TIME quizzed 200 financial advisers, wealth managers, discretionary fund managers, fund selectors and investment analysts on their expectations for the coming year.

The researchers found 76% of those surveyed expect to increase their allocation to real estate over the next 12 months, and 74% said the same thing about infrastructure.

In terms of the reasoning, a desire to de-risk portfolios through diversification was mentioned by two thirds of those questioned (67.5%), an increased focus on ESG by 60.5% and a desire for secure income streams was referred to by 44.5% of those taking part.

A somewhat bearish outlook on markets generally has also played a role in forming these plans.

The researchers found 70% of the professionals questioned predicted a challenging economic climate and investment environment this year, and said they do not expect conditions to improve for at least 12 months.

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Andrew Gill, manager of TIME:UK Infrastructure Income, said: “In the short term, we share the view of advisers that uncertainty and volatility is likely to persist.

“However, we are seeing values stabilise in most real estate and infrastructure sectors and the reduction in bond yields seen in late 2023 should support this further. Traditionally, reducing bond yields have been a catalyst for greater investor interest in real assets, making conditions more supportive for a return to growth.

“We have also seen a significant change in market conditions and expectations with UK inflation dropping materially,” Gill added. “This could lead to earlier rates cuts than previously expected with forecasters, such as Capital Economics, moving forward their expectations for central bank rate cuts.

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“With economic growth likely to remain subdued, sectors with robust and growing cash flows, such as real estate and infrastructure, are likely to outperform over the long term. Growing cash flows should also continue to fuel income and dividend increases in most real asset sectors.”

Two thirds (66%) of respondents said that reform of legislation, including the Solvency II directive, supports greater allocation to a wider range of secure-income assets. One third (33%) said the reforms will have no impact on allocation and 1% said that the changes would not be supportive.

The research showed nearly half (48%) of the insurers surveyed classify secure-income assets as alternatives; 44% describe them as real estate; and 8% categorise these as alternative credit.

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When investing in secure-income assets, 66% of respondents said they select AA-rated instruments; 49% choose A rated; 26% cited BBB grade; and 7% referred to BB. Nearly all (98%) European life insurers said they had been successful in integrating secure-income assets within a matching portfolio.

When asked about the impact of regulatory reforms on European life insurers’ investments in private markets, 88% said these would be supportive of allocations, while 12% said they will have no bearing.

The life-insurance companies surveyed typically focus their private-market allocation on Europe, the research found. Almost half (47%) invest Europe-wide with a home-country bias; 33% invest Europe-wide; 17% invest solely in their home country; and 3% have a global allocation.

Boris Mikhailov, head of client solutions at AlphaReal, said: “Since Solvency II came into force in 2016, insurers have been limited in their ability to hold long-term equity instruments.

“This is at odds with the European Union’s goal to drive investment in long-term, sustainable-investment projects and stifles life insurers’ ability to diversify across different asset classes including private markets, and secure long-term income funds that are well-suited to matching their liabilities.

“We welcome any reform that gives insurance companies the opportunity to invest strategically in these assets.”

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Ed Palmer, AlphaReal’s co-deputy chief executive and chief investment officer, added: “Insurance companies can provide the finance which is so critical in supporting growth in the real economy, by investing in sustainable infrastructure, real estate and other projects that will drive the green transition in Europe.

“It is clear from our research that life insurers acknowledge the importance of revising the qualifying criteria for secure long-income and private assets.”