What Do You Want from your Real Assets?

All real assets are not created equal and investors have to be sure of what they need before committing.

(January 23, 2014) — Inflation protection, dampening volatility or just a long-term income stream—investors should be clear on what they need from their real assets, consulting firm Hewitt EnnisKnupp has suggested.

Across the gamut of assets that can be built, grown, seen, and touched, each investment will provide investors with differing characteristics to add into the their portfolio, the firm said in a research note—and illustrated these in a handy graphic (below).

“Each client must determine what objectives are most important and build the portfolio with this hierarchy in mind. Some objectives cannot be achieved simultaneously,” the note said. “For example, if one wanted to achieve short-term inflation protection while maximizing long-term return potential, one of these objectives would have to be sacrificed to achieve the other.”

Hewitt EnnisKnupp said investors had to consult their portfolio objectives and determine which factors were the most important to address. “The diversity found within the real asset universe is wonderful for achieving different objectives,” the note said. “With this diversity, however, comes the fact that ‘one size does not fit all’.”

The firm also added that allocations from most investors, which are usually between 5% and 10%, could be significantly increased: “Given the diversity of the real asset universe, allocations of upwards of 25% would not be unreasonable.”

The ease of doing this has increased, the firm said, with public markets now offering investors a way to access real assets rather than solely private markets offering them for sale.

“Real estate investment trusts can provide investors exposure to a broad range of real estate assets. Master limited partnerships provide exposure to infrastructure assets—typically mid-stream energy projects. Timber and agriculture are two sectors where access is limited to private investment structures, though there are open-ended structures that enable some degree of liquidity and lower investment minimums.”

HEK

 

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