Real Assets Adviser

May 1, 2016; Vol. 3, Number 5

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From the Current Issue

The Globalization of Real Assets: The rise of listed securities funds means nearly any investor can now invest globally

Grab your passports — real assets are going global. Or, to be more precise, have gone global, and investors are jumping on for the ride.

Not long ago, investing in international markets was reserved only for those with a very high tolerance for risk. Private investors rarely considered the benefits of overseas investments, tending to be put off by the risks. It was even more rare for those investments to be put in a retirement portfolio, because those portfolios, by definition, were safe harbors. In addition, overseas investing was just too hard. How was the private investor expected to access opportunities in China, India or Germany?

When Alts Come to a Halt: The obstacles RIAs face when trying to use alternatives, and how new products and services are clearing a path

At one point or another, almost all the Small Balance Real Estate (SBRE) entrepreneurs I meet, coach, advise or invest in ask me what I think about raising capital from financial planners, wealth managers or RIAs. They would seem to be a logical, viable and gargantuan source of potential capital for any SBRE entrepreneur running a 506 Regulation D pooled investment fund, or even just doing syndications or one-off real estate deals. There are literally thousands and thousands of these RIAs across the United States with varying numbers of high-net-worth clients and total books of between say $50 million (which would be a rather small RIA) to upwards of billions of dollars.

The Future of Energy: Six insights about where we are heading

1. The U.S. shale oil boom and Iranian nuclear agreement combine to intensify today’s oil downturn.Each oil downturn over the past 30 years has been different. The most dramatic difference now is the extraordinary growth in U.S. shale oil — an almost doubling between 2008 and April 2015. That surge has put the United States back at the forefront of world oil producers and, to some degree, turned the country into an inadvertent swing producer. 

Getting Real About Assets: Investors are starting to think beyond two-dimensional stock and bond portfolios

Over the past five years, investment in real asset strategies has increased by 325 percent, with 80 percent of institutions targeting up to 15 percent of their portfolios, and two-thirds still feeling they are underinvested. One of the main reasons for the increase in allocations to real assets is that investors are looking to manage risk in a new way with new tools. Today, investors are experiencing high correlation across assets as in the recessions of 2001–2003 and 2007–2009, so they are moving from traditional asset class allocations defined by security-type to risk-type based allocations. For example, rather than defining asset classes by traditional definitions like stocks, bonds and real estate, investors are considering asset classes by risk-type similarities that tend to provide inflation protection and diversification. Popular risk-based allocation models often include growth, income, liquidity and real assets as categories for portfolio construction.

Investments and Pensions: Private investments might be an important path to higher returns, especially in today

The vast majority of U.S. defined benefit pension plans — as many as 70 percent — have participants who are still accruing benefits or are open to new employees, according to data from the Pension Guarantee Corp. Many of these plans will need to generate strong returns for years to come in order to remain appropriately funded and pay out future obligations, and many pensions are challenged with funding gaps already.

Feeding Ourselves Thirsty: Agricultural demands are stressing water supplies to the max

Water risks pose a growing threat to the food sector, and they are causing real financial damage for companies. Glencore Plc and Bunge Ltd., for example, have seen their oilseed profits shrink due to a prolonged drought in Canada that is reducing yields. Dairy farmers in California are struggling with increasing feed costs due in part to the severe mega-drought in the state that began in 2012. And just last year, Cargill reported a 12 percent drop in 2014 fourth-quarter profits as a four-year drought in the U.S. Southwest withered pastures used to raise beef.

Mega-Funds: Huge capital campaigns continue to dominate the infrastructure field

Infrastructure mega-funds — those funds raising $2 billion or more — have been responsible for about two-thirds of the capital raised by funds closing since 2013. In the past three years, 95 funds have closed with an aggregate total of $163 billion raised. Of that total, 29 mega-funds, or 31 percent of the total number of closed funds, have raised $110 billion, or 67 percent of the capital.

India on the Move: Eight advantages India has over China

Things change fast these days, even on a global scale. Information and technology transfer moves at Mach 5 in the 21st century. So when people talk of the China Century, it sounds like an acoustic from the past. Thirty years ago we talked about Japan becoming the world’s economic dynasty. Yet, Japan has been fizzling for decades, its economy in a state of suspended animation.

Going Optimal: Pablo Sanchez, head of retail banking and wealth management at HSBC, believes the magic happens when the client places the call

Pablo Sanchez had grown accustomed to the calls from headhunters. As the national director of consumer banking at JPMorgan Chase, Sanchez was prized quarry. For executive search firms, going after Pablo Sanchez was the equivalent of big game hunting.

Good luck with that. Sanchez was already comfortably entrenched at one of the industry’s biggest and most storied names, so he had become skilled at mostly ignoring the headhunters’ entreaties, sometimes listening just long enough to find out whether the position might be suitable for a friend or colleague.

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