The world is changing at an unprecedented rate and megatrends such climate change, transition to net zero, digitalisation, aging demographics and urbanisation continue to provide a thematic investment framework that helps investors allocate to longer-term investment strategies. These strategies typically also include real assets such as infrastructure, real estate and natural capital, the latter of which is covered by the farmland & cropland and timberland & forestry funds in the Phenix Capital Impact Fund database.
Tariffs and geopolitics have created a shroud of uncertainty globally, but there are higher valuations for real assets as interest rates stabilise and inflation continues to be on the high side. In a stagflationary environment many real asset investments, particularly in real estate and infrastructure (covered in the February edition that focused on AI Infrastructure), can offer inflation and downside protection.
In a recent study by Aviva Investors, 64% of institutional investors continue to cite diversification as a primary reason for allocating to real assets, with 60% seeing it as a key driver of their investments over the next two years. The tumultuous markets have reinforced the value of real assets as a source of uncorrelated returns.
The same survey suggested that almost 70% corporate defined contribution pension funds expect to increase allocations to real assets over the next two years, up from 51% a year earlier. In addition to diversification, real assets can provide stable and regular cash-flows that match the long term liabilities of pension funds. There is diversification within sub sectors too.
Take infrastructure, which makes up 48% of the real asset funds, This includes transportation, social infrastructure such as public services and utilities that underpin everyday life, but now also include digital infrastructure and the move towards sustainable and renewable energy.
Real estate is the next biggest real asset sub sector in the database making up 25% of the funds. Given it is estimated that the real estate sector accounts for 40% of greenhouse gas (GHG) emissions globally, we will cover the greening of real estate in the Deep Dive.
Phenix Capital’s Impact Database provides investors with access to and intelligence on the impact fund market opportunities available to them. Three main variables used to construct, monitor and update the dataset: funds considered have an impact proposition; institutional scale; and target market-rate returns. Impact Database now includes detailed overview of more than 2,500+ impact funds.
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