Real Assets, Fund Boutiques, and Consulting – PowerPoint & Research vs. practice?

“So see who binds himself eternally” – Investments in real assets are currently in demand due to the low-interest-rate environment. The trade press, providers, and investors are dealing with this topic intensively. The financial industry communicates strongly with the financial industry, many areas of the real asset world are often left out. Various questions are increasingly appearing in the discussion. As in the field of classic asset management – group-bound and independent asset managers (“fund boutiques”), there are different markets for expertise. What can be special features in the assessment of real asset projects? Is there a consulting market for each area? Are new structures perhaps emerging in consulting?

The feeling of “uncertainty” among various institutional investors

Although the above-mentioned topics seem to be highly topical for investors, there are some stumbling blocks in the valuation of investment properties from case to case. Which pension fund, an insurance company, or family office has “specialist teams” for the valuation of infrastructure investments?

“Large companies probably have the know-how, while medium-sized to smaller units may find it more difficult to assess direct investments or use fund solutions in the real assets sector. Indirectly, of course, this also has an impact on “investment networks” in the sense of club deals. Here, a form of barrier to market entry for certain investors can actually exist due to a lack of know-how or a lack of a network. Where does a small pension fund or a smaller family office get competence in assessing certain direct investments in infrastructure (transport, aircraft, energy, etc.)? The question arises whether sometimes good investment opportunities cannot be seized simply because neither know-how nor capacities (time, personnel, budget) are readily available.

Examples – Renewable Energies & Agricultural Investments (“Commodities”)

In recent years, Germany has experienced a boom in the field of renewable energies. Many of these projects, direct investments or investments in fund shells, have been given the labels Real Assets and Infrastructure. In the field of solar and wind energy, a whole number of projects have developed which have been brought to institutional investors, also due to governmental support – at present, it is getting “turbulent” in this area. The market appears to be mature. At the same time, the consulting industry has also developed. If one takes a look at the biomass sector (“renewables”, known in professional circles due to the controversial “tank versus plate” discussion), similar structures seem to be forming.

At this point, the technical sheet on the areas of agricultural investments or the area of investment in forest land appears interesting. Areas are to be planted, managed, and, if necessary, combined with investments in renewable energies (combined heat and power plants, power stations, wind turbines, solar areas, etc.) Commodity markets are to be observed and understood, weather again plays a role in investments. Regulation (renewable energies, feed-in tariffs, etc.) flows, so to speak, into real asset investment decisions, chains such as agricultural investments – biomass – power generation arise, in many such fields with many interfaces internal or external field competence is required. Even “big” investors (pension funds, insurance companies) are committed to project management in order to define the right interfaces for such investment projects and to bring together the appropriate experts.

Consulting and know-how networks – special features theory versus practice

Research is justified in many subject areas as one of many means of obtaining clarity about investment alternatives. A further step is to connect with certain other know-how networks as an investor. Investment objects or investment categories that have not been researched as much or are not transparent can often be developed more closely in small steps in this way. The market for independent asset managers (“fund boutiques”) can be better categorized, for example, by contacting specialized investment companies such as Universal Investment, AmpegaGerling, or IPConcept. Many of these houses deal with commodities (agriculture, forests, etc.) and renewable energies. Associations in the asset management industry also provide orientation. Providers and associations in the field of commodity investments and renewable energies (solar, wind, biomass, etc.) are also established.

With regard to transparency and decision-making reliability in investments in real assets, a special problem arises due to the complexity of the investment opportunities: neither a pure theory consultant (“PowerPoint consulting”, in extreme pure concept production without interest in practical implementation) can provide direct assistance in many cases, nor is a pure financial specialist (investment banking, structurer, etc.) always suitable to conclusively assess the economic viability of investment alternatives in this area. This is a shortcoming often found in other areas (e.g. social work, politics, etc.): There is a lack of field competence. (There is no doubt that the concept is justified and valuable; this is not about “consultant-banking-bashing”, but about tailor-made solutions for the evaluation of investment alternatives in fields that have strong technology components in addition to finance).

Outlook – Consulting in a potentially “ideal” way

The assessment of purely financial ratios in the evaluation of investment alternatives in real asset projects (direct investments, funds, etc.) seems to have “jumped too short” in a large number of cases. Of course, there are decision-making situations for investors with professional know-how that require little or no external support in the decision-making process. There are, for example, many pension funds and family offices that have themselves become centers of competence. These often also have excellent national and international networks that can be used for due diligence. Expertise can also be found with many PE and VC investors. Be it in direct investments or in the fund area.

What do small to medium-sized investors do who neither have large budgets nor extensive “feedback networks” for real asset investments? What would an ideal consultant in this area look like? Ideals are difficult to realize, but they can outline a direction. You can always cut corners, adapting requirements to real events and resources. Real asset investments include fields such as regulation, conception, profitability calculations, and project management.

It would be obvious that a good consultant would also practically “master” a large part of the process chain in a consulting field: In the field of renewable energies, this can mean that the consultant himself has already been practically active in the area of the investment objects to be evaluated (wind, solar, biomass, etc.) or perhaps even invested his own money. He must be familiar with the technology and he must have an extensive network.

Especially in the case of investment alternatives that are not covered by larger consulting firms, another advantage may be that the consultant is an entrepreneur himself or makes investments from companies (example: family offices). Consultants who can also communicate these skills to investors are at an advantage. If one speaks to these “small” consulting specialists, one finds many similarities with the fund boutique sector (market transparency, ownership, entrepreneurial mentality). Foreign addresses are also becoming increasingly aware of German expertise in consulting (renewable energies). Individual houses even manage to become advisors of funds with a long breath in this way. In short, it is advantageous to “master” or “penetrate” the respective value chain in theory and practice!


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