Get real

Given a “stagflation-type environment” in developed markets, a “more differentiated and adapted investment approach” is required today, according to Swiss private markets investment management firm Partners Group in a new report.

And at the heart of that strategy lies real assets. The report recommends “investing in real assets as well as in value companies in ‘tangible’ (real) sectors that offer stable yields and inherent growth opportunities”.

The report points to the “extremely high” global demand for infrastructure assets which, combined with “weak financing capacities” on the part of governments, leaves a funding gap for private capital. Against a backdrop of stagflation, the report recommends “yielding, brownfield infrastructure assets with inflation-linked revenues in Europe, North America and Australia”.

The report identifies a particular opportunity in the energy sector “spurred by the ongoing deregulation and privatisation in Europe and the expansion of gas transmission infrastructure in the USA” as well as the promotion of renewable energy.

However, it’s not only the developed world/brownfield opportunity that the report draws attention to. It also notes that “the rapid transformation of emerging market economies and societies coupled with high GDP growth supports greenfield asset creation strategies in Asia and Latin America”.

So, with this lavish recommendation in mind, is infrastructure investment heading for a bubble? This seems unlikely. Partners Group notes the “rather slow start” to the fundraising market in 2011. “The amount of money raised by many infrastructure funds still falls short of what these funds are targeting,” says the report. “We view any increase in available capital as a positive sign, as we expect it to facilitate investment activity globally.”