Real assets, also known as hard assets, are to Yale’s and Harvard’s endowment investing model what logs are to cabins. Real assets — the umbrella term for real estate, commodities, energy, infrastructure, natural resources and master limited partnerships — are a crucial component of the endowment model of investing because of their response to economic cycles and their fundamental merits. They are not just for institutional investors; they belong in the portfolios of individual investors as well.

These tangible assets provide portfolio diversification and capital appreciation potential in addition to cash flow from interest payments or shareholder distributions. They also hedge against inflation and offer opportunities to find undervalued assets. Including a diversified mix of real assets can improve returns and reduce volatility compared with a traditional mix of only stocks and bonds.

Yale’s and Harvard’s endowments allocate about a quarter of their portf