Real Assets

What Real Assets Actually Are

The term "real assets" is used in different ways by different people, which creates confusion early. The clearest definition: real assets are investments whose value is rooted in physical property or physical commodities, rather than in financial contracts or corporate earnings alone. The major categories are real estate, infrastructure, farmland and timberland, energy (oil, gas, and renewables), and natural resources such as metals and minerals.

Commodities overlap with this category in some frameworks — a barrel of oil is both a commodity and a real asset — but are often treated separately because they are priced and traded in financial markets rather than owned and operated as businesses. This article addresses real assets in the broader, operational sense.

What "Real" Buys You — and What It Costs

Two features drive most of the interest in this category among families with substantial wealth.

Inflation Sensitivity

Physical assets tend to produce income streams that are contractually or economically tied to price levels. Farmland rents often reset with crop prices. Infrastructure concessions — think toll roads or regulated utilities — frequently include explicit inflation escalators written into their contracts. Timberland simply lets trees grow until prices justify harvest. None of this is a guarantee against loss, but the structural link between real asset income and the general price level is qualitatively different from a fixed-coupon bond, whose real purchasing power erodes as prices rise. Potential advantages here include a natural hedge within a larger asset allocation.

Tangible Collateral

Unlike a share of stock, a real asset has an underlying physical thing that can, in principle, be valued independently of market sentiment. A forest exists whether markets are open or closed. This characteristic can provide psychological comfort and, in some cases, genuine credit utility — real assets are commonly used as collateral for borrowing. Potential disadvantages include the fact that "tangible" does not mean "liquid." Selling a farm or a power plant is a transaction measured in months, not minutes.

Operational Intensity

The other side of the coin: physical assets require management. Tenants must be found and retained. Pipelines require maintenance and regulatory compliance. Timber must be harvested at the right time. Energy wells deplete and must be worked over or abandoned. This operational intensity means real asset investing is never purely passive, even when accessed through a fund — someone must manage the underlying assets, and that cost is ultimately borne by investors.

The Major Categories at a Glance

The figures above are illustrative and not predictions. Actual timelines depend on asset type, market conditions, and structure. A qualified adviser should be consulted before drawing conclusions about any specific category.

How Families Access Real Assets

One of the most important decisions in evaluating real assets is not whether to own them but how. The "wrapper" — the legal and financial structure through which ownership is held — affects everything from liquidity to tax treatment to control.

Direct Ownership

Families sometimes consider owning real assets outright: a working farm, a commercial building, a mineral rights interest. Direct ownership offers maximum control and full exposure to both upside and operational complexity. Tax considerations such as depreciation deductions and cost recovery can be meaningful, and a qualified CPA must evaluate how they apply to any specific situation. Direct property ownership is covered separately in this publication.

Private Funds

More commonly at institutional scale, families access real assets through drawdown funds managed by specialist general partners. These funds pool capital from multiple investors, deploy it across a portfolio of assets, and return proceeds over a fund life that may span a decade or more. Potential advantages include professional management, diversification within the category, and access to assets too large for any single family to own alone. Potential disadvantages include long lock-up periods, management fees, carried interest, and limited transparency into underlying assets. Understanding fund fees and terms is essential before committing capital.

Listed Vehicles

Real estate investment trusts (REITs) and infrastructure companies trade on public exchanges, offering daily liquidity. This convenience comes at a cost: listed vehicles tend to move more closely with equity markets, particularly in periods of stress, which can reduce the diversification benefit that motivated the allocation in the first place. Some families use listed vehicles for a portion of their real asset exposure while maintaining private holdings for the longer-term, less-correlated portion.

Co-Investments and Secondaries

Families with access to institutional-quality managers sometimes evaluate co-investments — direct stakes in individual assets alongside a fund manager, typically with reduced or no fees. Secondaries — purchasing existing fund stakes from other investors — may offer earlier liquidity and potentially reduced J-curve effects. Both approaches require significant due diligence and are generally appropriate only for families with dedicated investment infrastructure.

Key Risks and Practical Considerations

Real assets are not a uniform asset class, and risks vary significantly by category. A few recurring themes deserve attention.

• Concentration risk. A single farm or a single infrastructure project is highly concentrated. Even within a fund, geographic or sector concentration can be significant. Families evaluating real assets should consider how any individual holding fits within their overall risk budget.
• Regulatory and political risk. Infrastructure assets in particular are subject to government regulation, rate-setting, and, in some jurisdictions, expropriation risk. Energy assets face changing environmental and permitting requirements. Farmland may be affected by water rights, zoning, and agricultural policy shifts.
• Valuation opacity. Unlike publicly traded securities, most real assets are valued periodically through appraisal or model-based methods rather than continuous market pricing. This means reported net asset value may lag true market conditions — smoothing volatility in appearance while masking real fluctuations in value.
• Liquidity mismatch. Investors who need capital back before a fund's natural life may face a secondary-market sale at a discount. Families should ensure that real asset commitments are sized relative to their overall liquidity allocation.
• Tax complexity. Real assets often generate complex tax reporting, including Schedule K-1 forms, depletion allowances, and, in cross-border situations, foreign tax and reporting complications. Attorneys and CPAs must be involved before any commitment is made.

Questions Worth Asking Before Investing

Families evaluating real assets — and the professionals advising them — may find it useful to work through a core set of questions. No list is exhaustive, and a qualified adviser should shape any specific evaluation.

• What specific inflation-sensitivity mechanism does this asset actually have — contractual, economic, or assumed?
• Who manages the physical operations, and what is their track record through a full economic cycle?
• What is the realistic exit path, and under what conditions might that path be unavailable?
• How does this holding interact with the rest of the portfolio, particularly in a scenario where both equities and real asset values decline simultaneously?
• What tax structures are in place, and has a qualified CPA reviewed the expected reporting obligations?
• For fund investments: what are the fee layers, the preferred return, and the clawback provisions?

Real assets represent a broad and heterogeneous opportunity set. Families exploring this space as part of a comprehensive wealth strategy are best served by approaching it category by category, with professional guidance tailored to their specific circumstances.