Real assets are tangible, physical assets whose value is derived from their actual use such as apartments, bridges, power plants, and farms. They play a role in our daily lives and serve as key inputs to the financial well-being and growth of communities and countries around the world.
DIVERSIFIED SOURCES OF RETURN AND INCOME
Real asset investments are designed to offer diversified sources of return and/or income and hedge against inflation. When selecting underlying investments, real asset fund managers are typically focused on:
1. Identifying opportunities for growth and/or consistent revenue/income;
2. Maximizing the potential of the investment, which may include working with operators and management teams to implement changes that can require significant capital expenditures; and
3. Prioritizing downside protection through targeting investments with attractive pricing relative to replacement cost and the prudent use of leverage.
PRIMARY INVESTMENT CATEGORIES
Real asset fund managers typically specialize in a specific type of asset. They include, but are not limited to:
Real estate is physical property such as land or buildings that is leased to tenants in order to generate regular cash flow. Examples include apartments, office spaces, warehouses, retail stores, and malls. Commercial real estate is the largest sub-category of real assets and consists of four main property types: multifamily/residential, office, industrial/warehouse, and retail.
Housing units: condominiums, apartment buildings, complexes
Corporate/ Office space: large buildings, high-rises, corporate campuses
Large buildings/structures: heavy manufacturing, light assembly, warehouses, research & development, or flex industrial (industrial + office)
Properties focused on the sale of goods and services: cafés, restaurants, banks, gyms, single or multi-tenanted (e.g., a shopping mall)
Infrastructure refers to the permanent facilities and installations needed for the functioning of a society or large- scale economic commerce. Examples of infrastructure include bridges, toll roads, airports, power plants, and cell towers as well as community structures such as hospitals, schools, and parks. We can broadly categorize infrastructure into economic and social infrastructure.
User pays directly for the services provided. Examples include energy, power, transportation, telecommunications, water, and waste services.
Governments pay directly for the services; users pay indirectly via taxes. Examples include schools, hospitals, prisons, parks, monuments, and public transportation.
Natural resources are materials from the earth that support our daily lives and needs. Examples of natural resources include oil and gas investments, farmland, woodland, metals, and minerals.
Oil & Gas:
Exploration & Production
Extraction & Production
Metals & Mining
REAL ESTATE AND INFRASTRUCTURE: STAGES OF DEVELOPMENT
When investing specifically in real estate or infrastructure funds, there are four types of investment strategies that a fund manager can deploy. These strategies are differentiated by the asset’s current stage of development and the level of work needed to get it to a position where it is generating consistent income or returns.
KEY RISK CONSIDERATIONS
Real assets span multiple sub-categories and asset types. Key risk considerations may include, but are not limited to, the following:
1. Source: Hamilton Lane. 1999 – Q3 2020.
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