MASTERCLASS: Real Assets - November 2018

With the Dow Jones Industrial Average surging to record highs, edging towards 27,000 skeptics are given a chance to ask for a pause. Four experts join together to discuss whether it’s time to hunt for turns largely unconnected to financial markets, real asset landscape and those asset in the future.  

  • Jeff Jorgensen - Portfolio Manager, Director of Research, Energy Infrastructure Equities at Brookfield Asset Management

  • John Vojticek - Chief Investment Officer of Liquid Real Assets at DWS

  • Melissa Reagen - Managing Director, Head of Americas Research at TH Real Estate a Nuveen Company

  • Ed Coyne - Executive Vice President National Sales at Sprott Asset Management

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  • 57 mins 27 secs

Laura Keller: Hello, and welcome to Asset TV. I’m Laura Keller. We’re filming on a gorgeous fall day in New York, on a day when the Dow Jones Industrial Average is surging to record highs, edging towards 27,000. Such a degree of exuberance in financial markets gives sceptics a chance to ask for a pause and consider whether it’s time to hunt for turns largely unconnected to financial markets.

We’re doing that diversion today, with a dive into deep real assets. Those are assets that have low correlation to financial markets. We’ve asked four real estate investment experts to help take us through it. Welcome to the Asset TV: Real Assets Masterclass.

And thank you all to my panel for joining here today. And as we said, it’s a gorgeous fall day. Those stock market highs really are inching and inching up further and further. But I’d love to just start with real assets. Tell us about this space. Tell us your area of expertise, and where you see the current landscape. Let’s start with you today, Jeff.

Jeff Jorgensen: Yes, real assets, they’re hard assets. They’re not financial assets. And in many ways, they’re the backbone of the economy, generating high degrees of cash flow, as you mentioned, low degree of correlation to other equities.

And at Brookfield, which is where I’m at, we define them broadly on a strategic basis. We look at real estate or infrastructure, including midstream energy infrastructure, which is my focus, and also real asset debt. Opportunistically, you can look at commodities or natural resource equities. We like to say that real assets generate real returns, net of inflation.

Laura Keller: Good slogan. How about you, Melissa?

Melissa Reagan: So I focus on real estate at TH Real Estate, and it is a real asset, of course. But similar to the comments made previously, certainly a high income stream, and it does move with inflation, generally, just the way rents tend to move in real estate with inflation.

And it does have low correlation to stocks and bonds over a long period of time. And it moves with sort of demographics rather than economic underlying trends.

Laura Keller: Okay. And Ed.

Ed Coyne: At Sprott we focus predominantly on precious metals. Everything from physical storage all the way up to private lending, credit, debt, equity, special situations and so forth. We invest in precious metals with the focus on gold and silver. I like to talk about gold from a return pattern standpoint and think about what gold has done over multiple market cycles. I call gold the original alternative asset, when you think about it from a performance pattern standpoint.

We spend all of our time talking about precious metals. We discuss how to allocate gold into a portfolio, how it performs differently to the broader markets, its negative correlation to stocks, low correlation to bonds and how to think about investing in gold and precious metals from a sophisticated standpoint and not as an, “oh my gosh, the sky is falling, I need precious metals” standpoint.

Laura Keller: Right. So more broadly speaking.

Ed Coyne: Yes.

Laura Keller: Right. And John, how about yourself?

John Vojticek: Yes. I oversee our listed real asset business. Similar to Brookfield, at DBS, we have a boutique in real assets. We look at listed real estate, listed infrastructure, commodities, commodity futures, and global natural resource equities.

On the infrastructure side and the real estate, the different correlations really come from the fact that you’re getting bond-like characteristics in the current cash flow and equity [unclear] side participating, to varying degrees. If you have a hotel company, that’s more equity-like [unclear] at least a hotel. Primary healthcare operator, that’s going to act a bit more like a bond. So, really, that alternative asset class.

The other thing is we’ve been in a sort of rising growth and inflation market. These asset classes have been left behind a bit, from a relative perspective. They still provide diversification benefits. But we’re excited about sort of, perhaps, a regime [?] change in the broader economic backdrop to provide a little more support to these assets.

Laura Keller: Well, that actually is a good segue into sort of the broader picture we want to explore at the top here of our conversation, thinking about where these kinds of real assets may be going, whether it is, you know, sort of against the financial markets and where we might see these other kinds of returns—I’m thinking about the CREST that may happen, you know, in financial markets—and then the, perhaps, fall.

And I would think that that would be when investors really, you know, probably would be interested in these assets, because you would expect they wouldn’t have the same kind of turn. But I’m curious. I’m here to hear from you what your outlook is going towards the end of the year, and into 2019 as well. Anyone want to start? Maybe you can start us, John?

John Vojticek: Sure, I’ll take that. Again, we’ve been sort of up and to the right on growth and inflation. You know, just because of base effects, you know, GDP growth is going to be… It’s harder to sort of comp difficult comps, and we sort of see flattening in GDP growth, and as well as inflation.

So we think it’s a good time to be more diversified, really, since the middle of this year. You’ve seen a little bit of, you know, turning and rotation to the broader markets, and real estate, listed real estate, sort of bottomed in April. Listed infrastructure, similarly. You know, clearly, commodities have been struggling a little bit. We can talk later about just the… Because of the backdrop from a geopolitical perspective.

But, again, we think the diversification benefits, anything outside the S&P has really not done nearly as well, but, again, we think those will start shedding some light, particularly the downside protection.

Laura Keller: Yes, it seems like that might be where some people would want to get some extra diversification.

Melissa Reagan: Yes. From a real estate perspective, it really depends on… Depending on how the US economy continues to grow or doesn’t grow, and what happens with the other regions, so Asia and Europe. What can happen, and what is sort of nice about real estate, at least from a global perspective, is if the US economy turns down, but Europe is doing fine or Asia is doing fine, You have that nice kind of diversification component that you can get.

Laura Keller: Right. So even on a global perspective, if one area performs poorly, let’s say, some other area can give you that diversification.

Melissa Reagan: Absolutely.

Ed Coyne: I would just add, that when you think about what investors are looking to do now, and we are involved in the endowment market, institutions, universities and so forth. They are all looking to migrate a portion of their assets away from traditional markets, stocks, bonds and so forth, and into something alternative, whether it’s precious metals, real estate or some other alternative asset. I think part of it is because we are at record highs in the market, both in returns and in longevity, which is not a bad thing.

Which is a good thing, right? The economy is doing well, unemployment is low and we want to stay in the equity markets. However, we also know that, historically, things do slow down from time to time and there are speed bumps along the way.

Assets like precious metals are a very cost-effective, liquid way to allocate or migrate a portion of your capital away from the broader markets and invest your assets in something that has been proven over multiple market cycles to have a low correlation. Particularly when you see dislocations or recalibrations in the market, as we saw in the late 80s, or the early 2000’s tech bubble, or the 2008 housing crisis. For every one of those cases, precious metals did very well. We are starting to see more and more markets and investors gravitate toward low correlated assets. As precious metals investors, we are excited about the environment.

Laura Keller: Yes. It’s almost like you’re arguing a structural effect is happening as well, a cyclical one, in that sense.

Ed Coyne: Yes. We all want the equity markets to continue to go up. The bulk of my personal investments are in stocks, bonds and real estate. I also know I have to be smart about that. You don’t want to move to cash just because you think we’re at the top of a market. You need to stay invested.

Assets like alternatives and real assets allow you to stay invested and allow you to be more opportunistic, frankly, about your equity exposure, if you have something like gold or real estate or something else in your portfolio.

Jeff Jorgensen: I think not only diversifying into real assets, away from broader equities and bonds, but diversifying amongst real assets. So we think that matters. I think they actually not only demonstrate moderate correlation to the broader equities, but moderate correlation to each other. Active management diversification within real assets can capture all these positive attributes, but do so in a way that takes advantage of the fundamental drivers impacting each little segment.

Laura Keller: Right. And is this the time when you’re seeing people sort of plough… Investors plough into your area, or you’re just kind of getting at the cusp, where they might be starting to think about making that move?

Ed Coyne: I’m just smiling because precious metals are probably hated more than they have been in a long time.

Year to date, there was a 300% increase in shorts on gold and over 100% increase in shorts on silver. The long-term average of gold-to-silver ratio, which is historically around 60, is well past 80 now. If you look at the return pattern charts out there it is as one of our PMs calls it, the “jaws of life”. The S&P is way up here, and gold equities are way down here.

No one is ploughing into our space right now. We are calling out to all the contrarians out there to think about this as a very unique trade and again, go back to what it’s done. So many people missed the trade in precious metals because they focused on what it is. When you think about what gold is, it is sort of silly, but when you look at what gold has done for four-plus decades since it’s been able to trade freely in the market, it’s been very effective. It has done a very nice job at diversifying a portfolio, dampening volatility, and allowing you to stay in the market over a full cycle.

No one is ploughing into us right now. That is why we are here to talk about it, because it is a very smart allocation to be thinking about as we reach these record highs in the market.

Melissa Reagan: From a real estate perspective, we have seen [unclear] cycle. Investors will always say [unclear] the cycle. It can’t last that much longer.

I’m really going to focus from a pure real estate perspective on it. Commercial mortgage, right? Because, you know, I feel like I’m going to be protected on the downside there.

And then we’ve seen a lot of interest in, what we’ll call, alternative real estate type. So things like manufactured housing, or senior housing, student housing, because they say, these are really, really demographically driven, and, like, an office is more economically driven. So, you know, I don’t know what’s going to happen with the economy, but I know demographics are really strong, so let me focus on kind of those two areas. So we have seen a lot of interest, as people get concerned about where we are in the cycle.

Laura Keller: Right. And we’ll talk more about sort of the underpinnings of each of these subclasses as we move forward. But, Melissa, you earlier brought up about real estate, for example, doing well as inflation picks up, and, obviously, we’re in that kind of environment, or at least where the Fed is hoping we’ll be, but of rates. I want to think about rates on that side of the picture. You know, how do these assets typically perform? As you see the Fed starting to hike, what should we expect?

Jeff Jorgensen: That’s always been a question around our asset class, midstream equities or MLPs, and the question has always been, what is your correlation interest rate hike? Historically, it’s been incredibly low, which, you know, even as an income-oriented security for many years, you know, that’s what the data supported.

I think in the face of some distribution cuts and unwillingness to underwrite the yield, you’re seeing energy equities and midstream equities actually correlate stronger than we have to interest rate. So we don’t expect, given the ample cushion we have in our yield relative to where treasuries still are, that there would be much interest rate sensitivity, and that’s what we’ve seen.

Laura Keller: Okay.

Ed Coyne: We like to look at the “why” behind it. If you look at when Fed rates raised from 2004 to 2006, 17 consecutive times, you would think that would kill gold and the dollar would be strong. By contrast, gold in that time frame was up over 80%.

It is not necessarily the direction of where rates are going. It is the reason why they are going up, or why they are coming down. I think we can all probably agree that the Fed is looking to raise interest rates now to give them some ammunition for later on down the road. If and when we do find ourselves in a recession, the Fed needs those tools to continue to turn the dials up and down.

So gold has actually, surprisingly, held up quite nicely at 1,200 plus or minus. Given the landscape we have, we think that’s a really bullish sign for the long-term outlook for precious metals. And again, rising rates isn’t actually a negative thing for the space. Historically, it hasn’t been. If you really focus on it and look at why they are raising rates it will give you a better direction of what the assets are going to do.

Laura Keller: The why behind [overtalking].

Ed Coyne: Yes, the why behind is very important.

Melissa Reagan: I completely agree with that from a real estate perspective. I did an analysis look-back since 1980 of every time there was the ten-year treasury move to 100 basis points or more, and what did that do to cap rates and values for real estate, and it’s a mixed bag, because, to your point, it’s all about the why.

If there was strong economic growth, no problem. I mean, real estate continued to perform. Now, if it was, you know, we were heading into a recession, or there were other reasons why the Fed… You know, we were in a tightening… Fed was tightening rates, then real estate prices did fall, at different points in the tech bubble, or, certainly, in… You know, after 2005, 2006.

Laura Keller: And what about from now? When you enter that analysis, does it show you that there’s a good why or a bad why right now for that backdrop?

Melissa Reagan: Well, I mean, listen, right now, the economy is growing really well, and so, you know, the Fed is tightening rates because the economy is… You know, I mean, economic growth is over 4%, right? I mean, so, for now, it’s a good story. I can’t tell you what it… You know, in two years from now, if it’s still a good story. Right now, it is a good story.

Laura Keller: Okay. And John, how does that give you confidence, one way or the other?

John Vojticek: Yes, I think, you know, if you look… I mean, obviously, there’s rising inflation. Not just the level of inflation. The beta inflation, all real assets, and, really, broader equity market is very high. But when we look at… We think about the changes in inflation, and the thing that gives you the most bang for your buck when inflation is accelerating is global natural resources and commodities. And global real estate actually has a negative correlation, and that’s partially because the [unclear] investor will sell them off based on rate fears and that income piece.

So, again, being diversified within real assets is important. They give you very different sort of… But commodities and natural resource equities, by far, the biggest bang for your buck on a beta, particularly, to accelerating inflation, because, really, typically, they’re the things that are leading inflation.

So it’s too late to wait until inflation is rising to buy them. You have to be there before in order to…

Laura Keller: Beforehand.

John Vojticek: Participate. Yes.

Laura Keller: Okay. So is that a chance for people to get in now, or they’ve already missed the boat on that?

John Vojticek: No. I think, well, you have sort of geopolitical. Base metals have been hit by trade tariffs with China. So whether that’s slowing growth, or it’s… You know, they devalue their currency, which means, you know, the biggest consumer of base metals… But then, contrarily, you have what’s happening with Iran, basically, turning off the supply, being forced to turn off the supply, and everyone else having to step in, and you see oil prices rise.

So there are places to be, but we think there’s a good opportunity with this pullback, particularly in some of the broader… Notwithstanding, again, Brent and WTI rising, to get into the commodity space.

Laura Keller: I think you’ve all sort of argued the point then why it makes sense to diversify into these asset classes, into real assets, but I wonder just a little bit more on that.

You know, do you have to convince people, or they are already realising? I don’t know how long that’s been the picture part of your convincing, you know, maybe from the sales perspective, for example, but… You know, because there are some things we talk about on the Masterclass programme people hadn’t heard about it before, and there is that sort of educational ramp-up. Do you see that here, or people really get it, that they’ve got to diversify?

John Vojticek: If you want, go ahead and take it.

Jeff Jorgensen: As far as the tracking capital to our space, and people going into MOPs and midstream C-corp equities, that has been a challenge. You know, this was a predominantly retail-oriented investor base. There have been a lot of distribution cuts, unwanted tax bills. This space has undergone an evolution and a maturing.

Underpinning that is an exceptional fundamental backdrop, but after four years of, what some would say, broken promises and a mixed bag of results, a handful of drama, folks aren’t necessarily ready and willing today to get into MOPs or midstream equities. That’s retail. Institutions are a little behind the learning curve. High interest, but hasn’t necessarily turned into sales just yet.

Ed Coyne: Yes, I would second that. On the institutional side, I would say in the last six months or so, we have been getting unsolicited calls on precious metals. Whether it’s the physical storage we offer through our Trusts, or our private lending business, or even the equity side of our business, we’re starting to get more calls coming in.

Also, at the family office level, we’re starting to get some unsolicited calls coming into us, which family offices are very difficult to tap into, rightfully so. They are somewhat guarded. For them to be reaching out to us, we see that as a pretty bullish sign in the space right now.

I call it the Buffet effect. Buffet has told everybody forever not to invest in gold because it didn’t do anything. You spend millions of dollars to dig it out, and then you spend millions of dollars to put it back in the ground and store it, protect it and guard it.

I always like say, Buffet is more successful than I am, but he does not understand gold. He compares everything to what creates value, what creates income, what creates a dividend, what pays a dividend. Gold is not designed to do that. Gold and silver, to some degree, are really designed to protect that value.

You have to think about it a little differently. Why are you using this asset to begin with? It’s not to say, I’m going to catch it at the bottom and sell it at the top. It’s really, I want to invest in this asset to give me diversification of my portfolio to allow me to stay in the S&P 500, or allow me to stay in the FENG stocks, knowing that I have that diversification.

Gold has a very important role in a portfolio, but you have to get people to think about it the proper way. I believe that for many years it has been thought of incorrectly. We have to think of it more as a diversification tool, as a proper diversification tool, as an institutional tool. We are starting to see more and more larger institutions come to us and think of it in that term.

Laura Keller: And maybe also because they are looking for these alternatives. You know, we hear about family offices coming in and asking for a new product to them, then that seems like they’re maybe looking for ideas.

Ed Coyne:      They have become modern. 20 years ago, it was very difficult to buy gold. You had to buy it in bar form, store it in a bank and move it around in trucks. It was very difficult. Now, with mutual funds, ETFs and closed-end trusts, you have a very liquid exchange-traded way to add precious metals to your portfolio very quickly, at a low cost multiple, and see it on your statement.

20 years ago, where was the gold stored? Who had it? How much are we paying? It was very challenging. Gold owenship has entered that modern era of investing in the last, call it, decade and a half to two decades.


Laura Keller: [Overtalking].

John Vojticek: Most US pension funds have 10% of their assets in direct real estate, and they usually augment that with listed, and we just own assets that just happened to be listed on the equity market. Listed infrastructure, I think, sovereign wealth funds in Australia, Canada, the rest of the world, have invested in direct infrastructure, as well as they’re starting to invest in listed commodities because of the hangover from overcapacity in China. You know, it hasn’t done what people wanted for it, so that’s the one where they’re head-scratching.

But for us, you know, getting the individual investor to accept some of the volatility that comes with owning the listed side, but still realise that it’s an important part of your asset allocation [unclear] we don’t need to convince pension funds or sovereigns that real estate and infrastructure are good long-term assets and diversifiers. They already know that.

Really having, you know, advisors take on those asset classes in a slightly more volatile form. We know, underlying, the real estate market and the private market trades $400 billion of office, industrial, apartments, retail assets a year. Clearly, off board [?]. The equity market is 850 billion. So there is a totally separate market that is creating the underlying value for these listed companies.

We’ve seen a lot of privatisations this year because of that: essentially, the real estate in the public market trading below where its liquidation value is.

Laura Keller: So John makes a good point there, Jeff. You know, just thinking about, you know, new ideas in this space, private capital, public capital. What are you seeing in energies?

Jeff Jorgensen: It’s interesting. What I was talking about before when I said the retails is on the side-lines, institutions are on the side-lines, they’re all thinking about it, they’re all interested, that was in relation to public equities, public midstream C-corps, and MLPs, and for all the reasons I’ve started prior.

But private capital in this space, midstream business, has been allocating billions and billions of dollars of capital. Where the public has been sitting on the side-lines, they have seen an opportunity, not just in winning asset auctions and taking companies private, but also in helping public companies finance their businesses and finance these massive growth projects. We’re seeing record amounts of private capital being spent, actually, at multiples and excess [?] worth of public trades. It’s really an interesting dynamic.

Laura Keller: Yes, coming in as that direct investment. Are you guys seeing that in any of the other classes we talked about today? Real estate, I mean, it’s probably always been a thing, but is it happening in that big wave that you’re seeing in the energy side at all? Metals, maybe?

John Vojticek: One of the larger private equity firms is looking to raise $18 billion in their latest and greatest fund. You can probably guess who that is. But, again, that’s how much, you know, interest there is in putting capital to work, and their ability to, you know, effectively put the existing capital to work at the returns they expect for their investors. So that private equity capital needs to find a home, and the public market companies that continue to trade at discount may be that place.

Ed Coyne: We have not seen the private side, but just last week or two weeks ago now, Barrick Gold bought Randgold. They merged. No real premium there, but just bringing it together, bringing down the overall cost.

I do not think we are going to see many companies going private. I do think we are going to see more M&A activity in the coming years because it is very difficult to get approval for a new mine, build a mine and so forth. Many senior mining companies are having trouble because they are at the back end of their lifespan.

We think M&A activity will be particularly strong in the junior mining space, where companies are in the early stages of development, or early stages of actual extraction.

We think the M&A market is going to continue to percolate up in this space. We think we are in the very early innings of starting to see this at the upper end and watching it work down into the smaller cap space, or junior mining space.

Laura Keller: Always a fun space. I used to cover that as a young reporter [overtalking] junior mining guys.

Ed Coyne: A lot of activity.

Laura Keller: A lot of activity. But maybe we can move on a little bit then to thinking about, you know, the allocations within a portfolio. What do you think that you would tell advisors about how they should structure that, what they should think about in terms of allocation? Do you want to start us, Melissa?

Melissa Reagan: Sure. In terms of real estate within an asset portfolio?

Laura Keller: Yes. Exactly.

Melissa Reagan: Yes, so we often times talk about it in terms of not just private equity real estate, but also commercial mortgages, private debt, private equity real estate REITs, and then also from a global perspective, and doing that globally, and what that provides in your kind of real estate allocation.

And so, you know, what we’ve done is we’ve looked at, you know, Sharpe ratios, if you just invested in, you know, US private equity real estate, or Asian, or different countries in Europe. And once you go global, you actually get a higher Sharpe ratio had you done this, you know…

Whether it be commercial mortgages, real estate equity, or REITs, and had you done it globally, you get a higher Sharpe ratio, just because countries, you know, their cycles are different. Their realty cycles are different. Their economic cycles are different. And so you do get, you know, this great… This lower volatility and higher return. So that’s how we tend to talk about it.

Laura Keller: On that global perspective.

Melissa Reagan: Yes, more of a global perspective. Exactly.

Laura Keller: Okay. Any other thoughts for advisors thinking about allocations?

Ed Coyne: We look at allocation from how to optimise returns, and we have done significant research to determine the optimal weighting. If you took up an 80/20 portfolio, surprisingly an allocation to gold as high as 9%, actually gives you an enhanced risk-adjusted rate of return.

On a heavily weighted bond or cash portfolio of 80% with only 20% in equities,  only as little as 2% still adds value. That allocation bandwidth of 2% to 9% seems appropriate in most portfolios.

What we say is a 5% allocation is a meaningful allocation. Below 5%, gold is not likely to have optimal impact in terms of the portfolio protection or diversification standpoint. Above 10%, you are betting the house is going to burn down, and no one wants that.

That 5% allocation, we think, is an appropriate and important number to  consider. What I tell people is you have to manage that allocation. It is not like a stock that is paying dividends and so forth.

If that 5% allocation gets outsized because the equity market is just selling off and grows to 9% or 10%, you have to be disciplined enough to sell that down back to 5%. And conversely, if equities are strong like they are right now and your gold position or precious metals position gets below 2%, you have to, again, be disciplined enough to bring it back up to 5%.

That 5% gold allocation over multiple markets cycles has proven, over multiple decades, to be an optimal allocation for most portfolios in order to dampen volatility and still enhance the risk-adjusted rate of return.

John Vojticek: And we’ve been a little surprised again. We talk about 10% in just real estate for a pension fund, additional up to five. We talked about energy investments being possibly another five. So 15% to 20% of a pension fund’s portfolio is in this. The average advisor at somebody’s large wirehouse is at 1% or 2% [overtalking].

Laura Keller: One or two.

John Vojticek: So, I mean, they’re really not investing in the asset class. And so, you know, we understand, you know, we have individual commodity, listed infrastructure, listed real estate. Our most recent project is saying, let’s put all those together for you. Let you think holistically. Make it 5% of your portfolio. Focus your asset allocation time on the places that are going to matter, really, you know, where you might be able to find a fat pitch, and we’ll sort of diversify that real asset portfolio for you.

So, again, first of all, just getting them to add to that very low level, again, at an individual advisor level. Sometimes, though, you have people who like to do private real estate. Maybe they know somebody who’s doing the deal, a neighbour, so…

And then, therefore, so the infrastructure and commodity is sort of outside of that real estate, because some people, again, either they have family history in real estate or otherwise, and they like the physical real estate itself, and so then, you know, the commodities and infrastructure provide that other diversification in real assets.

Laura Keller: But I want to go back to what you said about… It sounds like you’re creating a product for advisors once they know that they really should get to the 5%, that you can help them manage, you know, the different weights to the two different real assets within that. Is that what you’re saying?

John Vojticek: Exactly. And, again, that’s the fact that we talked about, you know, standard beta, to all real assets have very high beta, to inflation. But beta to accelerating inflation, inflation is going two to three, actually, you don’t really want to own real estate. You want to own a lot of commodities, natural resource equities. Vice versa, if inflation is falling.

And therefore, within that, it’s tactical. It’s just overlay to add a little alpha on the margin. But as well, instead of, you know, again, we call it trying to Frankenstein 5% of your portfolio over three small asset classes, spend your time where you can otherwise, you know, add value to the portfolio from a bigger picture.

Laura Keller: Right. Because it almost sounds like, you know, as you were talking about before, especially in the energy picture, let’s say, you know, if it’s not doing well, advisors don’t necessarily want to put anyone in it, and that becomes a little bit of a tricky issue.

Jeff Jorgensen: Right. In our asset class, we tend to see, from an allocation perspective, either zero, don’t touch the stuff, or you’re somewhere in the 5% to 10% range. I think folks that invest in our asset class many times have trouble categorising it, you know, whether it be MLPs or midstream C-corps. What is it? Is it an alternative? Is it real asset? Is it energy equity? Is it kind of an income, you know, fixed income type security?

Personally, right now, I think it’s squarely an energy equity, one with pretty stable cash flow, high degree of, you know, income, potential for capital appreciation if it’s in a real assets portfolio.

Laura Keller: Right. And I know, you know, even when you talk about some scary items there, MLPs, you know, is a hard thing for people to understand. There were some tax changes. There were some things that happened, some things that didn’t happen on that side of things. Maybe you could just walk us through that really briefly for somebody who needs a primer.

Jeff Jorgensen: Yes, I’m going to be really brief. Because I think one of the problems with our sector and attracting capital is the amount of time I spend explaining MLPs, the structure distracts from midstream business. The structure is evolving in a good way: lowering cost of capital, simplifying, getting better access to long-term financing.

But that structural change is really difficult. Talking about incentive distribution rights, and a bunch of acronyms that people don’t want to hear. So, basically, you had a retail-oriented sector. It is in transition. You’ve had some FERC noise. You’ve had, you know, the tax bill, which was potentially going to be a negative. All of that’s fine.

Basically, what we say is, the structure is evolving to be more mature. It’s close to getting there. The business underlying the structure is phenomenal, and we’re seeing top quartile type fundamentals, some of the best we’ve seen in years.

Laura Keller: Right. And I know, Ed, you had talked to earlier, when we chatted separately, just about how to think about where to put your metals allocation, not thinking of it in certain ways. So can you explain that for us?

Ed Coyne: Sure. Many of my clients see gold as separate from the rest of the commodity space. In fact, if you look at those heat maps or return pattern charts, that include commodities, the S&P, MSCI index and so forth, in almost all cases, gold performs very differently than the commodity basket.

Gold could be one of the top performers when the rest of the commodity suite is at the bottom, or vice versa. We have educated many of our investors to think about gold not as a commodity from a performance pattern standpoint, but to view it as an alternative asset. Gold really needs to be carved away from commodities, when you think about what it does in the portfolio and how it performs.

I believe that people think they have a commodity fund. It has some gold in it therefore “I have my gold allocation”. The problem is, in that type of fund, you are not getting what gold is designed to do. You are not getting that dampening protection, from the volatility standpoint or if a major sell-off happens in the market.

You need to carve it away from the commodity bucket and you need to think about it in the alternative asset bucket. In fact, I’ve spent the last couple of years speaking at alternative asset conferences on panels to emphasize that point and we’re getting traction on this approach.

Laura Keller: Right. And then, Melissa, you know, I wanted…

You talked globally earlier, but I know you have a focus on the US. So explain to us just a little bit of that backdrop, you know, how people can think about not only the allocations, but future ideas as well, as far as allocation.

Melissa Reagan: Sure. I mean, in terms of future allocation, I think we always position it as, you know, so what do you want your portfolio to do, right? You know, what is your allocation to sort of the traditional, you know, stocks, bonds? And then what is your alternative allocation, right?

And then in terms of thinking real estate, we talk a lot about, well, here is, structurally, how we see real estate kind of playing out over the next so-called, you know, 20, 30 years, actually, right? So what do we think are some of the tailwinds that the sector has?

So you could think about, you know, things that people talk about a lot: urbanisation, or e-commerce, or a lot of the demographic changes, you know, and how cities are evolving, particularly in the US, and how they’ve actually changed. You know, places like Nashville are completely different than they were a decade ago.

And so we bake all of that in and say, when you’re thinking about real estate as an allocation, you know, over a decade or decades, these are some of the tailwinds that you have.

And, perhaps, you know, depending on what you want, income appreciation, you know, you could up that allocation to, particularly, US, you know, US real estate only, because it’s just such a huge… Global real estate, right, you know, it’s a majority of that. So that’s how we tend to think about it.

Laura Keller: Yes. And as far as, you know, you mentioned Nashville, for example, there are certain cities, certain economies in the US that have those tailwinds. Can you talk about how you identify those, and, you know, where you would look for those ideas?

Melissa Reagan: Yes. Absolutely. So we start, really, at the global level, and we start with 4,000 cities globally, and then we screen all the way down to… We get to 90 cities, and we screen based on various factors.

So at the highest level, you know, basic things like property rights, economic stability, political stability, keep screening down and down, and then we get to, what we call, our [unclear] factors, which are really, as I just mentioned, things like percent of Millennials, concentration of Millennials, concentration of the wealth, future population growth, connectivity. So how connected a city is internationally to flights.

And we see these are actually the cities, the 90 cities globally, about 35 in the US, that are really structurally positioned to outperform not just from a five-year period, but, really, a decades view of this.

And so there are 35 in the US. And then what we do is we say, but 35 actually is quite a bit. And so we then say, well, how do we tactically play within these 35, based on where each of these different markets are in their various office, or apartment, or industrial cycles? And so then we can continue to…

And as the cycle continues to mature, we’ll say, you know, go from 35, right, kind of at the bottom of a cycle, and then by the time you’re at the peak of a cycle, you’re down to a handful, right? Maybe five to ten, right? So that’s how we tend to identify those cities, from a global and then down to a US level.

Laura Keller: Yes. I mean, they always say, real estate is always local, right? So even once you get those 35, then you have to start to think about, do… You know, what particular block? But what particular industry, too? As I know you do more than one [overtalking] commercial.

Melissa Reagan: Yes. So it’s a great point. You know, you start with the 4,000 cities, and you get down to the 90 globally, and 35 in the US, and you say, but isn’t it a local business? Which is a great point. It absolutely is.

So we have that sort of top-down overlay, which I think gives us kind of nice guard rails, frankly, and it gives us some… Helps us focus, but then we use… You know, we have 500 people globally, and so we use… And then we have, you know, 20-plus offices across the globe. And so we’re using people in these cities, right, that are sourcing these deals.

So they understand the, you know, like, the block level analysis, right? We’re really, you know, putting up the guard rails and then saying, from there, they’re the ones really sourcing the deals and saying, this is the block in Nashville we want to be in for apartments, but not for office. That’s how you marry the two.

Laura Keller: Yes, it’s a real process. But, John, is your process that same way? Do you look at it… I mean, I’m sure you think about local markets, but is it that same kind of selection process that you start with?

John Vojticek: Yes. We have a private side of our business that has about 50 billion of assets, and are managing… So we’ll work with them just to understand. Obviously, the companies we’re investing in, are often times making that long-term asset allocation of… Clearly, insofar as they’re focused in New York City or the coast, you know, we can tilt our portfolio based on that. So, clearly, you know, the things we focus on right now, the market is very linear thinking, so you can get big dislocations between Main Street and Wall Street, they say.

And so that linear thinking on things like retail. Retail versus industrial. Industrial has a tailwind from a disruption perspective. Retail, obviously, [unclear] headwinds. But there are places within the retail landscape that will be better off in five and ten years’ time.

I mean, right now, Amazon has, you know, the day delivery, but autonomous cars will give that to anyone. Just mum and pop can be able to send a package to your house. They don’t need that whole network. So very short-term thinking, for example. So where are those nodes, and where is their high concentration?

The other thing is education base. I mean, clearly, places like San Francisco, something… During the tech bubble of 98, 99, you had a massive hangover from that. Now, you have… Basically, the car industry is moving to San Francisco. You have these long-term drivers. Cambridge and Boston is by far one of the best markets. And the tech companies are coming in just because that’s where you have these great universities. So, again, we’re trying to find companies that are intelligently allocating capital and developing.

And the last thing I’d say is, some of these niche property types. So data centres, student housing, single-family homes for rent. So we talked a little bit about demographics. A lot of these asset classes get incubated in the public space because institutional investors aren’t ready for them yet.

Storage, for example. Public storage [unclear] public [unclear]. Private investors have just, in the last five years, really taken hold of that. These have been around for ten, 15 years. They’re fantastic returners. Have been spectacularly good. Part of it is because the capital markets…

Our companies can actually get unsecured debt, and access to the unsecured debt market, whereby, you know, nascent property types, particularly something like a data centre, an individual is going to struggle to get the kind of loan value necessary to really build what they need to and execute.

Laura Keller: Right. Yes, that’s a very interesting space, too. You know, there’s lots of new ideas, I feel, in real estate all the time, even though it’s so developed.

Melissa Reagan: Yes. I think, going back to his point on things like a data centre or a single-family housing, and why does the… You know, private market players, it takes them a while to sort of say, we actually like the sector. A lot of it is operationally very intensive.

And so there’s many, you know, institutional real estate investment managers that, you know, they’re just used to sort of the core property types, right? In office, industrial, apartment. That’s what they’ve always sort of done. Retail. And when you talk about… They think about a data centre, a lot of it…

That’s actually not real… I mean, it is real estate, yes, but the underlying fundamentals have almost nothing to do with real estate. You have to actually be very, very… A solid understanding of technology, and data and all of that kind of stuff.

And so some of these sectors, actually, they just take… It’s not really real estate knowledge, but it’s an operational knowledge. And I think that’s why you, to his point, you see private players come in later on, and it gets incubated in the public markets first.

John Vojticek: And people are concerned about the terminal value, right? If there’s a change of use or change of technology… Cell phone towers, similarly. So, certainly, so that risk, again, rightfully, people want to make sure there’s an actual market for these things.

Laura Keller: But you brought up, you know, retail, for example, earlier. You were talking a little bit more on the delivery side of it. But, I mean, that’s another example of malls, you know, these REITs that have these big, you know, assets, but what do you do with them after they’re no longer going to be malls? It seems [overtalking]. I mean, that’s [overtalking] question.

Melissa Reagan: It’s a fair question, right? I mean, think about the discounts that [unclear], and, clearly, the public, you know, public investors have said, I have questions on how viable some of these mall REITs are, but…

And a lot of them are reinventing themselves, because they, listen, they know. They’re not dumb. They’re sitting there, saying, okay, I have to think about how do I reposition when [unclear] goes out. Maybe that becomes apartment, that becomes hospitality. A lot of these malls will just reinvent themselves, and they won’t look like they look today, and they will have other components to them, because this is what needs to happen. They have to reinvent themselves.

Laura Keller: Right. Event spaces, I’ve heard a lot, it’s a new thing, yes.

Melissa Reagan: Absolutely.

Laura Keller: And it seems like you guys both brought up, John and Melissa, the… You know, how you have to reorient, I think, investors to this idea that it’s not just real estate, you know, prim and proper of apartments, of industrial spaces. And then to the asset classes that Ed and Jeff look at, it seems, again, like this isn’t the sort of vanilla way to think about these things.

Ed Coyne: We certainly focus on operators, balance sheets and so forth on the equity side. Based on where we are in the cycle today, I think we have to get our investors thinking about the core allocation. The core allocation is physical gold and silver.

Gold and silver equities, or mining companies in general, are really more of a tactical trade. That is on a bellwether investment, owning a junior mining stock. There are times when you want to own mining equities, and times when you do not, and the direction of share prices are often driven by the underlying physical metal.

If the physical metal has an upward trajectory, you wouldn’t be thinking about the miners. How can you ever trade on that? If it has a flat downward trajectory, you probably need to wait on the equity side.

We do get caught up in talking about it from an operator standpoint, from a balance sheet standpoint and so forth, but I don’t think we’re really there yet. I think we are really at a point now where investors are just starting to look at the core trade of allocating a bit to the precious metals space. It is interesting, at the peak, precious metals, specifically gold, represented about 7% of an institutional portfolio. Today, it is well below 1%. In many cases, it’s zero. I just said earlier, it is a 0% or a 5%.

We do not need a huge move here. If the market starts allocating a little bit more to gold from an institutional standpoint, it could have a meaningful impact. We see a $1,200 gold price as the current baseline. Prior to that, it was $800. Prior to that, it was $300.

Through these step-ups that happen every half a decade or so. We are encouraged by that, but we are not there yet on the equity side. I think we’re coming in the next couple of years, and the true contrarians are looking at it right now. As far as the institutions coming into the equities, I think that is forthcoming.

Laura Keller: And [unclear] one more time then on, you know, gold and gold equities. How should people think about that? You know, you have certain weights that you would assign, right, to gold, and certain weights to the equities.

Ed Coyne: Sure. I always say, you have to get your gold in line first. Some people own gold for their disaster recovery plan, and for that, you could probably just do coins and be fine. For those who are really looking at it from a sophisticated standpoint and viewing it as a way to diversify an overall portfolio, you need to have a core allocation.

Silver is interesting because, talking about technology, silver is becoming a common thread in self-driving cars, and in all kinds of new technology. There are some gold applications, but in the metal space, silver is really an industrial metal, where gold is more of a monetary metal.

You need to think about that first. You need to think with that core allocation, and look at that as your first line of defence from a diversification standpoint. When there is a dislocation or that recalibration in the market, that is where you are going to have the benefit of owning the physical metal.

Once that physical metal starts to perform as it has in the past over multiple market cycles, you want to think about the equity space. If you have a core allocation of 5% in the physical metal space and you want to get more out of your gold and silver allocation, then adding 2%, 3% or 4% on top of that in the equity space is prudent. Only after you have that core allocation to the physical metal do you want to think about allocating tactically into the equities themselves.

Laura Keller: Okay. But you’ve only talked about gold and silver. What about some of the other metals? You know, rare earths, palladium, you can think of.

Ed Coyne: Platinum and palladium are interesting. Platinum and palladium are trading metals. They are directly correlated with the auto industry, particularly with catalytic converters and so forth. Maybe that will not happen anymore, as technology allows us to have self-driving, electric cars and so forth. We are probably a ways away from that. In other parts of the world, some countries are still dealing with coal as their primary source of energy.

I think we are a ways away from that. I probably will not see that in my lifetime, in its entirety. There is platinum, palladium, cobalt and lithium. You have heard of technology companies looking to buy cobalt mines because it is very hard to source the metal, which is used for battery technology. Again, it is very hard to source.

To have other vehicles that you can invest in directly at the institutional level is very difficult because you cannot get the volume out there to do it correctly. I think that’s probably going to stay largely in the hands of the private market, or the hands of separate account type management, where you have access to one or two types of vehicles.

Gold is a very liquid market. There is tonnes of money out there in gold. A huge volume of daily trading in gold. You have institutions, endowments, banks trade, own and invest in gold. The same goes for silver. Those are very large, liquid markets.

Some of these other metals have great storylines. People love to talk about them. They move very quickly. For an institution to invest is very difficult. There is just not enough out there to do it.

Laura Keller: Rare earths.

Ed Coyne: Yes, the rare earths, but they are very difficult to invest in.  I think that is probably going to live predominantly in the private market, while you will see gold and silver continue to mature as a viable liquid alternative when looking to allocate away from traditional stocks and bonds. That is going to continue to mature and grow as a solution for many people.

John Vojticek: The only thing I’d say, on the base metal side, the more liquid market, which you can actually access, the China overcapacity is starting to go away. When you go on a Rio Tinto and a BHP call, they’re talking about buying back stock and paying back debt. And the capex cycle to get it out of the ground are extremely long, and therefore, again, if we continue to have a good economy, ideally, these things will not be as volatile as they’ve been more recently.

So, again, we think, again, it’s a place to diversify. It has not acted as a diversifier, particularly the base metals, over the last ten to 15 years. There’s a reason for that. You should’ve owned tech for ten years. Doesn’t mean you don’t eventually owned it again. So, again, I think there’s some things as far as just the overcapacity. The companies themselves, not seeing their stock price move, and actually being intelligent about asset allocation within their own companies, making a better long-term view on base metals.

Laura Keller: Yes. Getting in at the right time is probably important [overtalking].

John Vojticek: Yes. Clearly. And, again, we’ve had a pretty significant pullback because of the China and trade tariffs, etc.

Laura Keller: Right. Well, I want to get to a little bit more on the energy side, as we think about some of these changes. So, Jeff, you companies, obviously, are undergoing, as you talked about, changes in the industry. What’s a compelling, you know, new method that the companies have gone for on your side?

Jeff Jorgensen: There’s only two things going on in this space. You have MLPs simplifying their structures into simplified partnerships or converting into C-corps, which you see here and there. You also see the move to self-funding. You see this in the midstream asset class, but you also see it in upstream.

So as the energy industry in the United States matures, we’ve, obviously, had to mature, and develop, and evolve a new way of financing it, because it’s big now. You know, we went from 5 million barrels a day of production in crude oil and declining, to the world’s leading crude oil producer, world’s leading natural gas producer, world’s leading natural gas liquids producer. When I started my career, there was nothing going on in energy. Now, we’re exporting all this stuff. We used to import it.

And it’s a really tremendously exciting time, but that’s a huge deal. And so as a result, investors have said, mature your business, live within cash flow, finance your growth with operating cash flow because we can’t issue enough equity to feed this beast.

Laura Keller: And don’t go back to 2015 on us.

Jeff Jorgensen: And don’t go back to 2015 on us. So that evolution of both the upstream and the midstream asset class is a very healthy thing, and as I said, companies are getting creative in the way that they finance their business as they bridge the gap. I mentioned private capital really helping becoming a bridge, from their traditional MLP model, where it was externally funded with retail, equity issuances, getting to no equity needs at all, and that’s the move to self-funding.

And the creative ways you get there are selling assets, doing joint ventures, cutting your distribution [unclear] your balance sheet, or even alternative structures, like DEVCO, which we’ve seen some folks do. And private capital prefers these markets have all opened up to invest in midstream because of the exciting fundamentals, and we hope that when this evolution happens and the shift has finally occurred, you get the public investor back in, and back interested.

Laura Keller: Okay. So we’ll see how that goes as time goes on, I suppose.


Jeff Jorgensen: Yes. Exactly. And the way that we structure our portfolio, whether it’s an MLP or a C-corp, focus on the assets and the management team. So we structure all of our products to be wrapper agnostic. We invest in conviction. We don’t invest in wrapper. And there are some products and some structured products out there that are very structure dependent. So we invest in partnerships. We invest in C-corps. But, really, we invest in the best assets, and that’s what we’re focused on.

Laura Keller: Well, we only have a couple of more minutes, so I wanted to make sure that we got into where, you know, trade is going, because it does impact, I think, each and every one of your asset classes here.

So maybe, John, you can start us. You brought up geopolitical challenges. Obviously, we’ve got a lot going on in China. You know, and as all of these, I think you’re seeing a lot of dispersion among policy makers on the global stage. They’re moving farther and farther away from each other. What does that say to you in the asset classes that you look at?

John Vojticek: I think, you know, the nice thing about, again, real estate, infrastructure, it is local. What’s happening in a micro perspective is what’s driving it, and therefore, you can… You know, Airbus is competing with Boeing and United American. You don’t go lease office space because it’s cheap in Cleveland if you’re in New York, right?

And therefore, you know, our job as active managers is to find, you know, where are those micro markets, where there are good fundamentals? Where are there things, from the standpoint of what basins are [?], are doing well, and who has those pipelines that are coming out of them? And really find those opportunities.

So the nice thing about it is that it’s not macro driven. Now, some of the, you know, [unclear] discussion might be GDP driven, based on a country or otherwise. But the big picture of real estate, most infrastructure assets, you know, they have a, sort of, a circle of reference, as far as what are they providing, how big is the area, and, really, want to be in those places, and active manager is very important, instead of, again, just, you know, having a more passive mandate.

Laura Keller: Yes. Go ahead, Ed.

Ed Coyne: I talked earlier about how precious metals in general, particularly gold and silver have moved into the modern era of investing, which means that these dislocations from a geopolitical standpoint had not mattered as much.

In the old days, some of the things that are our President has said would have caused gold to spike substantially. In fact, the night Trump was elected, it spiked overnight quite meaningfully but it came right back before the market opened.

Now that gold has matured into a more modern allocation, reactions are no longer so knee jerk anymore. It is surprising to me that the geopolitical landscape has not affected gold, or silver for that matter and how much equities continue to march forward.

I think, over time, things work themselves out. Management is important, debt is important and managing debt is important. The geopolitical thing is fun to talk about and it gives you entry points into a trade, particularly in gold and silver, but I do not think that should be the primary reason why you invest in something.

Geopolitical conversation is a fine conversation to have but I think long term, as precious metals continue to mature and be seen and used as a viable alternative assets, I believe the geopolitical moves in the market are going to be less relevant to gold and silver over time.

Laura Keller: But is that sort of a mark of a lazy investor, Jeff? You know, these investors aren’t really interacting with the news of the day.

Jeff Jorgensen: Right. Exactly. And I would, you know, be remiss if I didn’t talk about the geopolitical implications for our asset class, and I think it’s really important in the energy industry. I mentioned that we used to be fairly insular, fairly domestic, not much going on, and now we’re exporting massive amounts of crude. We’re exporting massive amounts of natural gas. Well, those have tariffs on them. These things matter.

And so every new barrel of crude, or MCF of natural gas, or gallon of natural gas liquids needs to find a global consumer more and more so. And so geopolitical, you know, the global outlook for demand is more important today in energy than it ever has been before. It’s very interesting.

Laura Keller: And how about for real estate? I mean, I can think of, you know, if the economic underlines change globally, that would, obviously, change the structure, but I don’t know. Is there anything about trade that you think about?

Melissa Reagan: Yes. So geopolitical risk, absolutely. And, I mean, we look across our portfolio, you know, 120 billion assets, and we see how are they performing, and what’s doing well, what’s not doing well, you know, yes, Brexit, it’s had an effect.

Think about London, and not London office, but London retail, and, you know, you have seen value soften for sure, and that’s a big geopolitical risk. You know, you think about, you know, trade, right? We haven’t seen anything yet affect our portfolio, in terms of performance of warehouses. That would be, probably, your first logical step of where it would impact, you know, which sector. Not yet, and maybe, you know, depending on how this, you know, continues to go, it would have an effect, right? If this continues to escalate.

But then there is a whole segment of warehouses that, you know, I think are a little bit more protected from it, just warehouses that are kind of fulfilling a one-day kind of shipping direct to consumer. But so far, no impact. Brexit, absolutely. The trade, not yet.

Laura Keller: How about, though, you know, when you think about the US and Canada, that relationship? You know, there are, obviously, a lot of people who move back and forth, as expertise is needed on those borders. Do you have any implications that you’re thinking of there?

Melissa Reagan: Yes. Immigration is a huge issue, right? So, you know, when you think about what has actually driven, you know, the economic growth, in terms of just, you know, labour, right? A lot of it has been immigrants. And so you take that component away from the US economy, and our growth potential, if that were to be significantly restricted, would really…

You know, our growth potential would be a lot lower, and that would directly impact demand for all real estate. So I would say the immigration thing is a huge wild card that we do remain pretty concerned about.

Laura Keller: And just to sort of close, I guess, with that last question. What would be, if you had one, just one, US policy implication that would have the most impact on your asset base? What would that be for you?

Ed Coyne: That is a tough one.

Laura Keller: Maybe you can pick two.

Ed Coyne: I do not know if I can touch on policy. I would say taxes. Precious metals are all taxed at 28%, at the collectible rate. Some people shy away because of that, but that is actually an advantage for us because we are structured as a trust. By owning the physical metal through our trust, you actually pay the asset rate, which is 15% or 20%. We are one of the few people that would like to see that collectible rate stay where it is, because we benefit from that through our product.

I shifted your question a little bit, but if they decided to treat collectibles the same way they treat assets, that would probably have a negative impact on us. As long as that stays intact, that is a huge positive for us, because it is a tax advantage way to own the physical metal in your portfolio through our products.

Laura Keller: Always something an investor does appreciate.

Ed Coyne: Keeping more of what you earn is important.

Laura Keller: Exactly. Anything from you, Jeff and John?

Jeff Jorgensen: I think, as far as federal goes, you know, I think not much. We’ve seen some things come and go with the FERC, maybe with the, you know, the tax bill. But I think what you’re seeing in our industry is more local opposition to oil and gas, fossil fuels, to pipeline construction. So that’s something we remain uniquely focused on.

There are regions where it’s pretty easy to build assets, to drill for oils and gas, to build a pipeline, to put a processing plant. Texas, New Mexico, Oklahoma, Louisiana. And there are areas where it’s pretty difficult. The Northeast, and right now, the Mid-Atlantic is proving to be a difficult place to build a pipeline, and you’re seeing some pressure in Colorado to curtail, you know, drilling going forward. So those are things, more on the local level, that have us… You know, have our focus right now.

John Vojticek: Insofar as trade and tariffs are just a tool to get a better deal, that’s fine. If we’re structurally protectionists, capital is important, right? Capital is what creates price. And insofar as capital doesn’t want to invest in the US because, you know, they might be penalised and/or just can’t, that makes the overall pool of capital… This is a place that lots of large sovereigns like to invest in.

So, really, that would be the biggest issue, just if this protectionism and the tariffs are… You know, lead to protectionism instead of it just being a means to an end, which is a better deal for US companies.

Laura Keller: Right. So more [unclear] international scale [overtalking].

John Vojticek: Really, capital. I mean, capital mobility. The one thing about the UK, it’s very easy to invest there. Taxes are relatively low for Asian investors. So we’re starting to see public companies in Asia start investing in the UK now. They see it as a value. I don’t think the marginal Chinese company or Hong Kong company is seeing the US as some place they want to put their capital.

Laura Keller: Right. Melissa, the last word to you on that last question, just in terms of what policies you’re really looking at in the US.

Melissa Reagan: Yes. Well, already the SALT has definitely affected… So we are worried about, will… You know, very high tax states, New Jersey, New York, Connecticut, California, very high income households, essentially, moving to states that have low or no income tax, so Florida, Texas.

And that really does affect in kind of two ways. Just the migration of population, right? So population is just the demand driver in general for real estate. So is there sort of a pullback in kind of real estate demand in these high tax states? That is definitely something that, you know, we’re concerned about.

Laura Keller: Right. Well, I’ll be curious to see how that pans out, and I appreciate all of your time talking to us about each and every one of your expertise in real assets. Appreciate it very much.

Ed Coyne: Thank you.

Jeff Jorgensen: Thanks.

Laura Keller: Thank you.

John Vojticek: Thank you.

Laura Keller: And thank you for watching here on Asset TV. This has been the Real Assets Masterclass. I’m Laura Keller.