As Wealthy Families Turn to Hard Assets, Portfolio Managers Get Creative
Real assets such as farmland and infrastructure are increasingly attractive to high-net-worth individuals seeking long-term investments.
Vineyards, gold mines, ranches — the very wealthiest families have always owned hard assets. In recent years institutional investors have followed their example by allocating to everything from timberland to fine art for diversification. Today many wealth managers are making real assets that were once off-limits to all but the richest available to high-net-worth and mass-affluent clients, and the asset management industry is catering to this growing demand.
“Often these are truly multigenerational assets that will be held in perpetuity,” says Michael Freeburg, founder and managing member of Greenwich Wealth Management, a Greenwich, Connecticut–based registered investment adviser with more than $1.5 billion in assets. “That long-term, buy-and-hold investment time horizon is very attractive for families preparing for future generations.”
Freeburg, who founded Greenwich in 2006, came to wealth management more than a decade ago, after spending many years as a commodities trader focused on precious metals. His ultrahigh-net-worth clients look to him for advice on complex real asset plays, among them farms and ranches. “Determining fair value for ranch land or trout stream frontage can be much more complex than land used to grow crops or timber, which often simply comes down to the yield-per-acre calculation,” Freeburg explains. “These are assets that require a lot of careful research and carry significant risks.”
As more investors consider hard assets, managers are finding opportunities in new places. “When we look at real assets, we are really looking for inefficiencies,” says Brett Hellerman, founder, CEO and CIO of New Haven, Connecticut–based Wood Creek Capital Management. Wood Creek is known as one of the most innovative investors in private real assets, with an emphasis on agriculture, transportation, pharmaceuticals and telecommunications infrastructure. The firm, which oversees in excess of $2 billion, bases investments in each sector on a macro thesis backed by proprietary research.
Wood Creek’s 22-member team invests in assets such as cell phone transmission towers and shipping containers on lease to railroads, but it’s looking for other ways to deploy capital. The firm is increasingly concentrating on intellectual property, as prices for some hard assets have reached less attractive levels due to higher demand from investors and operating companies. Wood Creek is one of the largest U.S. owners of music rights, Hellerman says. “You’d be surprised just how many ways a song like ‘Eye of the Tiger’ makes steady income,” he adds, referring to licensing and other revenues from one of the tunes in Wood Creek’s portfolio. “Now, with streaming services like Pandora, we are seeing a real pickup from this new distribution source.”
When it comes to hard assets, wealth managers have always had a soft spot for gold. Perhaps no investment firm is more closely associated with the metal than Toronto-based Sprott Asset Management. Founder Eric Sprott, who has maintained for decades that gold provides security and diversification for long-term investors, launched some of the first mutual funds devoted exclusively to physical bullion.
Recently, Sprott, which manages more than $7 billion through business lines that also include hedge funds, private equity and debt, and wealth management, has broadened its real asset offerings. Last month the firm acquired three liquid alternative mutual funds focused on infrastructure, timber and agriculture, respectively, from Toronto-based Arrow Capital Management.
Michael Underhill, portfolio manager for Sprott’s real asset mutual funds, invests much of the Sprott Global Infrastructure Fund in energy, telecommunications services and transportation. But Underhill sees big opportunities in water infrastructure. Allocating to companies that specialize in desalinization, water recycling and irrigation pipelines gives investors the chance to do well while doing good, he asserts. “This is a commodity that the world literally lives and dies by,” Underhill says. “Unclean water is among the leading causes of death in the developing world, but solutions are within sight.”
For the managers leading the charge into hard assets, everything comes back to yield at a time when central banks have driven interest rates to all-time lows. “The majority of our investments are generating cash flow on day one, and the ability to capture income from a creditworthy counterparty is highly prized by investors,” Wood Creek’s Hellerman says. “Interest in the space will only increase with time.” • •
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