Real Assets Adviser

September 1, 2017: Vol. 4, Number 9

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From the Current Issue

Private Equity Investing for Bigger Return: Seeking market-beating returns in a yield-starved environment

The past 10 years have presented investors with highly unusual economic and financial conditions. In the wake of the 2007 global financial crisis and subsequent Great Recession, major economies settled into a pattern of sluggish growth, stagnant wages and rock-bottom interest rates. This combination did not offer investors a wide range of options to generate returns. Ultra-low interest rates pulled down the risk-free rate of return and, in search of yield, capital flooded into various assets, including equities, high-yield bonds and others. This capital superabundance pushed up asset prices and drove down yields. At the same time, sluggish economic and wage growth meant there were few potential sources of organic market growth.

Homo Deus: There is one real asset class that continues declining in value

I used to work for the former president of Dow Jones & Co. and cannot tell you the number of times he would say, “The company’s most valuable assets go down the elevator shafts at the end of every day.” The newspaper business was one of several industries that were considered members of the so-called Knowledge Economy — lines of business that were all about human brain power rather not physical assets. People were the assets that mattered, and physical possessions were only as consequential as the people who use those assets.

What’s Hot and Not in Real Estate

Real estate has had a very good run during the past several years. In fact, values in most major markets are now at or above pre-crisis peaks. This comeback should give investors a warm fuzzy feeling — real estate took the worst the universe could throw at it and bounced back stronger than ever. Instead, investors and industry pundits are nervous and forecasting that it is only a matter of time, maybe a very short time, before real estate falls again.

Restoring Past Greatness: Newark, N.J., has $1b in projects and another $4b in the pipeline

Urban redevelopment is a familiar story in metros across the country. In the New York City metropolitan area alone, submarkets in parts of Brooklyn, the Bronx, Jersey City and Hoboken (just to name a few) are many years into facelifts that encompass thousands of new apartment units mixed with office, retail and entertainment uses that create a live-work-play environment.

The Small Country Effect: What research says about whether small-country stocks generate bigger returns

Are foreign stocks finally emerging into the sunlight from hibernation? From January 2010 to December 2016, overseas stocks (as measured by the MSCI World ex USA Index) returned just 3.64 percent annualized, compared to 12.83 percent for the S&P 500 Index. The cumulative return for U.S. stocks during those seven fat years was 133 percent, more than 100 percentage points ahead of the meager reward investors earned for their patience with foreign stocks. But in 2017, year-to-date to July 31, 2017, international equities returned 17.1 percent versus 12.1 percent for the S&P 500 Index.

How to Invest in Senior Housing

Demographics are destiny. The longevity revolution. The silver tsunami. Baby boomers aging. They are popular phrases and ones that continue to influence broad-based investor interest in the senior housing asset class. The reality is, however, that baby boomers (i.e., those born between 1946 and 1964, ages 53 to 71) are not today’s senior housing residents. Today’s residents are an earlier generation and part of either the Greatest Generation, born between 1901 and 1924 and currently 92 years or older, or of the Silent Generation, born between 1925 and 1945 and currently between the ages of 72 and 92. The move-in age to a senior housing property (either assisted living or independent living) is often older than 84. Baby boomers in general have another decade or longer before they become residents.

REIT Preferred Shares: They are worth a serious look for family offices, wealth managers and high-net-worth individuals

Investors can generate 8 percent to 10 percent returns from a diversified and conservatively leveraged portfolio of REIT Preferred Stocks (REIT Prefs) with lower volatility and far greater security than a portfolio of REIT common shares. In contrast to the over $1 trillion market for REIT common stocks, the less than $30 billion market for fixed or fixed-to-floating (not convertible) REIT Prefs is a niche market especially well suited to family offices, wealth managers and high-net-worth individuals seeking solid current income and preservation of capital.

Roundtable: The rise of impact investing

Global philanthropic funds, even when combined with the development or aid budgets of governments, add up into the mere billions of dollars. Meanwhile, the cost of solving the world’s most critical problems runs into the trillions, according to the Rockefeller Foundation, including an estimated $2.5 trillion annual funding gap needed to achieve the sustainable development goals in developing countries alone. Private capital is urgently needed in order to fill this gap and address pressing global challenges.

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