The survey of global institutional investors who manage a collective US$1.9 trillion revealed a net increase in allocations to alternative investments1 in Q1 2013.

Almost a third of survey respondents anticipated an increase in their allocation to alternatives in 2013 with listed and unlisted real estate and infrastructure making up one of the fastest growing segments.

Key findings

• Almost 40 per cent plan to increase their investments in direct/unlisted investments in 2013, suggesting investors are seeing private, direct investments as a source of attractive returns.

• Thirty-six per cent of respondents in Asia anticipate increasing their direct/unlisted investments in the year ahead, while 46 per cent of those in Europe and 38 per cent in the Americas foresee such a change.

• Real assets already play a substantial role in investors’ existing asset allocation strategies with 30 per cent holding more than 10 per cent in real assets. Asked whether they were likely to increase their allocations to real assets, 72 per cent of respondents said they would be most likely to increase investment in real estate, 56 per cent in infrastructure, 28 per cent in infrastructure debt and 17 per cent in commodities (with 22 per cent citing other real assets).

• 46 per cent of European investors expect to allocate more funds to real assets in 2013, compared with only 18 per cent in Asia and 28 per cent in the Americas. • Almost 50 per cent of these European respondents expect to invest in more direct, unlisted investments, focusing on infrastructure and infrastructure debt, whereas in Asia, respondents showed the greatest interest in real estate, infrastructure and infrastructure debt. • 32 per cent of survey respondents said they were more likely to expand into new asset classes – including infrastructure, private equity, real estate and renewable energy – when asked what structural changes they expect to make in the year ahead. Twenty-seven per cent said they expect to limit risk in various ways and 24 per cent expect to increase their roster of managers.

• There’s no sign the ‘great rotation’ from bonds to equities has eventuated amongst institutional investors with seventy-nine per cent of institutional investors polled replying that they had no plans to move out of cash and fixed income this year. Global and domestic government bond holdings were increased by 29 per cent and 28 per cent of respondents respectively in Q1 2013. Portfolio rebalancing in Europe will not come at the expense of cash or fixed income allocations and only 9 per cent of institutional investors in Europe plan to move out of cash or fixed income compared with 23 per cent in the Americas and 27 per cent in Asia.

• Institutional investors in Asia increased their investment in domestic government bonds, listed bond funds, global government bonds, mezzanine debt and other debt instruments in Q1 2013. This growth in fixed income allocations in Asia is likely to continue in the second quarter, while interest in direct/unlisted investment among respondents in Asia is comparable with respondents in Europe and the Americas.

AMP Capital Chief Executive International and Head of Global Clients Anthony Fasso said: “The trend for large institutional investors globally to increase their allocations to alternative asset classes is set to continue.

“This suggests that investors are seeing private, direct investments as an attractive source of alternative returns with less volatility than long-term equity and bond investments, despite the often illiquid nature of direct investments such as private equity, infrastructure and direct real estate,” he said.

“A rotation out of bonds and into equities has not been widely adopted among global institutional investors. Rather we see them moving out of cash and into both bond and equity investments, and making shifts within their fixed income investments by moving away from sovereign bonds and into high yield corporate debt,” Mr Fasso said. For a full copy of the report visit www.ampcapital.com/iir.

1 Listed real estate, direct real estate, listed infrastructure, direct infrastructure, infrastructure debt, private equity, hedge funds, commodities and cash.

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