Comment: Real Assets and Family Offices – “constructive wait-and-see attitude” as possible investment approach

Renewable energy, agrarian investments, forestry and various other real asset components (“tangible assets”) have meantime assumed mainstream character in daily reporting. Controversial discussions on the so-called energy transition in Germany take place every bit as regularly as discussions in the specialized press about attractive investment possibilities and about adequate product packages. The industry provides attractiveness points for investor groups. A group which appears to be one of the more attractive is the Family Office. A question which arises: Do we barge through open doors with vehemence in the product presentation of real asset products on the part of the product provider from home and abroad?

Situation regarding Decision

Investment fields such as renewable energy (wind power, solar energy, bio fuel, etc.), infrastructure, real estate and forestry and investments in the agrarian sector are so designed that they generally remind us of project financing or, respectively, direct investment, when less attention is paid directly to the well-known SRI investment instruments such as stocks, pensions and funds (advantage in transparency: databases, research – disadvantage: discussion on criteria). In summary: in the case of complex investment structures and where there is a lack of industry know-how, many product deciders from Family Offices regard this as a kind of black box: If I invest in one project or in a bundle of projects, then the investment is often “entrepreneurial” with an additional component of illiquidity (at least on a temporary basis). The management qualities of domestic and foreign product providers must be evaluated. Industry-related characteristics must be taken into account. Product packages must also be rated. A reduction in complexity in the product selection process appears to be necessary.

Family Offices and Risk Management

In discussions with representatives of Family Offices in regard to classic investment products or apparently new real asset product variations, it quickly becomes clear that long-term orientation in the investment policy, “moderately realistic” yield expectations and more consideration given to risk management form the core of the product selection process. Assets already generated are to be retained. This does not necessarily contradict the growth target. It is possible to agree on a value which equals the real inflation rate and the factor “x”. Growths stemming from operative activity at a hectic pace in decisions on allocation or blind allegiance to products are both out of place here. For the responsible administrator of his client’s assets, the motto here is: strength is born of calmness!

Regulation and Risk Management

Current trends in the field of regulation are completely in line with the priority in risk management in Family Offices. Catchwords here are: AIFM, closed-end funds. Many of the aforementioned real asset investment offers are currently offered under the product heading of closed-end funds. As a result of the AIFM guideline, fields such transparency, outsourcing, organization, safekeeping and equity capital are found at the center of discussion. Product providers in this field currently have to check their own business model. In future, classic investment companies such as Universal Investment, Hauck & Aufhäuser, Union Investment, etc., will gain in importance in this particular sector. As a result of the current density of regulation in the investment company sector and as a result of their experience gained at numerous funds locations together with their know-how in regulation and reporting in the real asset field, investment companies qualify to an ever-greater extent as suitable discussion partners for institutional investors such as, for example, Family Offices.

Outlook: Constructive wait-and-see attitude and the process of discovery

Domestic and foreign product providers in the field of real assets currently appear to be stimulated to greater activity through earnings pressure in the case of certain circles of investors and in product provider circles. In communication setting in Family Offices and providers it is often forgotten that product deciders, too, are only people who also have to deal economically with the factors of time and communication. This can lead to frustration on both sides. Product sales requirements often stand in contrast to the needs of the investors. As the range of product variations in “real assets” also represents a discovery process in regard to know-how and the selection process (e.g., internal or external?) a variation favoring a gain in time can be chosen for the mandates of some Family Offices: investments in real assets – “constructive wait-and-see attitude” as the path to the organic development of know-how!


Spread the article

Leave a comment

Your email address will not be published. Required fields are marked *