There are few go-to investments in public markets today. About 20% of bonds globally are yielding negative rates; the MSCI World Index is trading on a P/E above 211 and the Buffett Indicator for the US is over 200%. Little wonder that more and more institutional investors are looking to private markets for better value.
Here we offer some compelling reasons for considering an allocation to Commercial Real Estate (CRE) debt ahead of other opportunities. CRE debt funds offer indirect inflation-linked income streams typically 100-160 basis points higher than public- market debt with a similar credit worthiness. The span of a CRE debt fund investment is typically ten years, which suits long-term investors such as pension funds. Rising interest rates are not a danger as loans are set and adjusted in line with changes to the base rate. As with other mortgage-type products, there is a 0% floor on interest payable, which means that negative yields are not a possibility.
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