CAMRADATA’s latest whitepaper, ‘Listed Real Assets & Infrastructure’, explores the growing interest in this asset class following quantitative easing (QE) programmes that have been established by governments around the world in response to Covid-19, and asks if the sector can accommodate an increase in demand.
The whitepaper includes insight from guests who attended a virtual roundtable hosted by CAMRADATA in November, including representatives from Kempen Capital Management, Maple-Brown Abbott, Waverton Investment Management, First Actuarial, Foresters Friendly Society, Law Debenture and Redington.
The report highlights that listed real assets are now giving smaller investors access to the same sources of long-term income and inflation protection as real assets and considers if enough infrastructure development is being deployed by governments globally to meet growing demand.
Sean Thompson, Managing Director, CAMRADATA said, “The attraction of real assets is that they are tangible, ‘real’ things, such as bridges, power stations and ports and can increase portfolio diversification, create income, and lessen volatility.
“A key aim of real assets and infrastructure investing is also to gain protection from future inflation that has been embedded in economies by governments’ quantitative easing programmes. It therefore stands to reason investors could be drawn to this during the pandemic.
“The emergence of listed real assets is fuelling interest amongst smaller investors and retail investors, as traditionally investment in these assets required hefty sums of money to fund big tangible investments, something that was only open to large institutions.
“Now smaller investors can access the same sources of long-term income and inflation protection these assets can offer. Our roundtable panel explored the future for this type of investing and how Covid-19 will impact real assets.”
The whitepaper includes insights and discussions about how institutional asset owners in the UK are accessing real assets in general, as well as the crossover between the MSCI ACWI Global equity index and the FTSE Global Infrastructure Index.
It also covers stranded assets and the risk of obsoletion, what the allocation to real assets will be in the future, as well as concerns about overvaluations especially during the Covid-19 pandemic and how diversifying globally could help investors find greater yields.
Key takeaway points were:
- Over the next five to ten years, one panellist expected greater investing in infra equity funds due to the illiquidity premium still on offer and the ability to tackle social & environmental issues
- There is a sensible approach to property types such as Long Lease that behaves more like liabilities. But even Long Lease has problems of liquidity and being marked-to-market – then surprises like COVID come along that are highly pertinent to retail and office right now.
- Considering the crossover between the MSCI ACWI Global equity index and the FTSE Global Infrastructure Index, the panel found that the crossover is about 4%, with correlation of 0.6- 7%.
- While listed equities and bonds expose the investor to the vagaries of public markets, Private Market investments maintain a particular appeal in terms of valuation smoothing, which reduces superficial volatility for the key accounting and regulatory metrics
- During the COVID Crisis, public markets experienced drawdowns in excess of 30% in a matter of days said one panellist who highlighted that at the end of March, start of April the liquid infra managers’ strategies were down as much.
- Asset valuations have recovered since, but they would have contributed to the deterioration of an insurer’s solvency at a critical time of distress. The major concern is the behaviour of an asset class in tail of distribution of events.
- The discussion ended with one panellist pointing out that on the practicalities of manager research under COVID they had been pleasantly surprised by the amount of information managers have been willing to share digitally and concluded, if there is one silver lining to this cloud, it has been the greater transparency of managers.