The first of these changes, Hudson says is the scaled back involvement of banks, both commercial and investment, in the real estate, infrastructure and commodities markets. This waning presence, the result of much greater regulatory scrutiny on the dealings of financial services firms in the wake of the global financial crisis means that other active investors now have more space to place.
“The increased supply of some real assets to secondary markets as the banks have divested portfolios has encouraged some longer-term investors to invest in assets that more closely match their time horizons,” Hudson explains. And, she adds, it is likely to take some time for liquid secondary markets for many of these assets to develop.
The second major change highlighted by Hudson is the volte face taking place in politicians’ views toward securitisation.
Having roundly condemned the role securitisation played in the financial crisis, Hudson says there has been a marked change in attitude, because of the need for funding within the real economy, particularly in relation to the completion of infrastructure projects put on hold during the crisis.
“The traditional division between bond-type real assets (inflation-linked bonds, TIPS and floating rate notes) and those with equity-like characteristics (commodity futures, infrastructure, timberland, farmland and real estate) is being blurred as new instruments are introduced and new avenues for investment are opened”, Hudson says, adding that examples of such projects include real estate debt, infrastructure ETFs and securitisation related to infrastructure.
However, while attitudes toward real assets are changing it is important to note that they do not offer a universal solution to investors, she says.
“This is frictional investing; returns can be lumpy, entering and exiting positions long drawn out and asset valuations subject to significant moves. Real assets are not fungible; there is no smooth transition between them or between public and private markets, “ she cautions.
She adds that, going forward there is also a concern that “the development of the more liquid avenues for investment comes along with the potential that in the public (listed) markets, at least, real assets become a crowded trade”.
However, in some of the more illiquid areas of the market, where access is less open, returns may be a little more sustainable.
