Real assets are not what they were.

Just as those of us in the West were starting to get our lives back after the pandemic, Russia invaded Ukraine, provoking a dramatic and unified response from much of Europe and the USA. At the same time, China rolled out widespread and severe lockdowns in many major cities, further exacerbating the supply bottlenecks that were helping fuel inflation that was certainly not transitory.

Consequently, real assets investors are facing not just the radical behavioural change triggered by the pandemic, but also seismic shifts in the geopolitical backdrop against which they invest. The TL:DR of all of this is that the next 10 years are going to be far more challenging than the past decade and bring many long-run tailwinds.

In retrospect I think the decade from 2009 to 2019 will be seen as a golden period for real assets investment. We had it all in our favour:

Many institutional investors were raising their allocations to private market real assets from circa 5% to circa 15%. This gave us massive capital inflows.

On top of that, newly wealthy emerging Asian individuals and sovereigns, with few domestic investment options, were also exporting excess savings into Western treasuries and real assets.

Even better, major global central banks were enacting a deliberate policy of shifting investments from safe to risk assets through their policy of deliberately suppressing bond yields, aka Quantitative Easing, 

So we had three major factors driving capital into real assets. Added to this, it was also an incredibly favourable period for moving capital around the world to wherever the most attractive relative value was to be found. After the Cold War, we had seen much of Eastern Europe reintegrated into the global economy, and with the entry of China into the WTO, the same was true of her massive labour force. Underpinning all of this was the creation and expansion of international laws and regulations that governed the smooth globalisation of the trade in goods, services and underlying financial flows. In short, one could move capital to the most attractive investment opportunity, assured of property rights, in most major markets. And the entire system was lubricated by the US dollar as an international reserve currency.

Sadly, many of these factors have now gone into reverse.