Real Assets Serve Broader Economy
The way we think about real assets is they serve the broader economy, says Jeff Tripp, managing director, head of alternative investments. Speaking at TD Asset Management’s ‘2022 Institutional Investment Symposium’ on ‘Infrastructure Investment in a Fractured World,’ he said with real estate, it's pretty obvious – “it's where you shop, it's where you live, it's where you work.” For infrastructure it is "how you travel and how goods travel.” This means there is no question that in an environment with geopolitical disruption, inflation, and rising interest rates, real assets are impacted. Despite this, real assets have done what they are intended to do – provide income and to provide a partial inflation hedge. “In the last six months, the stability of real assets, infrastructure in particular, as well as the growth trajectory, has really been pronounced,” he said. And the infrastructure market is going to get “so much bigger over the next 20 years.” There's a significant amount of supply of assets that need to find capital, he said. In terms of risk, inflation and interest rates “obviously have a negative impact on valuation,” said Carl Elia, a vice-president and director at TDAM. What has been seen in a broad general sense is rates and values are going up without contracting cash flows. But there are a couple of tailwinds specific to infrastructure. These contracts are all linked to inflation which means “we're seeing increases in our offline revenue,” he said. The other thing is the demand from institutional clients for infrastructure. The capital coming into the system right now is helping to maintain prices and over the last six months more capital has been raised for infrastructure bodies than in any other previous entire year.