Promising post-pandemic alternative asset classes


Art by Melinda Beck

Noyack Capital Partners is an alternative investment platform for accredited and institutional investors that focuses on what its managing partner, CJ Follini, calls “mobility hubs and supply chain infrastructure of the future “.

In a recently published analysis, Follini argues that the coronavirus pandemic has had a profound impact on the challenges and opportunities of investing in the industrial real estate market, particularly in movement-related parts of the global economy, storage and delivery of consumer goods.

“The rise of all types of e-commerce has squeezed five years of anticipated supply chain evolutions into 18 tumultuous months,” Follini says. “The activity boosted the industrial property market, but it also put pressure on an already tight industrial supply. Before the pandemic, most major industrial centers were operating at record vacancy rates, and now vacancy rates have compressed even further. »

According to Follini, the rapid adoption of e-commerce has strained the existing infrastructure almost overnight. This has translated into a surge in demand, limited space to support it, and as a result, skyrocketing rents in the industrial real estate sector. Along with these factors, of course, accredited and institutional investors have had the opportunity to make strategic investments.

“Investors and developers are rushing to take advantage of attractive fundamentals,” Follini says. “In our future investments, we consider big-box dry goods warehouses to be the least attractive of all types of industries, even though that’s what many capitals are looking for.”

The next phase of infrastructure

Follini’s business focuses on industrial facilities that meet what it calls “next mile needs,” or properties equipped to evolve alongside technological and cultural change. Examples of these changes include self-driving vehicles and buildings that support food services and grocery delivery.

“Cold storage also tops the list of target assets,” Follini says. “Food and grocery delivery has increased the demand for cold storage facilities, but supply is limited. Cold storage is a much more complex construct and requires special attention to specialized infrastructure such as environments temperature controlled and concrete that will not freeze or deteriorate. This has built in a generational undersupply for this asset class. It will take a lot more development and management effort to increase the supply and this will not happen overnight.

What’s also clear is that the pandemic has accelerated the trend of online shopping, and because construction takes time, the relationship between supply and demand has become misaligned, Follini argues.

“The schedule compression means the market has turned five years of growing demand into a single year,” he said. “What we don’t know is if additional demand will fill future periods. We don’t see a significant contraction in demand but, at some point, supply will balance out with that demand. If developers are unaware of this tipping point, we could end up with a huge oversupply in the next two years, demand is much greater for long term cold storage because you don’t have the same amount of Supply and the easy money coming into the market will not drive away these complicated constructions.

The interaction of technology

In related analysis published by PGIM, the global investment management business of Prudential Financial, the firm concludes that the most unique companies with the strongest sustainable growth profiles exist today in the technology and financial sectors. discretionary consumption.

“As the importance of technology in our lives continues to grow, we believe we are in the early innings of the age-old trends shaping our digital future,” PGIM experts suggest.

PGIM contends that as businesses large and small continue to look for ways to establish and enhance their online capabilities in an increasingly digital world, direct-to-consumer (DTC) business models will become increasingly important.

“DTC companies reap the benefits of enormous pricing power, better inventory management, and end-to-end control over their distribution, which translates into better revenue,” the analysis says. “Future new ventures will start online first, giving this trend a long streak of growth in sectors such as e-commerce, connected fitness, online dating, streaming, electric vehicles and mobility, for to name a few.”

In line with this trend, according to PGIM, the focus will be on exploiting cloud-based Internet applications.

“With enterprise migration to the cloud still in its infancy, this powerful but emerging trend will permeate all industries and businesses,” says PGIM. “Demand will increase for cloud-based applications, especially in commonly needed areas such as unified communications, cybersecurity and infrastructure management. The rise of e-commerce activity makes more vital platforms that can help grease the skids of commerce by facilitating seamless online transactions. Digital payments and e-commerce enabling applications are two major beneficiaries that are expected to experience impressive growth trajectories for the coming years, given the low e-commerce penetration rates in many parts of the world.

PGIM says companies with the best technology and execution in their respective spaces will be the likely winners.

Physical assets and inflation

Speaking at a recent panel organized by the Active Investment Company Alliance (AICA), Gaal Surugeon, portfolio manager at Brookfield Asset Management‘s Public Securities Group, pointed out that investing in physical assets such as infrastructure and real estate offers inflation protection with stabilized return potential and downside prospects. long-term growth linked to the economic cycle. He adds that the short to medium term outlook for real assets is also attractive now. As the global economy continues to rebound from the shutdowns caused by COVID-19, there is a clear need to invest in infrastructure and fund “improvements to the foundations of society like airports, toll roads and more,” he said.

According to Surugeon, the real estate sectors that look most attractive on both fundamentals and valuation are residential, office and hospitality – or “those that were effectively in the crosshairs of the global pandemic.

“In the infrastructure sector, transport is most linked to this theme of reopening, and we believe that airports and toll roads, for example, have very strong opportunities,” he continued. “But they still remain very dependent at the regional level and that’s largely because this global reopening, especially with mobility, has been quite uneven.”

Looking ahead, like so many others, Surugeon will be watching inflation closely.

“There will likely be a shorter-term impact on things like commodity price inflation, and these may largely subside as supply chain disruptions ease. “said Surugeon. “But it is also possible that we will find more areas of structural inflation, some of which are longer term in nature. What comes to mind is wage inflation. We have seen enormous pressure on wage growth, largely related to the slowdown in the unemployment market, and this may prove to be more structural in nature.

Ultimately, Surugeon said, infrastructure tends to benefit from this kind of inflation.

“We expect approximately 70% of the listed infrastructure space to have some type of inflation passthrough or inflation indexing embedded either in the underlying contracts or in the regulatory nature of certain sectors , and this is where we believe the real asset space is most likely to benefit,” he concluded.


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