Investors pile into real assets amid equity market turbulence
Investors are piling into so-called real assets this year as equity markets plunge amid soaring inflation and the shocks of war in Ukraine, new data has revealed.
Real assets, defined by investment firm Pitchbook as those across oil & gas, metals & mining, timber, agriculture, and infrastructure, have seen a surge in interest in the first half of the year as investors look to insulate their portfolios against global economic shocks, including turbulence sparked by war in Ukraine.
The first quarter of 2022 saw real asset fundraising surge to $159.7bn, up from $75.7bn in the same period in 2021, with $322.4bn in ‘dry powder’ now sitting in funds waiting to be invested in real assets, investment data firm Pitchbook found.
Analysts said allocations to real assets would remain elevated this as the rocky economic backdrop continues for the foreseeable future.
“I believe that with inflation up, investors will continue to show more interest in real assets,” Hilary Wiek, Fund Strategies and Performance Analyst at PitchBook told City PM
“If inflation remains elevated and economic destruction is felt more viscerally by people, that memory will last and keep allocations elevated from levels more typical before this situation hit.”
Pitchbook found that infrastructure allocation had dominated the fundraising figures so far this year, with $42.6bn garnered by 12 vehicles.
Since 2008, 73.1 per cent of real assets commitments have gone to infrastructure, with projects like airports, toll roads, and clean energy projects typically absorbing far larger quantities of cash than areas like natural resources investment.
Pitchbook told City PM that investment into infrastructure in Europe had remained particularly elevated due to the maturity of private investment opportunities.
“Europe was ahead of the US in privatising certain public assets such as airports, so there has been a longer tradition of certain infrastructure investing there,” Wiek said.
“The US is trying to find ways to make a profit on infrastructure, however, and the investment opportunities should grow as new models are accepted.”
The lion’s share of US cash had flowed into oil & gas, she added, given the size of the investment opportunities offered up by private US oil and gas giants.
The surge in real asset allocations from investors come after a torrid six months on global equity markets that have sparked major sell-offs and heavy outflows from equity funds.
In the week to June 15th in which the Fed hiked interest rates by 0.75 percentage points, investors liquidated global equity funds worth a net $30.16bn, marking their largest net selling since at least July 2020, according to data from investment analysis platform Refinitiv Lipper.
The week saw financial, tech and real estate sector equity funds faced outflows of $894m , $439m and $409m respectively, while energy and utilities’ funds lured about $470m each in net buying.
Tech stocks on the public markets have been among the hardest hit by an exodus in the past six months as investors shun growth-focused firms to focus on short term returns.
US tech titans have been among those hit hard, with share prices of Amazon, Meta and Alphabet falling 31 per cent, 20.2 per cent and 50.9 per cent in the past six months, respectively.