A Comprehensive Guide to Investing in Real Assets
Real assets are physical assets that have value due to their substance and properties. This guide focuses on two major categories within alternative investments:
Land and buildings, including residential, commercial, and industrial properties.
Long-lived assets that provide essential services to the public, such as transportation networks, utilities, and communication systems.
Real estate investing involves the purchase, ownership, management, and sale of land and buildings. It's a diverse asset class with unique features.
Investors can gain exposure to real estate through various structures, which can be categorized as direct or indirect, and as equity or debt.
Outright ownership of a property. Offers full control but requires high capital and active management.
Best for: Experienced investors with significant capital
Owning shares in a company or fund that owns and manages properties, such as a Real Estate Investment Trust (REIT), mutual fund, or limited partnership.
Benefits: Liquidity and diversification
Ownership of the property (direct) or shares in a property-owning entity (indirect, e.g., Equity REITs).
Returns: Rental income and capital appreciation
Lending money secured by real estate, such as through mortgages or mortgage-backed securities (MBS).
Returns: Interest payments
Real estate returns come from two main sources and offer valuable portfolio benefits.
Real estate provides stable income, growth potential, diversification benefits, and acts as a natural inflation hedge - making it a valuable component of a well-balanced investment portfolio.
Rental income (stable, bond-like) + Capital appreciation (growth potential)
Low correlation with traditional stocks and bonds
Lease payments can be adjusted for inflation
Strategies in real estate are often categorized by their risk level, from safest to riskiest:
| Strategy | Risk Level | Description |
|---|---|---|
| Core | Low | Investing in high-quality, stable, fully-leased properties in prime locations for steady income. |
| Core-Plus | Low-Medium | Similar to core, but with minor enhancements or leasing improvements to boost returns. |
| Value-Add | Medium-High | Acquiring properties that need redevelopment, repositioning, or re-leasing to increase their value. |
| Opportunistic | High | Developing raw land or acquiring distressed properties. Involves the highest risk and highest potential return. |
Infrastructure assets are the backbone of a modern economy. While traditionally funded by governments, private investment through mechanisms like Public-Private Partnerships (PPPs) is increasingly common.
Infrastructure investments typically provide predictable, long-term cash flows backed by essential service demand.
Many infrastructure investments have built-in inflation adjustments or pricing power that helps preserve real returns.