Thought Leadership in Real Asset Investing

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In the face of economic instability and changing market conditions, investors are becoming more inclined to explore alternative assets as part of their allocation strategy.

Most investors construct their portfolios by allocating their investments to traditional assets, such as equities, fixed-income securities, and liquid funds. These can offer both growth and a degree of diversification. Nevertheless, certain investors pursue diversification that extends beyond these traditional asset categories.

Industry experts have heralded the advantages of diversifying investments into alternative assets instead of adhering to the conventional ’60/40′ allocation of stocks and bonds.

Michael Underhill, CIO of Capital Innovations and past president of ADISA, identified the main drivers of the growing appetite for alternative assets, along with the importance of education, the emerging trends in the space, and what he’s telling his clients, among other topics.

"In 2022, the U.S. private equity industry and its companies generated $1.7 trillion of GDP. Today, diverse people account for roughly 30 percent, or $5 trillion, of purchasing power in the U.S. The alternatives industry has growing influence in an economy that is increasingly more diverse.

Diverse ecosystems, however, remain significantly undercapitalized. The Knight Foundation estimates that women and diverse-led firms represent less than 2% of the alternative asset management industry’s AUM. The lack of diverse representation across the value chain of capital allocation represents a challenge but also a compelling investing opportunity for GPs and LPs alike.

We launched TPG NEXT to address this market inefficiency. We wanted to use our platform, capital, 30-plus year history, and business-building expertise to seed and support the next generation of alternative asset managers. By putting capital in the hands of diverse principal talent, we see an opportunity to not only align our industry with broader demographic trends but also deliver better performance. We believe there is a ripple effect to this work that will benefit underserved communities and ecosystems.

Launching a fund isn’t easy. It’s even harder when you don’t have access to the circles, networks, and pathways that have traditionally defined success in the alternatives space. We designed this open-source playbook to demystify GP formation, providing investor entrepreneurs with a behind-the-curtain look into the strategies and tactics that go into launching a business. Scroll down for centralized expertise, best practices, and actionable insights." TPG NEXT

 The Inflation Reduction Act (IRA) is an historic landmark in U.S. law-making that is estimated to grow the U.S. renewables market from $64 billion in 2022 to nearly $114 billion by 2031. In turn, many other industries are being indirectly and positively impacted by the passing of that law. We feel it's critical that investors take advantage of this opportunity and capitalize and pursue investments in renewable energy production and infrastructure deployment as well as opportunities in the energy transition, digital transformation and enhancement/asset improvement of aging infrastructure.

According to McKinsey, “In 2021, infrastructure and natural resources set all-time highs for fundraising, AUM, and deal volume; indeed, global AUM broke the $1 trillion mark for the first time. Over the past decade, infrastructure’s mandate has evolved. Capital is increasingly flowing into subsectors that support the energy transition and digitization, such as alternative energy, clean-tech solutions focused on improving environmental sustainability, and “infratech.” Investors are also looking beyond physical assets at operating companies and technologies to generate value. The sustainability transition presents opportunities and risks—both substantial. GPs and LPs continued to formalize environmental, social, and governance (ESG) commitments in 2021: over half of total fundraising—the highest percentage ever—flowed to firms with formal policies. Investors have become particularly focused on environmental sustainability, a potential win–win for private markets investors who support positive impact while driving returns. Firms can create value by transforming unsustainable business models into green ones and investing in companies scaling decarbonization technologies. Considering climate risk in underwriting is now an imperative; firms that do not run the risk of mispricing their investments.” 

With a growing world population and rising incomes, global food systems will need to deliver 56% more food by 2050. Investments in agriculture infrastructure and associated technological advances can help strengthen global food supply chains by increasing operational efficiencies, lowering costs of production, and decreasing food losses. These advances can also contribute to climate change adaptation and mitigation by reducing the use of water, fertilizer and pesticides, displacing fossil fuel use, and minimizing waste throughout the agricultural supply chain. It’s estimated that global growth will boost food demand by 20,500 trillion calories by 2050—a potential opportunity for investors to make a positive difference.

Institutional Investor Magazine Interviews Capital Innovations Chief Investment Officer Michael D. Underhill regarding "What the Post-Pandemic Future Might Hold for Institutional Investors"

 Michael Underhill, the CIO of Capital Innovations, drew on a particularly wide range of contacts last year. “Reaching out to the firms in our existing network — such as entrepreneurs, private equity firms, venture capital firms, co-investors, legal and accounting professionals — helped reduce the legwork for our team,” he notes. 

GRI USA Club senior real estate investors, asset owners, private equity firms, developers and lenders gathered online for a private conversation to discuss the risks, trends and changes that 2021 will have on the USA real estate market. Sentiment driven by the new Biden Administration reveals that 53% of those with invested interest across USA real estate opportunities believe that the USA economy will recover from the COVID recession until 2022.

A worry that stood out was that since economic growth will be limited in the next couple of years, debt continues to increase and companies struggle to survive and it may have repercussions in the CRE investments in the medium-long term.

This GRI discussion was led by Michael D. Underhill (Capital Innovations, LLC), Alan Kava (Goldman Sachs), Amy Price (BentallGreenOak), Scott Darling (American Realty Advisors) and other members present. 

GRI Real Estate private equity event with Michael Underhill examining how tenants flock to high-quality properties during pandemic and beyond.  

Investors increasingly look for private equity managers to provide opportunities for co-investing outside the fund structure, thereby saving fees and carried interest payments. In this paper a large sample of buyout and venture capital co-investments are examined to test how such deals compare with the remaining fund investments.