In an interview with Joe Azelby, UBS’ new head of its $100bn global real assets investment platform, in the fund manager’s mid-year investment and macro trends report, Panorama, Azelby stressed real assets must compete successfully in their immediate neighbourhood.
Azelby identified residential and office assets in Europe and industrial assets in the US as the sectors to watch over the coming decade, with the retail sector in both the US and Europe under the most strain.
Explaining UBS’s investment strategy, Azelby said:
“We will look to take advantage of falling asset prices on a highly selective basis. Global macro forces impacting regional economies or country currencies can swamp the good work being done on the ground especially in emerging markets. However, proper asset selection, a good business plan for the asset and stellar execution will most often result in a profitable ending.
“Economic cycles and interest rate changes in response to them are important but beyond our control. Our focus is on the assets we own and the forces around them that are likely to make them more or less valuable. Is the new office tower being built next to ours going to help or hurt our asset’s position in the marketplace?
“If its Google’s new headquarters it may help our building by attracting related tech tenants to the neighbourhood. If it is a speculative office tower development, we run the risk of losing tenants to our shiny new neighbour. If our infrastructure team is buying a regulated utility providing power to a state, we need to understand the regulatory regime of that state and discern whether it is likely to change for the better, worse, or stay the same. Real assets are impacted more by local competition and other resident forces than the big macro trends and trades.”
Investors have been diversifying their portfolios into alternatives for the last two decades and Azelby said UBS expects this to continue. Real assets have benefitted from the need to diversify as have private credit strategies and hedge funds. Within alternatives there are ebbs and flows as asset types become more or less popular based on prior performance or expectations of future performance.
“The overall trend to increase alternatives allocations has been helped by the trend towards low-cost indexing and exchange traded funds (EFT). By decreasing the cost of accessing traditional assets, investors have more ability to invest in higher fee alternative strategies offering some combination of diversification and return enhancement.”