Since the Global Financial Crisis, interest rates have been anchored at unprecedented lows. At the same time, stock and bond investments have produced positive returns along with bouts of significant volatility. This has left many investors questioning long-held return expectations for these asset classes as well as long-held beliefs on the diversification power of a traditional balanced portfolio. These questions persist in 2020, amid a global pandemic in which stock markets dramatically sold off and government borrowing looks set to reach new record highs.

Against this backdrop, increasing numbers of institutional investors are seeking sources of uncorrelated returns, with many finding real assets playing a role in that pursuit.  

This paper from Nuveen focuses on private real assets, which Nuveen defines as private, direct investment in farmland, timberland, and commercial real estate. They belong to a category of alternatives that many institutional investors have not fully explored. 

Key Highlights:

• In the face of market volatility, lower-for-longer interest rates, and return expectations for equities and bonds that are well below historical averages, institutional investors are considering real assets to help meet investment objectives.
• Private investments in relatively illiquid categories of real assets – farmland, timberland, and commercial real estate – have exhibited low or negative correlations to stocks and bonds, diversifying portfolio risk. For the past two decades, real assets have generated higher returns than traditional investments, with significantly lower volatility.
• Portfolio optimization using 28 years of returns demonstrated private real assets’ potential to improve the risk-adjusted returns of traditional stock-bond portfolios, and to diversify risks associated with publicly traded commodities and real estate investment trusts (REITs).
• Results supported combining multiple categories of real assets and constraining overall allocations within practical limits, such as 10% or 20%.

We host white papers and reports written by industry experts as part of our 'Preqin Picks' series on Preqin Insights. Curated by our in-house Content team, this option is available exclusively to Preqin clients. Please contact your Sales Account Manager if you'd like to explore this opportunity.