Virtual Real Assetality

Last week I had a go at hedge funds and received the most responses ever to a blog post. Pretty much all of them from the investment community! It’s good we can laugh at ourselves.

While most people have a vague clue about what hedge funds are, this week I want to outline that other big category of “alternative investments” which is REAL ASSETS.  Real assets as opposed to financial assets (stocks and bonds) and intangible assets (intellectual property, brand).

The mega investors who can’t possibly be an expert at all things, virtually invest in real assets by investing in funds that specialize in them.

Fortuitously I came across this list of real asset funds at a presentation recently. I’d never seen the various real asset fund types grouped together in one place. I learnt quite a lot by filling in my own knowledge gaps, so I thought this might be interesting to readers as well. I list these below with my own interpretation of the googled definition where I thought you may find it useful.

Types of Real Asset Funds

Real Estate (land & buildings)

  • Core - already occupied properties with stable tenants in good locations
  • Value added - some improvements needed to attract good tenants
  • Opportunistic - usually vacant and a lot of improvements needed to attract good tenants
  • Debt - the debt part of real estate as opposed to equity

Private Equity (owning a piece of a private company)

  • Buyout - investors money plus borrowed money buy a controlling interest in a mature private business
  • Co-investment - friendly help when you can’t write the whole check
  • Early stage - proven product but needing to ramp up sales
  • Fund of funds - a portfolio of private equity funds for those who can’t pick for themselves
  • Secondaries - funding for private equity funds needing to sell their investments earlier than expected
  • Venture - capital for small, startup businesses expected to have high growth
  • Growth - minority stake in a more mature business than a startup

Private Debt (currently booming category of investment as banks have been forced to retrench)

  • Direct lending - an alternative to bank lending
  • Distressed debt - lending to companies that are bankrupt or very nearly there
  • Mezzanine - hybrid, higher returns than debt and lower risk than equity
  • Special Situations - everything else

Infrastructure (roads, bridges, airports…)

  • Greenfield - a brand new road/ bridge/ airport….
  • Brownfield - needing to demolish and rebuild or heavily renovate existing infrastructure
  • Second stage - funding upkeep of an existing structure

Natural Resources (the categories here are self-explanatory)

  • Farmland
  • Energy
  • Mining
  • Timber
  • Water