Benefits of adding private equity real estate to your portfolio in times of volatility
Last week, I shared how lodging/resorts real estate has outperformed other asset classes, including other real estate and public equities, through the market volatility of the 1H2022. While we believe the public markets are reinforcing our view that hospitality real estate is the best place to be right now, the J.P. Morgan report shows that the lodging/resort sector has a realized volatility of 28.5% from 2012-2021. This is almost double that of public equities, with a realized volatility of 14.9% over the same period.
High volatility is just one of the many challenges of investing in hospitality real estate via the public markets. That is why we believe private equity real estate is the best way to get access to this asset class, and we are not alone - investment titan KKR recently commented during their mid-year update, "our work shows there is a significant opportunity to not only protect but also potentially enhance the equity sleeve of portfolio returns by adding Real Assets, including Private Real Estate."
Nuveen, a global leader in real estate investing, also commented on Real Estate Private Equity in their mid-year outlook saying, "private real estate funds provide a stable, tax-advantaged alternative to counter stock and bond headwinds by diversifying from the classic 60/40 allocation." Further, "allocating investment assets to real estate will continue to be a solid defensive move that provides passive income with the prospect of long-term gains."So, why should you add private equity real estate to your portfolio now?
- It protects against negative market emotions
- It adds a reduced volatility component
- It has low correlation to other traditional asset classes and indexes
- It offers consistent returns, typically through yield (income) and price appreciation
- It acts as a long-term inflation hedge
- It is a tax-efficient / advantaged investment
Skeptics of the benefits of adding real estate to your portfolio look no further than the Yale University endowment, which continues to outperform its institutional peers, earning a 40.2% gain in fiscal 2021. The late David Swensen - Yale’s renowned chief investment officer often referred to as the father of the modern "Endowment Model" of portfolio management - diversified the Ivy League university’s $42.3 billion endowment with longer-timeline alternatives, including private real estate. Under Swensen, Yale outperformed the traditional 60/40 portfolio (60% equities/40% bonds) by 4.0% per year.
Also, keep an eye out for a MAJOR announcement from the Stomp team later this week - we have spent the past four months making significant improvements "under the hood" and are thrilled to share them with you very soon.
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