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IPF/AREF Joint Event: Real Assets - One Step Beyond

AREF hosted
Tuesday 3 October 2017

Read below a round-up of the event:

Paul Richards, Head of European Real Estate, Mercer LLC
Paul gave the audience a valuable insight into how investors are thinking and what he sees as key issues and secular trends for real assets. He said clients’ key concerns were focussed on dealing with a low interest rate environment, seeking capital growth and social impact considerations.
Investors are looking for solutions, with an emphasis on cashflow over liquidity. They are looking at both ends of the risk spectrum too. They have appetite for diversified secure income, long lease and real estate debt, for example but also higher-risk approaches such as private equity. Increasingly, clients are incorporating social impact in their investment thinking.
Paul went on to discuss what he believes are just some of the issues and potential secular trends that are either developing now or will develop in the future that will have a material impact on real assets. Matters such as demographics, urbanisation in emerging markets and the emerging middle classes, low bank lending, student housing, de-industrialisation, changing working habits, internet shopping, driverless cars and the global infrastructure gap.

Bill Hughes, Head of Real Assets, Legal & General Investment Management
Bill reminded the audience that real asset investing (he defines real assets as real estate and infrastructure, both social and economic) is relatively new and came about following the global financial crisis. In his view, specialisation is less good and with real asset investing, a more holistic approach is required and sought after, getting away from the cyclical nature of traditional real estate.
In Bill’s view, the real estate market must realise that the long-term institutional lease is doomed. Occupier trends are changing and landlords need to listen more to their needs and adapt accordingly. He also believes the connection between where the investment capital ultimately comes from and where it is then invested is substantially understated and the fund management community would do well to consider that.

Fraser Hughes, CEO, Global Listed Infrastructure Organisation
In its very broadest definition, the global universe of core infrastructure and infrastructure related companies combined is more than US$5 trillion. Fraser provided some useful data on the US$2 trn global listed core infrastructure market, as defined by the GLIO Coverage. A report from McKinsey suggests the G20 economies alone require a further US$49 trillion investment by 2030. Investment surveys (by PreQIN) show a keen interest in infrastructure amongst institutional investors in the short (net 26% increase in investor demand) and longer term (net 42% increase in investor demand).
He also explained how global listed core infrastructure tracks private infrastructure over time and can act as a proxy. Global listed core infrastructure has performed extremely well over a number of investment horizons, particularly the long term (15 years), relative to equities and bonds.

There were a number of interesting discussion points raised during question time with the audience. Such topics included: how investor portfolios have been over-allocated to liquidity and there was clearly scope for switching, with pension fund liability matching clearly lending itself to having less emphasis on liquidity; if fund managers and investors are not willing to bid on assets on valuation grounds, they should consider creating them; how listed infrastructure was around fifteen years behind listed real estate.

This event was kindly hosted by:  Travers Smith LLP, 2-3 Hosier Lane, EC1A 9LX






Travers Smith LLP
2-3 Hosier Lane
London EC1A 9LX