Private market fund managers optimistic on real asset returns
Private market fund managers are increasingly confident of strong returns being generated by real assets over the next decade, as assets under management in the sector continue to grow.
According to exclusive research shared with City PM from investment service Wealth Club, nearly 70 per cent of fund managers predict annualised returns between 5 and 6 per cent for infrastructure funds over the next ten years, while nearly a third forecasted returns between 6 and 7 per cent.
Managers were also optimistic on the outlook for other real assets funds, with 68 per cent predicting annualised returns of between 6 and 7 per cent for real estate, while nearly 50 per cent were expecting returns of between 6 and 7 per cent for natural resources funds.
Inflation linked revenues
Fund managers linked their growing attraction to real assets to their tendency to increase in value along with inflation, as they contractually or directly pass on costs to consumers, providing investors with a steady, inflation-hedged income.
For real estate, rising costs typically result in higher rental income as landlords adjust for inflation, while natural resources also retain their value in times of inflation due to being essential to economic activity.
Over 50 per cent of fund managers surveyed, who collectively manage £2.365 trillion across private equity, private credit, infrastructure and real estate, predict assets under management in the sector to see a compound annual growth rate of 14 per cent in the next five years.
In contrast, only six per cent expect less than that figure.
More retail investors
Fund managers also believe more retail investors will want to invest in real assets, following efforts to encourage people to consider diversifying their portfolio with private market assets.
However, some fund managers and financial advisers are raising the alarm at the prospect of retail investors piling into illiquid assets through new investment vehicles including long term asset funds.
While these assets offer potential benefits, and are supported by industry figures as a viable option, investors are warned to be cautious, due to the inability to quickly convert the asset in cash without losing value, which can lead to greater price volatility and risk.
Alex Davies, founder and chief executive of Wealth Club said: “The outlook for real asset returns and growth in assets under management is bright with fund managers predicting consistent returns over the next decade.”
“As private markets increasingly open up to sophisticated retail investors there will be a growing interest in the sector underlined by the steady returns predicted.”