He told the INREV annual conference in Barcelona last week that institutions are moving to a realisation that equities and fixed income are not only unreliable and unpredictable, they cannot provide the capital security and the returns institutions need to serve long-term client bases. While a few years ago, investing institutions' total assets were split 40% fixed income and 60% equities, they then moved to about 35%-50%, adding 15% in the 'alternatives' real estate, private equity and hedge funds. Now, the new normal coming over the next few years - 'post-realisation' - will be fixed income at 30%, equities including private equity at 35%, absolute return at 10%, and real assets at 25%. The latter will be very diverse, including real estate, infrastructure and property debt, but also assets not yet typical among investment classes such as shipping, timberland, farmland, commodities and Treasury Inflation-Protected Securities (TIPS).

"It’s time for a change," Azelby told the conference. "Institutional investors should carve out an increasing allocation to real assets." The main grounds are the need for diversification, the much increased potential for income and total return over the long run, lower volatility - including an almost complete lack of correlation with financial markets - inflation sensitivity, and exposure to emerging growth markets.

"Traditional allocations are unlikely to deliver what investors need," Azelby told the 420 delegates at the INREV meeting, "and that’s the beginning of what we call The Realization: "The realisation that a structural shift in portfolio allocations is required to meet investors’ objectives."

European investors are further along in The Realization than US institutions, but investments are at present often concentrated solely in real estate.

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