Nuveen, With $1.4 Trillion Under Management, Says Real Assets Will Play Bigger Role in Era of High Rates and Inflation

Low correlation with traditional assets offers diversification benefits

Real estate is at the start of a recovery, with opportunities across asset classes

"One or two additional rate hikes can likely be absorbed"

This article was published on Market Insight on September 11 at 3:20 p.m.

Real assets such as real estate and infrastructure are taking on a larger role in global investment portfolios as high interest rates, inflation uncertainty and geopolitical risks persist, according to Nuveen. Because their returns move differently from those of stocks and bonds, while offering stable cash flow and inflation protection, they can help reduce portfolio volatility.

Nuveen Asset Management presented that outlook at a "Global Real Asset Market Outlook" press briefing held at the Conrad Seoul in Yeouido on September 11. Global executives leading the firm's real estate, infrastructure and natural capital businesses reviewed market shifts during a prolonged period of elevated rates and laid out investment opportunities and response strategies by asset class.

Nuveen first highlighted the diversification benefits of real assets. "Private real assets have low or negative correlation with stocks and bonds, and different real-asset sectors also move differently from one another, providing meaningful diversification," Abigail Dean, global head of strategic insights for Nuveen Real Assets, said. Nuveen's long-term performance analysis supports that view. Adding real estate and infrastructure to stock-and-bond portfolios from 1991 to 2025 improved risk-adjusted returns and lowered volatility.

On real estate, the firm said a long price correction is nearing an end and a recovery cycle may be beginning in earnest. Global private real estate, which suffered sharp valuation declines after interest rates surged, has recently posted positive returns for eight straight quarters. "Asset values are stabilizing," Chad Phillips, global head of Nuveen Real Estate, said. The groundwork for a new recovery cycle is being laid, he added.

Nuveen identified commercial real estate lending as an attractive investment area. Only 21% of borrowers with loans maturing within the next three years plan to repay in full, while the supply of new lending capital remains limited. "Loan demand continues, but supply is short," Dean said. "That is creating a very attractive vintage for lenders." The setup allows investors to secure high interest rates while applying conservative loan-to-value ratios to assets that have already gone through a price correction. Phillips said real estate debt investments in the US, Europe and Australia could generate double-digit returns with appropriate leverage.

In infrastructure, Nuveen pointed to artificial intelligence and broader growth in electricity use across the economy as key themes likely to drive future investment. Bevan Osso, global head of Nuveen Infrastructure Equity, said data centers account for only about 8% of projected growth in European power demand, with larger increases expected from economy-wide electricity consumption. That points to more opportunities not only in data centers, but across power infrastructure including generation assets, transmission networks and battery storage systems.

For data center investing, Osso said access to power is the critical variable. Citing cases in Virginia where connecting a new hyperscale data center to the grid can take as long as seven years, he said the speed of securing electricity is crucial. The longer grid interconnection takes, the more location and power procurement capabilities determine investment performance.

In natural capital, inflation protection was cited as the main investment appeal. "Demand for food and timber does not easily weaken even when the economy fluctuates," Joseph Villani, senior portfolio manager for farmland at Nuveen Natural Capital, said. "Food prices in particular tend to move closely with inflation, so farmland can serve as a strong inflation hedge."

Even as the appeal of real assets grows, Nuveen said interest rates remain one of the most important variables. "Markets already reflect a higher-for-longer rate environment," Phillips said. "One or two additional rate hikes can be absorbed, but anything beyond that could weigh on asset values." The diversification benefits of real assets remain intact even if rates stay elevated for longer, though investors need to closely assess rate sensitivity and cash flow by asset class.

Nuveen, the investment manager for TIAA, oversees about $1.4 trillion in assets. It is one of the world's five largest real estate investment managers and the world's largest farmland investment manager, investing globally across real estate, infrastructure and natural capital.

Min Kyung-jin, Hankyung.com reporter min@hankyung.com