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Infrastructure

Real assets outshines other private capital strategies

Real assets fund performance beat other private capital strategies for the fourth quarter running.

Real assets fund performance continued to outshine other private market strategies for the fourth quarter running, attesting to the asset class’s low volatility and counter-cyclical nature.

The rolling one-year IRR for real assets funds reached 9.4% in Q2 2023, handily trouncing other private capital strategies, according to PitchBook’s latest Global Fund Performance Report.

The robust returns also made real assets—which include investments in everything from oil and gas to infrastructure to timbers and metals—the only strategy to outperform its 10-year average.

Gains in energy assets and the steady performance of infrastructure vehicles helped power real asset funds to the top position.

Oil and gas funds delivered a one-year IRR of 14.6% through Q1 2023, and 5.3% through Q2.

The supply and demand imbalance in the traditional energy sector following the European energy crisis boosted the performance of oil and gas vehicles and reinforced the need for renewable energy infrastructure investment in the past few quarters, said PitchBook senior analyst Anikka Villegas.

Infrastructure—which accounts for the bulk of real assets funds—also held up well, logging a 10.7% one-year IRR through the end of Q2 2023.

“Infrastructure traditionally has characteristics thought to make it counter-cyclical, inflation-hedging, and capable of generating dependable income,” Villegas said. “You will typically see lower volatility and returns compared to other asset classes, meaning there is less dramatic upside and less potential downside.”

Fund managers, attracted by this asset class’s unspectacular but steady returns, have pulled in enormous quantities of dry powder for infrastructure investments in recent months, including Brookfield’s $30 billion fundraising haul for its flagship Infrastructure Fund V. In January, KKR also announced the close of a $6.4 billion fund targeting infrastructure assets in Asia-Pacific.

An anticipated dip may mark the turn of the tide, though. Preliminary data shows real assets returned -2.5% in Q3, turning negative for the first time in over two years.

The drop in quarterly returns—which may knock real assets from its leading position—is likely due to asset markdowns; GPs that marked up energy infrastructure assets during the energy crisis made downward adjustments as the market normalized.

Featured image by shunli zhao/Getty Images

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