Behind the real-asset renaissance: Inflation-hedging adds to diversification benefit

Today’s ever-shifting global economy, real assets including tangible investments like property and infrastructure are no longer just interesting additions to a portfolio, they’re becoming foundational. Once seen as niche or supplementary, their inherent qualities now place them at the heart of robust investment strategies, helping investors confidently navigate complex markets, manage specific risks, and secure reliable returns.

The current economic backdrop, marked by persistent inflation, fluctuating interest rates and a universal search for stable, uncorrelated returns, has dramatically underscored the value of real assets. This isn’t just theory; institutions are actively embracing them. Recent industry insights, including Nuveen’s 2025 EQuilibrium Global Institutional Investor Survey, reveal a shift into private infrastructure and private real estate assets from investors, with a strong majority of institutional investors planning to boost their exposure.

A major reason why these tangible holdings are proving so compelling to investors is their powerful ability to act as an inflation hedge. Unlike traditional bonds, whose fixed income streams are steadily eroded by rising prices, real assets often come with built-in mechanisms to adapt. Property leases frequently feature inflation-linked clauses, allowing rents to rise in step with living costs; similarly, many infrastructure assets (for example, toll roads, utilities, or communication networks) have contractual or regulatory frameworks that permit fees to be adjusted for inflation. This crucial feature helps maintain purchasing power, a vital characteristic in any inflationary environment.

Beyond inflation, real assets offer invaluable diversification, though their characteristics vary. While unlisted private property can provide distinct exposures, often reporting smoother returns due to its appraisal-based valuations, listed real assets like real estate investment trusts (REITs) are more susceptible to equity market sentiment. Yet, listed infrastructure, with its stable and often regulated cash flows, has historically demonstrated low correlation with both broader equities and traditional bonds. This means that when stock and bond markets move in tandem, these carefully selected real assets can provide a crucial ballast, smoothing portfolio returns and reducing volatility.

Many real assets are also celebrated for their capacity to generate stable, predictable cash flows. Property investments, for instance, pass-on income from rental payments, often backed by long-term leases with established tenants. Essential infrastructure assets, by their very nature, provide critical services that generate consistent revenue streams, frequently underpinned by long-term contracts or regulated income models. This steady income generation is a significant attraction, especially for investors focused on yield, like those planning for or already in retirement.

Additionally, real assets offer a compelling tangible investment story. Unlike abstract financial instruments, investing in a piece of a global logistics hub, a wind farm, or a commercial office building connects your capital directly to real-world economic activity. You’re not just buying a stock; you’re investing in something concrete that serves a fundamental purpose. This tangibility can be highly engaging, particularly for inter-generational wealth planning or for those new to investing, making complex financial concepts far more accessible and relatable.

The real asset landscape also provides a spectrum of liquidity options, offering flexibility for portfolio construction. For investors needing ready access to their capital, listed securities like REITs and publicly traded infrastructure companies offer daily liquidity. However, for those with longer investment horizons, semi-liquid or illiquid private market options in property and infrastructure can offer premium yields that compensate for the reduced ability to quickly convert to cash. This adaptability allows portfolios to be precisely tailored to individual investor needs and timeframes.

Ultimately, real assets align exceptionally well with goals-based financial planning. Their blend of consistent income, inflation protection, and potential for long-term capital appreciation makes them ideal for a range of specific objectives, from funding a secure retirement income to structuring estate plans or supporting philanthropic endeavours. By thoughtfully incorporating real assets, portfolios can be purposefully built to directly support and achieve clients’ most important long-term financial aspirations.

Real assets have decisively moved from the periphery to the core of modern portfolio construction. By strategically integrating direct property, listed real estate, and essential infrastructure, investors can forge portfolios that are more resilient to economic shifts, better equipped to manage inflation, and capable of delivering dependable income streams. This strategic move not only enhances financial outcomes but also offers a more profound and tangible connection to the real economy.

Sources:

Nuveen’s 2025 EQuilibrium Global Institutional Investor Survey
Atchison, “Portfolio Construction Framework”, 2025
Atchison, “SMAs and Individual Sleeves Overview”, 2025