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WHAT ARE REAL ASSETS?

Investing across the spectrum of real assets:

Real Assets are physical or tangible assets that have intrinsic value, such as land, buildings, infrastructure and natural resources.

Global Infrastructure

Global Infrastructure

Infrastructure assets are essential for the functioning of society and the economy. They generate cash flows from user fees, regulated tariffs, long-term contracts, or availability payments. Infrastructure assets typically have high barriers to entry, low operating costs, and inflation protection.

Infrastructure assets can be categorized into the following subsectors:

Transportation

Transportation infrastructure includes assets that enable the movement of people and goods by different modes of transport. These assets support various economic and social activities, and have long lifespans, high costs, and cyclical demand. Examples of transportation infrastructure are toll roads, airports, sea ports, marine transport, and rail infrastructure. New prospects are arising in the electrification and decarbonization of transportation, including electric fleet vehicles and marine transport with reduced emissions.

Utilities

Utilities infrastructure includes assets that provide essential services such as water, electricity, gas and waste management to households and businesses. These assets typically operate under long-term contracts or regulated frameworks that ensure stable and predictable cash flows. Examples of utilities investments are water treatment plants, power transmission and distribution networks, gas pipelines and storage facilities, and waste-to-energy plants.

Digital

Digital infrastructure includes assets that enable the transmission, storage and processing of data and information across the internet and other networks. These assets are essential for the functioning of various sectors such as e-commerce, cloud computing, online education, telehealth and entertainment. Examples of digital infrastructure investments are data centers, fiber optic cables, wireless towers, satellites and smart city technologies.

Energy

Energy infrastructure is a broad category that encompasses assets that produce, transport, and distribute energy resources such as oil, gas, coal, nuclear, wind, solar, and hydro. Energy infrastructure plays a vital role in ensuring the security, reliability, and affordability of energy supply for various sectors of the economy and society. Examples of energy infrastructure investments are electricity transmission, gas pipelines, and LNG facilities

Renewable Energy

Renewable energy is energy derived from natural resources that are replenished by natural processes, such as sunlight, wind, water, and geothermal heat. Renewable energy sources have low or zero greenhouse gas emissions and can reduce dependence on fossil fuels. Examples of renewable energy investments are onshore and offshore wind plants, utility scale solar plants, EV charging stations and Battery storage

Social Infrastructure

Social infrastructure is the physical infrastructure for essential public services and community needs, such as education, health care, social housing, and justice. For example, schools, hospitals, senior living centers, and prisons are social infrastructure investments.

Commercial Real Estate

Commercial Real Estate

Commercial real estate is property that generates income from rent, leases, or sales. The value of commercial real estate depends on factors such as location, demand, occupancy, and quality of tenants.

Commercial real estate investments are properties that are acquired for the purpose of generating income from rent, leases, or sales. Commercial real estate can be classified into different sectors based on the type and use of the property, such as:

Multifamily

Multifamily properties are residential buildings that have more than one unit, such as apartments, condominiums, townhouses, or co-living spaces. Multifamily properties offer stable cash flow, high occupancy rates, and potential appreciation. Multifamily investors can benefit from economies of scale, tax advantages, and leverage.

Retail

Retail properties are buildings that house businesses that sell goods or services to consumers, such as shopping centers, malls, strip malls, or standalone stores. Retail properties generate income from rent, percentage rent, or sales. Retail investors can benefit from high visibility, long-term leases, and tenant diversity.

Office

Office properties are buildings that provide space for businesses to conduct their operations, such as office towers, business parks, or medical offices. Office properties generate income from rent, operating expense reimbursements, or parking fees. Office investors can benefit from high-quality tenants, long-term leases, and location advantages.

Industrial

Industrial properties are buildings that facilitate the production, storage, or distribution of goods, such as warehouses, factories, logistics centers, or data centers. Industrial properties generate income from rent, operating expense reimbursements, or utility fees. Industrial investors can benefit from low maintenance costs, high demand, and e-commerce growth.

Hotel

Hotel properties are buildings that provide accommodation and hospitality services to travelers, such as full-service hotels, limited-service hotels, resorts, or motels. Hotel properties generate income from room rates, food and beverage sales, or ancillary services. Hotel investors can benefit from high margins, operational flexibility, and market segmentation.

Social

Social real estate is a subset of commercial real estate that focuses on properties that serve a social purpose or cater to a specific demographic, such as purpose-built student housing. Social real estate properties generate income from rent, fees, or contracts. Social real estate investors can benefit from niche markets, resilient demand, and social impact.

Agricultural Land

Agricultural Land

Farmland is land used in the production agricultural commodities from row, vegetable and permanent crops and pastures. These assets produce favorable current income and benefit from the long-term trends of increasing global population, rising incomes, improving diets, and the expansion of metropolitan areas.

Row crops are annual crops that are grown in rows and harvested at the end of the growing season. Row crops include corn, soybeans, cotton, wheat, sugar cane, rice, berries, feed grains, peanuts, and other crops that can be planted and harvested with machinery. Row crops typically have lower initial costs and higher returns than permanent crops, but also face higher price volatility and weather risks.

Vegetable farming is the cultivation of edible plants that are consumed by humans or animals. Vegetable farms produce lettuce, onions, broccoli, potatoes, mushrooms, chickpeas, lentils, and other crops that are rich in vitamins, minerals, and fiber. Vegetable farming can be done in open fields, greenhouses, or hydroponic systems, depending on the climate and market conditions. Vegetable farming requires intensive labor and irrigation, but can generate high revenues and profits.

Permanent crops are perennial crops that are grown in orchards and vineyards, and produce fruits, nuts, berries, grapes, olives, and other crops that have a long productive life. Permanent crops require high initial investment and maintenance, but offer stable and predictable cash flows and appreciation over time. Permanent crops are less vulnerable to market fluctuations and benefit from the growing demand for healthy and organic food products.

Timberland

Timberland

Timberland is land with trees that can be harvested for timber products. Timberland generates cash flows from selling wood or leasing the land for higher and better use. Timberland also appreciates in value as the trees grow and become more valuable.

Sustainable timberland investment is a form of natural capital investing that aims to conserve and enhance the environmental, social and economic value of forest resources. Sustainable timberland investors adopt responsible management practices that protect biodiversity, reduce greenhouse gas emissions, support local communities and respect indigenous rights. Some examples of sustainable development in timberland are:

  • Implementing certification schemes that ensure compliance with environmental and social standards, such as the Forest Stewardship Council (FSC) or the Programme for the Endorsement of Forest Certification (PEFC).
  • Restoring degraded or deforested lands by planting native species, enhancing soil quality, and restoring hydrological functions.
  • Diversifying income streams by integrating agroforestry, ecotourism, or carbon credits into the business model.
  • Promoting climate change mitigation and adaptation by increasing carbon sequestration, reducing fire risk, and enhancing resilience to pests and diseases.
  • Supporting rural development and poverty alleviation by creating jobs, improving livelihoods, and providing access to education, health, and infrastructure for forest-dependent communities.

Four characteristics of Real Assets

Historically stable and predictable income

Stable and predictable income from long-term contracts or leases

Return Generation

Return generation linked to economic growth and demand

Diversification

Diversification with low correlations and different risk-return profiles

Inflation Sensitivity

Inflation protection with price and cash flow adjustments written into contracts

Franklin Global Real Assets Funds

Managed by Franklin Real Asset Advisors, the Franklin Global Real Assets Funds are globally diversified portfolios of both private and public real asset investments. The funds provide exposure to areas of the economy that are highly sought after by institutional investors, including global infrastructure, commercial real estate, agriculture and timber. The strategy is designed to help improve diversification, lower overall portfolio risk and provide a stable income stream for investors.

  • Access to a portfolio of private investments for a modest minimum commitment
  • Immediate exposure with no fundraising period
  • Enhanced liquidity provisions with no lockup period
  • Mutual fund structure with standard mutual fund tax reporting
  • Managed by investment professionals with deep real assets experience
  • Exposure to a balanced, well diversified global portfolio
  • Competitive fees with no performance fee

Franklin Global Real Assets Fund II

  • Focus on core, income-producing real asset investments with potential for growth.
  • Access to a global portfolio of investments diversified across multiple metrics - public and private structures, asset class, sector, geography and revenue sources. 
  • Real asset markets around the world are independent from one another, so a global approach can potentially be rewarded by strong, diversified returns. 

Why Real Assets now?

Real Assets are uniquely well-positioned to capitalize on the secular themes impacting our society: digitization, deglobalization, decarbonization, and demographics.

Digitization

is transforming the way we communicate, work, and consume. It is creating new demand for data centers, cell towers, fiber optic networks, and other digital infrastructure that enable the flow of information and services. Real assets can provide exposure to these fast-growing sectors, which often have long-term contracts and stable cash flows.

Deglobalization

is the shift away from an integrated world economy towards more regional and local production and consumption. It is driven by geopolitical tensions, trade disputes, supply chain disruptions, and rising nationalism. Real assets can help investors diversify their portfolios across different regions and markets, as well as benefit from the increased demand for local infrastructure and resources.

Decarbonization

is the transition to a low-carbon economy that relies less on fossil fuels and more on renewable energy sources and technologies. It is motivated by the need to address climate change, reduce greenhouse gas emissions, and improve energy security and efficiency. Real assets can offer exposure to the green economy, including wind and solar farms, energy storage, electric vehicles, and smart grids.

Demographics

is the change in the size, structure, and distribution of the world's population. It is influenced by factors such as aging, migration, urbanization, and income growth. Real assets can capture the opportunities and challenges created by demographic shifts, such as the need for more housing, health care, education, and transportation infrastructure.

Investment Team

Franklin Real Asset Advisors is a distinguished multinational team that has been investing in global real assets since 1984. The portfolio managers use a time-tested investment process characterized by strong research and selection capabilities that includes top-down analysis, bottom-up due diligence and risk-mitigation. In addition, their expertise is backed up by the strength and stability of Franklin Templeton’s global platform, providing reporting, compliance and back-office capabilities with significant economies of scale.

Raymond J. Jacobs

Managing Director

Andrew D. Knox, CFA, CAIA

Managing Director - Franklin Global Real Assets Fund