Pension funds and insurers in the UK and Europe are planning to increase their allocation to alternative assets by up to 50%, according to a survey from Aviva Investors.
UK pension funds, which have allocated 4.3% of their assets to alternatives, have a target allocation more than two percentage points higher at 6.5%.
Europeans are even more enthusiastic about alternatives, with insurers from the Continent expecting to increase their allocation to these sectors to 9.2%.
Part of the reason investors gravitate toward alternative assets is the EU’s Solvency II regulation, which include reduced capital charges to certain assets such as real estate finance.
However, respondents showed a wide range of opinions regarding how much more attractive alternatives are under Solvency II. More than 60% of French and German investors agreed that the regulations made alternatives more attractive, compared with just 19% in the UK and 15% in the Netherlands.
Mark Versey, chief investment officer of Aviva Investors Real Assets, said: “The appeal of the alternative income sector has grown significantly among European pension schemes and insurers over the past decade. Institutional investors have been lured by the illiquidity premium provided by private assets, as well as other benefits such as diversification and downside protection.
“As the era of quantitative easing finally winds down and interest rates rise, the survey highlights that investors are venturing into new sectors and geographies. This has also been borne out in our conversations with clients.”
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