Real assets overpriced, favor development

Aberdeen Asset Management head of real assets Jim Gasperoni highlighted permanent crops as an example of a real asset investment well-suited to current market conditions.

In the current high-price, low-yield environment, investors willing to develop assets that take a few years to reach their full income potential, like permanent crop plantings, stand to be handsomely rewarded, according to Aberdeen Asset Management head of real assets Jim Gasperoni.

Speaking Wednesday at a media luncheon in New York, Gasperoni said that the income-producing potential of real assets has helped drive a surge of interest in the entire asset class over the past decade, challenging investors looking to real estate, infrastructure and natural resources for inflation protection.

“Our view is that to pay for what is believed to be a portfolio stabilizer, a de-risking element of your portfolio, is actually getting pretty expensive. In essence, rather than stabilizing your portfolio, you are probably limiting your flexibility,” Gasperoni said.

In response, he suggests investors consider opportunities to develop assets such as permanent cropland, including orchards and vineyards.

“There is actually a pretty meaningful discount from the development cost of doing that versus what people are willing to pay once those operations become productive,” he said. “As a consequence, if you look at the income profile, you can double your income potential on something like that if you’re willing to wait two to three or four years to get it.”

One fund seemingly following this strategy is Agricultural Capital Management’s Fund II, which secured a $50 million commitment from the Ohio Police & Fire Pension Fund last month. ACM II is focused on growing hazelnuts, citrus and blueberries.

Aberdeen is an investment manager with $385.2 billion in assets under management that invests into funds on behalf of its clients, which are made up largely of pensions, insurance companies and open-ended investment companies.

The firm was founded in 1983 and in June 2015, Aberdeen purchased private equity and real assets manager FLAG Capital Management, which is known to have been an LP in Homestead Capital’s Fund II, which closed on $400 million in November.