Do Real Asset Funds Make Sense in the Current Economy?

How Current Economic Conditions Can Favour Real Asset Funds

Real asset funds in land offer advantages not found in market-traded securities. Current economic conditions in particular provide distinct value growth opportunities.

Every time period offers value growth opportunities for investors. Implicit in that, of course, is the fact that many variables make for a dynamic investment landscape – what worked two years ago may not work well today. Factor in as well that no two time periods are ever exactly alike. A professional analysis of every property is necessary, and investor expectations need to be in line with the nature of each investment.

A Reuters news agency report in late September 2012 cited “big falls in trading over the [preceding] summer” on the London Stock Exchange, which it attributes to economic uncertainty in the Euro Zone (a trend that began in earnest four years earlier).  This then leaves investors with a dilemma: if the exchanges provide little opportunity to make money on stocks and futures, where does an aware investor go to invest?

The answer for many largely lies in real assets and real asset funds. Real assets range from art and antiques to hedge funds, built commercial property and undeveloped land. This latter category lends itself to ownership in funds, as when a consortium of investors purchases property for either holding to lease or sell at a later date, particularly if the property can be rezoned for different purposes. This latter scheme allows the UK land investment fund to increase value under the right circumstances.

Land value growth is very property-specific, of course. Consequently, several factors need to be considered when making a land purchase:

•    Is land value loss possible? Some properties can decrease in value, which a professional land investor should be able to avoid. Municipal decisions on zoning can adversely and positively affect value growth, which again is the province of a real asset fund that is competently managed.

•    More people, inadequate housing. Two important and related factors in the UK economy are population growth juxtaposed with a housing shortage. Even in recession, the overall population grew from 2001 to 2011, an overall increase of 7 percent or about 170,000 people per year. The recession has slowed construction of new homes, however, exacerbating the shortage – and creating pent-up demand.
•    Business cycle recovery, increased demand. A 2012 Financial Times global survey confirmed that, as a rule, population increases are a fundamental part of economic expansion. In towns and counties where employment is growing – most growth cycles still have geographical winners and losers – the demand for land development is particularly keen.

All of this suggests that very real opportunities exist for real asset value growth that is concentrated in undeveloped land and, perhaps as much, in developed real estate. The key task for would-be investors is to find the professional fund managers who understand property, municipal inclinations to growth and where regional economic factors (such as employers with ascendant enterprises) favour a concentration of growth. This is often referred to as land site assembly.

For more information on land asset funds and strategic land development, contact a qualified personal financial consultant.