Globally, investors are increasing their allocation to direct real estate, up from 6% in mid-2013 to 9%
Stock markets around the world enjoyed a banner year in 2013, and as a result, equities drove better-than-expected returns for institutional investors, thanks largely to the bull market in equities and investors’ healthy, often nimble allocations to this asset class.
On average, the portfolio of respondents to the AMP Capital Institutional Investor Report1 returned 13.0% pa.
While two-thirds of investors exceeded their expectations in 2013, their outlook for 2014 is less rosy, with an average expected return of 7.3% pa. Factors such as the unwinding of quantitative easing (QE), China; Ukraine; and European deflation are on investors’ minds and subduing expectations.
In pursuit of returns, investors are most likely to increase allocations to private equity, direct real estate, global equities, and direct infrastructure. Investors’ plans to increase allocations to illiquid assets may strain the limits of their governance policies. Asset allocation data in this survey suggest that many firms are already close to this limit.
Direct real estate
The rise in demand for alternative assets continues the trend of the past year - up to 25% of the overall portfolio which is getting close to the governance limits of many funds.
In the latest survey (highlighted in the table below), the largest increase has been for private equity, a response to the strong performance of PE in 2013. Real estate is also rising as yield is important in a low growth environment and bond investors reallocate some capital towards the sector.
Alternative Asset class allocations
Source: AMP Capital Institutional Investor Report - issue 3 May 2014
Globally, investors allocated 9% of their portfolios to direct real estate in the latest survey, up from 6% in the previous survey in mid-2013.
European investors are most keen on increasing real estate exposures, with 59% of respondents wanting to increase allocations compared with 28% in the Asia Pacific and 22% in the Americas. This is observed in the weight of capital seeking real estate investments in Europe at the moment and the number of European investors looking at Australian real estate investments.
1 : AMP Capital Institutional Investor Report - issue 3 May 2014
Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs.