Asset Allocation and TAA

Institutional investors, real assets and inflation protection

Institutional investors, real assets and inflation protection

"Reflation" is one of the buzzwords of 2017. This was underscored last week, with the announcement that BlackRock has raised £500m for a UK inflation-linked real assets fund.

In anticipation of an inflationary environment, institutional investors naturally look to real assets to provide inflation-protection. With bond markets selling off sharply in the last few weeks, speculation mounts that a rotation into equities and real assets may be underway.

The term "real assets", refers to asset classes with two characteristics: a) physical substance (e.g. real estate, infrastructure projects, commodities, farmland, timberland) and/or b) an expectation to deliver a "real" return with a measure of inflation-protection (e.g. inflation-linked bonds).

Below, the Savvy research team has selected eighteen of the best, recent papers covering these areas.

Savvy Investor

The Benefits of Real Assets Diversification in DC Plans (Cohen & Steers, 2017)
Stocks and bonds could be facing the prospect of subdued returns. This paper explores how liquid real assets— real estate securities, commodities, natural resource equities and listed infrastructure— offer attractive options to diversify.

Some Like It Hot: Fiscal Policy, Inflation and Real Assets (QMA, March 2017)
In this paper QMA delivers insights into the historic returns during differing periods of inflation and makes the case for an allocation to real assets.

Understanding and measuring the illiquidity risk premium (Willis Towers Watson)
In this 10-page document the authors discuss three different dimensions of illiquidity risk premium that investors should demand for a given asset.

Real assets can mean real income (Aberdeen AM, 2017)
While fixed income and dividend-paying equities might be the first investments that come to mind when thinking about how to generate income in your portfolio, real assets are another asset class that shouldn’t be overlooked.

Superannuation Funds: The Investment Case for Real Assets (Frontier Advisors)
This paper by Frontier Advisors considers the merits of unlisted infrastructure and property, and how superannuation funds might construct their portfolios to include this asset class.

Eight reasons why we're bullish on real assets (Wellington, Jan 2017)
This paper explores the potential for a rebound in real assets in 2017, as we shift from a deflationary to a reflationary regime and as micro drivers — including rebalancing supply and demand — turn positive.

The Case for Global Listed Infrastructure (Cohen & Steers, 2017)
This paper by Cohen & Steers examines the historical investment characteristics of Real Assets and the secular themes driving significant capital formation in infrastructure globally.

Realizing the Promise of Listed Infrastructure Investments (STOXX, 2017)
Most investors cannot afford unlisted infrastructure investments. The challenge is choosing infrastructure companies that capture the beneficial characteristics of unlisted infrastructure investments in a diversified portfolio.

History of Institutional Farmland Investment (Global AgInvesting, 2017)
To understand the environment of today and potential trends of institutional farmland investing, CFA, partnered with HighQuest Partners to ask the “pioneers” of institutional farmland investing to share the lessons they’ve learned.

Timberland Investor Sentiment Survey: A prosperous outlook (KPMG, 2016)
Timberlands investment has been an attractive alternative over the past several years, with investors acting as net buyers of assets despite ongoing volatility. This KPMG paper delivers insight into timberland investor sentiment.

Reflation Catalysts: Unlocking Value in Real Assets (Cohen & Steers, 2017)
This 11-page paper by Cohen & Steers argues that the market environment is turning strongly in favor of real assets.

Assessing the Private Infrastructure Opportunity (Cambridge Associates, 2017)
This paper by Cambridge Associates considers the shortfall in infrastructure spending, reviews the opportunity set, discusses performance trends, and highlights a few considerations for investors evaluating the opportunity.

Infrastructure for Institutional Investors: A maturing asset class (Scope, 2017)
This research summarizes general economic characteristics of infrastructure investments, sheds light on according risks and benefits and shows routes on how to obtain exposure to this asset class from an institutional perspective.

Alternative Methods of Investing in Infrastructure (Preqin, May 2017)
This brief report by Preqin examines some alternative methods of investing in infrastructure assets.

From boom to bust: A typology of real commodity prices in the long run
The paper documents and aims to completely classify real commodities prices, including trends over the long-run, as well as cycles in the medium-run, showing short-run patterns of booms and troughs.

Commercial real estate and farmland are compatible diversifiers (TIAA, Sep 2016)
Commercial property and farmland in the U.S. are real assets that can diversify stock-bond portfolios. Property predominantly stimulated by domestic forces while farmland is driven by global markets, largely denominated in dollars.

International Property Handbook: 2017 trends and a look back at 2016 (Deloitte)
This paper provides a view of investment trends and key deals in international real estates in the most active markets in 2016, and looks to provide insights on potential trends in 2017.

Midstream Energy and MLPs Benefiting from Shale Disruption (Cohen & Steers)
The efforts by OPEC and allies to stabilize oil prices and the falling cost of shale production strengthens our conviction in the long-term case for North America’s midstream energy companies.

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