers with high levels of demonstrated expertise,” says McCollum. “In many cases, these will be specialist managers with long track records in specific real-asset categories.”