Institutional Asset Manager Newsletter 22.03.24

Time to lean in to LRAs?

Barely a week goes by without at least one member of the investment management community espousing the benefits of allocating to real assets. And if it isn’t asset managers it’s government, keen to use the private sector to fund its net zero and levelling-up ambitions.
Yet this week we report research from consultancy bfinance that reveals listed real assets (LRA) have endured "two years of deeply troubled performance", with REITs in particular suffering their worst drawdown in over a decade.
The real estate sector alone lost -31 per cent at end-December 2023 versus -25 per cent from global equities.
Peter Hobbs, Managing Director, Private Markets at bfinance, warns investors against looking at short term performance from assets that are very much focused on long-term returns, however he adds that it "will have been hard to ignore the recent slump".
"Four years ago, LRA boasted some of the strongest long-term risk-adjusted returns of any asset class. Today, the picture is rather different. Will a troubled period dampen sentiment towards the sector? Or will investors see this, instead, as a time to ‘lean in’?"
For institutional investors the ability to stick out the hard times and wait for improvement can be challenging enough, but if retail investors are expected to allocate to real assets, they will need some serious handholding to bear periods of underperformance.
As Hobbs notes, now may be the time to ‘lean in’ to LRAs ahead of an anticipated rebound, but convincing defined contribution (DC) schemes that these types of assets are a reliable addition to their portfolio could be tricky.
Elsewhere we bring you news of the ever-advancing crypto world.
Bruce Jackson, Chief of Digital Asset Funds and Business at alternative assets administrator Apex and board member of Issuance.Swiss AG, a new foundation structure designed to enable asset managers to sell cryptocurrency strategies into their clients’ conventional accounts from an arm’s length entity, tells us about the latest developments.
Jackson says that advances in the industry – and more regulation – are making it easier to tokenise alternative assets and to launch crypto exchange-traded funds (ETFs).
However, he notes that firms now face a squeeze on fees but warns against cutting costs.
"We correctly predicted that when the SEC approved the spot bitcoin ETFs, fee compression would be an instant race to zero. In addition to managing costs and time-to-market, it is critical to structure these funds correctly."
Issuance.Swiss AG previously worked with the Crypto Finance Asset Management, a subsidiary of Deutsche Borse, with their fund launches and plans another 15 new issues over the next two to three months.
Jackson says the emergence of new managers and products means crypto investors are better protected should they face another down market."

Gill Wadsworth, Editor
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