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Real assets perform well in higher inflation periods
Research - OCTOBER 5, 2021

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Real assets perform well in higher inflation periods

by Andrea Zander

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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