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The ratings house is pinning its growth strategy on a revamped methodology that increases the emphasis on governance to 25 per cent – a timely move considering APRA’s proposed reforms.
How low rates benefit Nuveen in real assets
As with previous periods of market volatility and economic downturns, real assets have tended to come to the fore as havens of reliable returns. Adding lower-for-longer interest rates to the mix, this is particularly the case right now.
Addressing a client webinar for the Asia Pacific region from the US last week (November 19), Justin Ourso, Nuveen Asset Management senior managing director and global head of real assets, said that while the search for income had come in and out of vogue over the years, Nuveen had always set out to build diversified portfolios with income.
He said after the webinar that the manager was having more conversations of late with investors who are looking for a replacement for some of their fixed income exposures. Nuveen, the asset management subsidiary of TIAA, is one of the largest five investors in commercial real estate in the world, as well as a leader in other real assets such as farmland, Timberland and commodities.
Across its real asset categories, Nuveen splits them into ‘core’, ‘core plus’ and ‘value add’. The first two are more likely to provide greater yield certainty through having contracted income components to an investment.
“Two which are top of mind,” Ourso said, “are infrastructure and agriculture and farmland… “Agriculture, we’ve found through COVID, is an essential industry which has proved its worth again.” While income may be lumpy for a single farmer, Nuveen’s operating model is for a diversified portfolio including leasing the land to the farm operators.
He said: “Low interest rates help a variety of asset classes. In real assets, management skill and execution will become more important. Where there’s competition for yield and asset prices become commoditized, the ability to get off-market dealflow and have more active management [of the assets]is important.” This may be in assisting farmland operators improve efficiencies or help with cost savings in infrastructure or refinancing.
With its infrastructure investments, Nuveen tends to focus on the core and core-plus end. Examples of sectors include: renewable power generation, digital generation and availability transport. The manager looks at PPPs but the market in the US was still developing, Ourso said. This is in contrast with many other countries, such as Australia, where government privatisations are offering more opportunities.
The manager continued to see increased interest in private real assets from APAC investors. “In this environment there’s a greater appreciation for the resilience of them.”
Andrew Kleinig, managing director and head of Australasia, based in Sydney, said: “The broad expectation across alternatives is that there will be a significant uptick in PE allocations into next year, whereas there will be a modest increase in expected allocations to natural resources… The other factor driving interest from some larger institutions is the expectation that inflation will return over the medium-to-long-term given the enormous fiscal stimulus.”
