Real assets may perform well in periods of higher inflation, and BlackRock has identified tools and strategies real assets investors should deploy in a higher inflationary environment.
Inflation sensitivity will vary across real estate and infrastructure sectors, and for equity and debt investors. Assets with shorter-term leases or take-or-pay contracts tend to capture the upside in inflation well, and long-term leases and contracts (i.e., power-purchase agreements) linked to inflation can provide some form of protection. Floating-rate debt can be beneficial to debt investors, whereas fixed-rate and longer-term debt benefits equity investors.
The risk of accelerated expense growth is primarily mitigated through (1) contractual adjustments in leases or contracts, (2) expense pass-throughs, (3) higher replacement costs, and (4) beneficial leverage.
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