The 2015 PPI Summer Roundtable, held in San Francisco, California, focused on the role of real assets in the modern institutional investor portfolio. Over two days, the topic generated discussion and exploration on the theme, one that has been growing in importance for many of PPI’s members. While some institutional investors have had significant real asset holdings since the 1980s, it has only been the past fifteen years that investors have seen significant expansion beyond real estate. The search for yield in a low interest rate environment, along with the long life and low correlation with other assets all have made it an attractive destination. While many investors at the Summer Roundtable have invested in real assets, the roundtable highlighted the diversity of approaches to this set of investments; from the type of investor, to the governance structure, fund size, available resources and access, PPI’s members varied widely in their chosen method of investing.
The roundtable included conversations on a wide range of investments in real assets, from broad categories such as real estate and infrastructure to more niche investments such as aircraft leasing and water-related opportunities. The breadth of topics discussed is indicative of the wide range of risk/return characteristics across the group, making real assets as a “class” of assets difficult to define. Despite the ambiguity in defining real assets, the strategic role that they can play was noted by many participants; portfolio diversification, inflation hedging, income yield and return enhancement were all mentioned repeatedly.
In addition to gaining an understanding of the role that real assets are playing, conversations at the roundtable often touched on the various strategies that investors are using to implement and exit a real asset investment. Above all, attaining the right fiduciary culture was inherently important to implement such strategy. One participant mentioned that real assets should be “...looked at as more of a business than an investment...”, underlying the need for deep expertise (or access to it) and local knowledge of the asset. This necessity for expertise along with the breadth of investments within real assets, has made benchmarking particularly difficult.
While participants noted a host of challenges and risks associated with real asset investments, long-term drivers support their continued growth as a portfolio mainstay. As investors continue to search for yield, bolstering their holdings in real assets will likely remain the trend.
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