Market volatility, fueled by the COVID-19 pandemic, has created a situation of uncertainty for private real asset pricing (private direct real estate and private infrastructure). Public markets are searching for the right pricing level in light of the global pandemic’s impact on regional and global economies. New information, which appears to change daily in a material way, impacts current assessments. Private market transactions based on appraisal valuations may lag current information and market conditions. Considering this situation, we are recommending that real asset investment in open-end funds, and closed-end funds with pre-specified assets, be temporarily postponed until further notice.
We are not recommending suspending all investment activity. Blind pool funds (i.e. closed-end funds without pre-specified assets) offer the potential to have capital available when a new opportunity set presents itself. We will also be carefully watching opportunities in the secondary market that may become available and appear attractive due to market / price dislocation and other investor specific factors. However, these strategies need careful review in light of the changing market dynamics. Strategies that worked in a growth-oriented market may not be appropriate for an environment which may be better served by a more opportunistic style of investing. Regions, countries, and asset types all need to be re-evaluated.
Volatility can create opportunities. Public markets have been quick to react, and several investment opportunities appear attractive and/or viable today. Similarly, blind pool commingled funds that align with the readjusted long-term trends of a post-coronavirus world will be particularly compelling investment opportunities. Instead of looking for growth-driven opportunities, we seek opportunistic investments.
We are proactively evolving our strategy to seek such investments. For example, in the post coronavirus world, supply chains may move back to North America which will require corresponding real estate infrastructure. Demand for last mile logistics, already a key investment theme, will accelerate. Live and work preference changes will create opportunities. Interest rates are likely to remain lower for even longer, making real assets a compelling alternative to fixed income investments.
While on one hand investors need to be cautious, they also need to be proactive in identifying opportunities created by the dislocation in the markets. We will advise clients on such opportunities as they arise on a case by case basis.
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The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.