Optimizing pension plan outcomes using public and private real assets

As markets continue to grapple with increased volatility amid surging interest rates and geopolitical tensions, pension plans are re-evaluating portfolios, seeking ways to maximize returns and minimize risk.

In this environment, real assets have demonstrated an ability to provide shelter to investors while improving diversification to portfolios. Real assets may reduce portfolio volatility, enhance returns and generate yield. However, effectively allocating real assets to a portfolio is rarely straightforward. Focusing on farmland, timberland, real estate and infrastructure, we consider three different approaches to real asset portfolio construction:

• A factors-based approach which helps investors understand the sources of risk and return in a portfolio, revealing insights that help answer the questions “are real assets delivering the expected diversification benefits?”
• An opportunistic deal driven approach which, given the private nature of many real assets, is reliant upon deal availability to build a portfolio.
• A hybrid approach which seeks to deliver a strategic, factor-based approach that is flexible enough to allow tactical allocations as new investment opportunities arise.