Many investments represent claims on underlying value. Real assets are the value itself: the buildings people work in, the roads and cell towers economies run on, and the farmland, timber, and energy that support global supply chains. Their worth comes from what they do and their supply-demand balance, not just market sentiment.
That difference helps explain why real assets often attract renewed attention when inflation rises, investors seek income, or markets become more volatile.
Key takeaways
- Value from use, not sentiment. Real assets earn their value through utility and scarcity, which is why they often behave differently from stocks and bonds.
- Three potential benefits in one category. Real assets can offer income, inflation protection, and diversification.
- Most relevant when conditions get tough. Their appeal tends to rise when inflation climbs or markets turn volatile.
How do real assets generate returns?
Real assets typically generate returns in three ways: income, appreciation, and inflation linkage.
Income. Rent from buildings, tolls and usage fees from infrastructure, and sales from crops, timber, or energy production. These cash flows are often set by long-term contracts, which can make them more predictable.
Appreciation. Values can rise as demand grows, as assets are improved, or as new supply becomes more expensive to build.
Inflation linkage. Many real asset contracts include built-in escalators, such as leases that reset or fees tied to inflation, so income can rise along with prices.
Decoded Insight: Inflation protection isn’t automatic. Real assets have historically performed best when underlying cash flows can adjust with rising prices, such as infrastructure assets with contractual escalators or natural-resource assets whose revenues move with commodity prices.
What are the main types of real assets?
The three main types of real assets are real estate, infrastructure, and natural resources. Each type earns its value differently, which is why they don’t always move together.
| Category | Description | What Drives Its Value |
| Real Estate | Residential, commercial, and industrial properties | Rental income, occupancy, and property values |
| Infrastructure | Roads, bridges, airports, pipelines, and cell towers | Long-term contracts and essential-service demand |
| Natural Resources | Farmland, timberland, energy, metals, and other commodities
| Global supply and demand |
What do real assets add to a portfolio?
Real assets can add three things to a portfolio: a different source of return, income with a different profile, and a hedge with conditions.
- A different source of return. Real asset returns are tied to physical demand, such as occupancy, usage, and commodity prices, rather than corporate earnings or interest rates alone. That’s why they have historically shown lower correlation to stocks and bonds.
- Income with a different profile. Cash flows often come from long-term contracts and leases, which can make them steadier than income tied to market conditions.
- A hedge with conditions. Real assets have historically helped portfolios in inflationary periods, but how well depends on each asset’s ability to pass rising costs through.
Decoded Insight: Illiquidity isn’t only a drawback. It’s part of what makes private real assets different from their public counterparts, and why investors often expect to be compensated for holding them.
What are the risks of real assets?
- Liquidity. Physical assets take time to buy and sell, so many private structures limit redemptions or require long holding periods.
- Valuation. Without a daily market price, real assets are typically valued through periodic appraisals, which can lag changes in market conditions.
- Interest rates. Rising rates can increase borrowing costs and put pressure on property and infrastructure values.
- Economic cycles. Lower correlation doesn’t mean no correlation. Occupancy, usage, and commodity prices can all weaken in a downturn.
Myth vs. Fact: Common questions about real assets
| Question | Answer |
| Are real assets only for institutional investors? | No. Individual investors generally have low allocations but can now access real assets through a growing range of structures, from publicly traded vehicles to private funds. |
| Are real assets just real estate? | No. Real estate is only one part. Infrastructure and natural resources earn their value differently and can behave very differently in the same market. |
| Are real assets too risky for conservative portfolios? | No. Core strategies offer stable cash flows with downside protection. |
| Are real assets always illiquid? | No. Liquidity varies by structure. Publicly traded vehicles trade daily, while many private structures offer periodic access, such as quarterly. |
The Bottom Line: What should investors know about real assets?
Real assets connect portfolios to the physical economy: the buildings, infrastructure, and resources that keep producing value regardless of how markets feel on a given day. They can offer income, a hedge against inflation, and returns that move differently from stocks and bonds, but each type earns its value differently, and those benefits come with tradeoffs in liquidity and valuation.
Understanding where that value comes from is the first step in evaluating whether real assets belong in a portfolio.
INDEX DEFINITIONS
OECD G7 Consumer Price Index (CPI): A measure of changes in consumer prices across the Group of Seven economies. In this analysis, the OECD G7 CPI inflation rate is used to group periods into low-, moderate-, and high-inflation environments.
MSCI ACWI Index: A global equity index designed to represent large- and mid-cap stocks across developed and emerging markets. In this analysis, the index represents the 60% equity component of the Global 60/40 portfolio.
Bloomberg Global Aggregate Bond Index: A broad measure of global investment-grade fixed-income markets. In this analysis, the index represents the 40% fixed-income component of the Global 60/40 portfolio.
NCREIF Farmland Property Index: A quarterly index measuring the investment performance of U.S. agricultural properties held by institutional investors. In this analysis, the index is used as a proxy for private agriculture.
NCREIF Timberland Property Index: A quarterly index measuring the investment performance of U.S. timberland properties held by institutional investors. In this analysis, the index is used as a proxy for private timberland.
EDHEC infra300 Index: An index designed to measure the performance of private infrastructure investments. In this analysis, the index is used as a proxy for private infrastructure prior to 2008.
Preqin Global Infrastructure Closed-End Fund Index: An index measuring the performance of closed-end private infrastructure funds. In this analysis, the index is used as a proxy for private infrastructure beginning in 2008.
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