Real assets can help portfolio managers diversify, but there remain among leading pension investors, some debate about the exact diversifying characteristics these assets hold, according to a new white paper from Camradata.
This paper includes insights from a number of leading firms including AMP Capital, Waverton, Centrica, Redington and Law Debenture, who attended a virtual Camradata event at the end of last year.
The report says real assets remain a broad asset class that can help investors diversify in a number of areas. It says it is not always an easy question to answer how this asset class can diversify a wider investment portfolio.
Camradata says that for 2022 investors in real assets need to mull the defensive capabilities of this asset class against rising inflation. It adds that uncertainty remains as to how well this will be managed by governments and central banks.
Camradata points out that real assets can have other diversification advantages, particularly in relation to ESG issues and wider economic changes.
Camradata’s managing director of client relations Natasha Silva says: “A longer-term perspective on real assets is how they meet society’s needs as the rich world ages, decarbonisation takes hold and national security has to take into account not just armaments and energy but also food, water and weather.
“Our panel considered what infrastructure, buildings and commodities we need for the decades ahead, and how this may influence the decisions made by institutional investors today with regards to using real assets to diversify their portfolios.”
There was a view expressed by some investors on the panel that the appeal of real assets, related to returns, with it being increasingly difficult to get sufficient inflation-linked cashflows from public markets these days at a reasonable price.
Most panellists agreed that finding value in renewables was becoming increasingly challenging, with one adding that new pricing is tighter unless you are lending into the construction stage or more complex jurisdictions.
The event began by asking panellists how they define and categorise real assets. There followed a discussion around the various assets that investors have been recommending to clients such as renewables, infrastructure and real estate, and the opportunities brought about by the Covid. -19 pandemic in these areas.
The panel then focused on the issue of benchmarking and the parameters by which they judged long-term performance, and the challenges of finding value in certain assets such as renewables, before addressing the concern that investors are overpaying for many real assets.
Other talking points included how to measure real assets, geographical spread and issues with overseas investments such as governance.
