Global real assets outlook 2020 – Institutional

2021 GLOBAL REAL ASSETS OUTLOOK

Real asset investors are looking beyond the constraints of the last 12 months to articulate their plans for 2021. They need to focus on execution: solidifying conviction to accelerating structural themes, actively managing assets, and positioning portfolios for a cyclical recovery.

Setting the scene

Global real asset markets are navigating a multi-speed, regionalized recovery shaped by ongoing fiscal and monetary support, low interest rates and new geopolitical risks. Like other markets they reflect the pandemic’s tendency to drive change and disruption. Underpinning everything is the outlook for broad delivery of the vaccine—the key variable in the rate of recovery, especially in the US and Europe.

Global real assets in 2021

Listen to an overview of our three themes for the year ahead in infrastructure and real estate, presented by Alan Synnott, Global Head of Real Assets Research & Strategy.

2021 should be a year of recovery. A resumption period for the global economy. As real assets investors come off mute and plan for 2021 and beyond we believe that three significant market themes will be at the forefront of asset class conversations in the year ahead.

Our first theme is to allocate into acceleration. What we thought would happen with the growth of e-commerce, technology, data storage, and sustainability over the next 5 to 10 years may now arrive in the next 2 or 3 years. We see this now in real estate, where ecommerce continues to drive demand for industrial space, and we see it in infrastructure, where investments to support the global energy transition have continued to grow.

Our second theme is that active asset management has shown its importance and ranks just as importantly as allocation does. In addition to your strategic allocation, the pandemic has put emphasis on health and safety for tenants and other counterparties, and climate and sustainability considerations are also increasingly important in both the short term and the long term. Our underwriting needs to evolve to include these risks.

And finally, the third key theme is that positioning for recovery underscores the need for investors to be nimble for the two speed economy. Outperformance in 2021 will be a blend of aligning with structural themes for long term positioning, while maintaining tactical optionality to take advantage of price dislocations in lower conviction sectors. It also means accessing the full portfolio toolkit so investing in perhaps debt and equity, public and private, and a variety of strategies across the risk and return continuum.

Check out the full outlook for deeper insight into our views across real assets.

Our themes

01

Allocate into acceleration

Pandemic-driven trends are tailwinds for some sectors and headwinds for others. If investors have insights and conviction in the direction and speed of these trends then they may create alpha. This is critical for long-term holds and assets with high transaction costs such as private equity.

02

Active asset management

Resiliency of real asset portfolios was tested in 2020. Contractual leases were at risk as the balance sheets of businesses and consumers were simultaneously stressed. Adroit asset managers found that communication was key throughout the crisis, as were services to improve safety and health. We expect this trend to continue.

03

Positioning for recovery

Even in the face of multiple cross currents, 2021 is shaping up to be a once-in-a-cycle window of opportunity for capital deployment. Core capital may gain from forthcoming turning points in cash flows and prices, while value-add capital is urgently needed to reconfigure business models, reposition assets and improve occupancy and incomes.

Deployment to broaden

Capital deployment was concentrated in 2020, with investors favoring assets benefiting from tailwinds in ecommerce, sustainability and digitization. This year, investors will be challenged with navigating the early recovery of more cyclical, economically sensitive sectors, while maintaining focus on allocating to accelerating structural themes.

The trend is your friend

Effects of trends on real asset sectors

Source: BlackRock, December 2021

ESG: a tsunami of interest

A tectonic shift toward sustainability (ESG) is underway: investment flows are set to affect returns across the board and efforts to mitigate the damage from climate change should boost economic growth and impact real estate and infrastructure assets.

Strong structural trends are being driven by societal shifts more so than marginal economic growth.

Global perspectives

In the US, we look for a new approach to energy and climate policy, with implications for both infrastructure and real estate. In Europe, market selection becomes even more important given our expectations of a staggered recovery across regions and sectors. The Asia Pacific region is at the front edge of the rebound, as the manufacturing, construction, business services and even the domestic hospitality sectors all return to work.

Real asset investors are now looking beyond the constraints and extreme uncertainty of the last 12 months to articulate their plans for 2021 and beyond. They need to focus on execution: solidifying conviction to accelerating structural themes, actively managing assets, and positioning portfolios for a cyclical recovery.