Exclusive: Infrastructure, real estate and private debt allocation to rise in next 12 months

Nearly 70% of Asian asset owners are planning to increase exposure to infrastructure, while 41% will allocate more to real estate and 34% to private debt over the next 12 months, according to a snap poll by Bfinance, an independent investment consultancy.

The poll surveyed 418 asset owners, including pension funds and insurers, about how recent macroeconomics and geopolitical developments have affected their asset allocations.

Generally, the respondents (39%) said that the current geopolitical environment will affect their approach to environment, social and governance (ESG), according to the survey results that were released exclusively in Asia to AsianInvestor.

The asset owners indicated that the recent geopolitical developments have heightened ESG focus on emerging market country exposures, controversial weapons and fossil fuel firms.

“Even among those that indicated that the conflict would not affect their ESG approach, many said that it had illustrated the importance of having a robust approach. Indeed, we saw cases where ESG-oriented investors had significantly reduced or eliminated Russia exposure ahead of 2022, which benefited performance in Q1,” Kathryn Saklatvala, head of investment content at Bfinance, said in a statement.

In contrast, a larger proportion of Asian asset owners polled said that geopolitics would not affect their ESG approach. Of the 41 Asian investors (excluding Australia) surveyed, 26 said there would be no effect, while 15 said they will rethink their approach.

This could be explained by the lower exposures to Russian investments among Asian asset owners. Three-quarters of them said they had no exposure to Russian assets, compared with 48% of the global investors surveyed that had direct exposure to Russia.

Over the medium term of three to five years, 37 of the 41 Asian asset owners polled said they were concerned about the threat of inflation and rising rates on their ability to achieve investment objectives.

“Having been underweight duration for the last year or so, we expect to add duration back once the hiking cycles are well underway and duration risk becomes more attractive,” a Singapore-based insurer said in the Bfinance report.

“Rising rates will be good for us (in the long run), since the net effect of extremely low yields in the last few years has been very detrimental to our investment income returns,” another Singapore insurer was quoted as saying.

At the AsianInvestor Insurance Investment Breakfast Briefing in December, Hong Kong-based senior executives from AXA and Sun Life said that taking neutral durations helped buffer the impact of interest rate uncertainty.

Globally, the asset owners polled by Bfinance said they would increase allocation to illiquid strategies, particularly in real assets with 45% planning to boost exposure to infrastructure in the next 12 months compared with 31% that said they had increased allocation in the past 12 months.

A similar trend could be found among Asian asset owners. Nearly 70% of them plan to increase infrastructure exposure in the next 12 months, compared with 22% that have done so in the past 12 months.

Real estate was the next most popular asset class with 41% of Asian asset owners stating they would allocate more to real estate, compared with 39% of global asset owners.

Globally, 42% aimed to increase private debt allocation compared with 34% of the Asian investors polled. A survey published by Nuveen in March found that private credit is the fastest growing alternative asset class among institutional investors.

“To some extent, the asset allocation changes we are seeing here represent a continuation of some longer-term shifts, such as the shift in favour of illiquid strategies and real assets. Investors’ concerns about inflation and rising rates—which come through in these statistics—are giving greater impetus to these trends,” Saklatvala said.