Real asset commentators have shared what advisers should be considering when conducting their due diligence before investing in the space and how they can mitigate illiquidity.
Speaking at Momentum Media’s Australian Wealth Management Summit in Sydney on 22 August, panellists from UBS Wealth Management, State Street Investment Management, and Capital Prudential discussed the prospects for real assets.
This included exposure to assets such as gold, property, commodities, and infrastructure.
The panel said potential sector allocations varied from 10–15 per cent to as much as 40 per cent, depending on the volume of assets, but with multitudes of funds being launched in the space, how do advisers differentiate between them?
Jarrad Haynes, managing director at Capital Prudential, said: “It’s a highly competitive space, particularly in private credit. It’s about looking past the underlying assets in a portfolio.”
He highlighted the fund’s liquidity profile, its track record, and any lock-up periods as all being important considerations to understand whether clients will be able to get their money back when they want it.
“Sometimes redemptions are available so you can put your hand up and say you want your money out, but the fund might be in a lock-up period so you have to understand the mechanics underneath the fund to actually understand whether you are actually able to get your money back to the client. That’s a critical one.
“You’ve got to understand what the lock ups are and what is the penalty for getting out early.”
Andrew McAuley, investment chief at UBS Wealth Management, said not only should the adviser discuss their liquidity needs with the fund manager, but also with the clients themselves to ensure they are willing to bear that risk and not face any nasty surprises.
He particularly noted investing in real estate at the moment is “very patchy”, and that advisers need to be across the intricacies of different sectors and geographies. He said UBS is favouring multifamily residential assets and logistics within real estate.
“Real estate is very patchy. You have to be on top of all the sectors. It is not the case that you can just be a REIT anymore; you have to be particular with how you approach real estate.”
Financial advisers previously told Money Management that the possibility of a lock-up period has deterred them from the asset class, having experienced fund illiquidity during the global financial crisis.
Clive Maguchu, senior strategist at State Street Investment Management, added there is much greater disparity in performance when considering these funds.
“The performance dispersion among funds is much harder than it is in public markets. You really have to be careful around fund selection. It’s become really critical because some of the best funds might have really large ticket sizes and not be accepting capital.
“We have to spend a lot more time on due diligence in the real asset space.”
With liquidity a critical consideration for retail investors but demand increasing for these types of funds, Maguchu noted he is seeing asset managers take steps to ease their concerns and potentially increase retail participation.
“You’ve seen moves to increase access for retail investors, especially for private credit, but it’s still early days for these vehicles to see how they complement their listed versions and how it works during a stress period. But there’s definitely been moves in that space,” he said.
