real assets overview - ncpers docs/annual... · 2017-05-24 · inflation hedging benefits average...

Real Assets Overview

Goldman Sachs Asset Management

2

Real Assets Overview Many Subcategories, Many Means of Implementation

Source: Goldman Sachs Asset Management. Note: As of 31-Mar-2017. These examples are for illustrative purposes only and are not actual results. If any assumptions used do not prove to be

true, results may vary substantially.


INCOME GROWTH

EQUITY vs. DEBT

vs.

vs. PUBLIC/LISTED PRIVATE

Real Estate Infrastructure Commodities

3

This chart is for illustrative purposes only. It does not constitute an offer to sell or a solicitation of an offer to buy any interest in any fund or separate account managed by GSAM. In addition, it is

not, and should not be viewed as, predictions or projections of future returns of the classes of assets illustrated herein or of any investments, including any fund or separate account managed by

GSAM. “Senior debt” is debt that must be repaid first in the event of bankruptcy. “Junior debt” is either unsecured or is lower priority than senior debt claims in the event of bankruptcy. “Core” targets

stabilized, fully leased, secure investments in major markets. “Value add” targets properties with in-place cash flow but seek to increase cash flow over time via improvement or repositioning.

“Opportunistic” targets properties for the purposes of significantly rehabilitating in order to realize cash flow potential. The economic and market forecasts presented herein are for informational

purposes as of the date of this presentation. There can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of this presentation.


Real Assets Overview Equity vs Debt / Income vs Growth

Retu

rn

Opportunistic

Core

Senior

Debt

Lower Risk / Higher Income

Junior

Debt

Value

Add

(Most “public/listed” falls here)

Higher Risk / Higher Growth

4

Real Assets Overview Global Real Estate (REITs): Spans Multiple Geographies and Sectors

Source: FactSet. Global REITs represented by FTSE EPRA/NAREIT Developed Index. Note: As of 31-Mar-2017. For illustrative purposes only.


Global REITs Sector Exposure Global REITs Region Exposure

Retail Industrial

Buildings Office

Buildings Apartments Hotels Health

Care

Data Storage &

Towers

57.2%

10.8% 10.6% 10.4%

6.1% 4.8%

0%

10%

20%

30%

40%

50%

60%

North America Japan Europe Ex-U.K. Asia Ex-Japan Pacific United Kingdom

23%

21%

15% 13%

7% 7%

5%

4% 4%

2%

0%

5%

10%

15%

20%

25%

5

Real Assets Overview Global Infrastructure (Listed): Spans Multiple Geographies and Sectors

Utilities & Energy Infra Transportation Infra

Communications Infra Social Infra

Infrastructure: with predictable cash flows Infrastructure Related: with less predictable cash flows

Engineering & Construction Materials

Energy Production Shipping & Airlines

22.2%

11.4% 11.0%

Utilities Energy Telecom. Towers

U.S.

Source: FactSet. Global Infrastructure represented by DJ Brookfield Global Infrastructure Index. Note: As of 31-Mar-2017.

Non-U.S.


Global Infrastructure Sector Exposure

20%

15%

11%

5%

1% 1% 1% 1%

0%

5%

10%

15%

20%

25%

Utilities Energy Toll Roads Airports Satellites Other Rail Ports Telecom.Towers

6

Real Assets Overview Attractive Investment Attributes

Investment Attributes

• Historically attractive yield relative to equities and bonds

• Long-term growth which provides interest rate resiliency

• Inflation hedging benefits

• Lower volatility compared to broader equities

• Diversification benefits

Attractive Yields1


Interest Rate Resiliency2

Average 3-Month

Total Return in a

Rising Rate

Environment

7.0%

3.8% 3.4%

2.6%

1.6%

0%

2%

4%

6%

8%

US EnergyInfrastructure

GlobalREITs

GlobalInfrastructure

GlobalEquities

GlobalBonds

Inflation Hedging Benefits3

Average Total Return in

High-Inflation Years

17.1%

12.4%

10.6%

7.1%

5.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

GlobalInfrastructure


Global REITs Global Equities Global Bonds

1 Source: FactSet, as of 31-Mar-2017. US Energy Infrastructure: Alerian MLP Index; Global REITs: FTSE EPRA/NAREIT Developed Index; Global Infrastructure: Dow Jones Brookfield Global

Infrastructure Index; Global Equities: MSCI World Index; Global Bonds: Barclays Global Aggregate Index – Yield to Worst. 2 Source: Goldman Sachs Asset Management, Bloomberg, and Barclays, as

of 31-Mar-2017. Historical sensitivity to rising interest rates is represented by the asset class returns during three month periods of time in which the US 10-Year Treasury rose at least 1%, beginning

in 1995. 3 High-inflation periods are calendar years when inflation was ~3% or higher: 2004, 2005, 2007, and 2011. Average represents a simple average of the four inflationary years. Global

Infrastructure: S&P Global Infrastructure Index; US Energy Infrastructure: Alerian MLP Index; Global REITs: FTSE EPRA/NAREIT Developed Index; Global Equities: MSCI World Index; Global

Bonds: Bloomberg Barclays Global Aggregate Bond Index. Please refer to the disclosures in the appendix for asset class definitions. Diversification does not protect an investor from market risk and

does not ensure a profit. Past performance does not guarantee future results, which may vary. These examples are for illustrative purposes only and are not actual results. If any assumptions

used do not prove to be true, results may vary substantially.

-15% -10% -5% 0% 5% 10%

Global Equities

US Equities

US Energy Infrastructure

Global REITs

Global Infrastructure

Short US Treasury

Intermediate US Treasury

US Aggregate Bonds

Global Aggregate Bonds

Long US Treasury

7

Real Assets Overview: Public/Listed vs Private We Believe Each Has Its Advantages and They Should Co-Exist in a Portfolio

Source: Goldman Sachs Asset Management, NAREIT.

As of 31-Mar-2017. Diversification does not protect an investor from market risk and does not ensure a profit. Past performance does not guarantee future results, which may vary.


Considerations Public

(Listed)

Private

(Core/Core Plus)

Liquidity Higher Lower

Diversification (by geography, type, tenant) Higher Lower

Minimum Investment Lower Higher

Fees Often Lower Often Higher

Scope of style Narrower: Core/Core Plus Wider: Core to Opportunistic

Control Low Varies (w/ potential to be higher)

Volatility Higher Lower

(but higher than often assumed by investors)

Correlation to Other Asset Classes Higher Lower

(but higher than often assumed by investors)

8

We believe one needs to adjust for the following factors when comparing the two:

1) Differences in leverage: Private return data is often quoted without leverage, public includes it

2) Differences in frequency of pricing: Public is priced real time, private less frequently

3) Differences in composition: Private typically includes the four major sub-sectors, public includes more

1 Source: GSAM. 1-Jan-1981 to 31-Dec-2016. US Public Real Estate: FTSE/NAREIT All Equity REIT Index. US Private Real Estate: NCREIF Fund Index-Open End Diversified Core Equity. 2 Source: CEM Benchmarking, 2016. Note: 1-Jan-1995 to 31-Dec-2014. The study analyzes return data from individual US Defined Benefit Pension Plan sponsors/endowments. Past correlations

are not indicative of future correlations, which may vary. Past performance does not guarantee future results, which may vary. Views and opinions expressed are for informational purposes only

and do not constitute a recommendation by GSAM to buy, sell, or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change, they should not

be construed as investment advice.

Post-Adjustment, Public and Private Correlations Increase… 1 …While Risk Discrepancies Narrow2


Real Assets Overview: Public/Listed vs Private While Public/Listed Exhibits Higher Volatility & Correlations than Private, We Believe

the Difference is Lower than Often Assumed by Investors

0.64

0.76 0.81

0.86 0.86

0.22

0.40

0.49 0.52 0.56

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1 2 3 4 5

Co

rrela

tio

n C

oe

ffic

ien

t

Rolling Return Holding Period (Years)

Correlations US REITs vs. US Private Real Estate (Core)

1994-2016

Data Adjustments

No Adjustments

11.5%

16.8%

18.6%

0%

5%

10%

15%

20%

US PrivateReal Estate

US PrivateReal Estate (adj.)

US PublicReal Estate

US Pension Fund Real Estate Investments 1998-2014

An

nu

ali

zed

Vo

lati

lity

9

1 Source: FactSet. Global REITs: FTSE EPRA/NAREIT Developed Index. Note: As of 31-Mar-2017. 2 Source: FactSet. Global Infrastructure: Dow Jones Brookfield Global Infrastructure Index. Note: As of 31-Mar-2017.


Real Assets Overview: Public/Listed vs Private We Believe the Public Market is Now Liquid Enough and Diverse Enough for Large

Institutional Capital

Global REITs1 Global Infrastructure2

The Global REIT market has grown at a

Compound Annual Growth Rate (CAGR) of

13% since 2002

The Global Infrastructure market has grown

at a Compound Annual Growth Rate (CAGR)

of 15% since 2002

$0

$200

$400

$600

$800

$1,000

$1,200

2002 2004 2006 2008 2010 2012 2014 2016

Mark

et

Cap

italisati

on

($m

n)

$1.0tn $1.6tn

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

2002 2004 2006 2008 2010 2012 2014 2016

Mark

et

Cap

italisati

on

($m

n)

10

Why Liquid Real Assets Now?

Limited supply

Stable or improving demand

Accommodative financing environment

Expensive relative to history

Fair relative to equities

Cheap relative to bonds

Cheap relative to private

Transition from monetary to fiscal and ensuing

inflation may benefit real assets

US policy changes (lower taxes and less

regulation) should be especially supportive of US

Energy Infrastructure

1) Healthy Fundamentals

4) Fair Valuations

2) Policy Tailwinds

As of 31-Mar-2017. Source: Goldman Sachs Asset Management, Preqin. Goldman Sachs does not provide accounting, tax or legal advice. Please see additional disclosures at the end of this

presentation. The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. There can be no assurance that the forecasts will be achieved.

Please see additional disclosures at the end of this presentation.

Backdrop makes relative attributes more

attractive vs. bonds

Billions of dollars of capital have been raised in

the private markets but not yet invested

3) Strong Technicals


Healthy Fundamentals, Policy Tailwinds, Strong Technicals, Fair Valuations

11

Why Liquid Real Assets Now? Attractive Total Return Expectations in 2017

Source: Goldman Sachs Asset Management. Note: As of 31-Mar-2017. Past performance does not guarantee future results, which may vary. The economic and market forecasts presented

herein have been generated by GSAM for informational purposes as of the date of this presentation. They are based on proprietary models and there can be no assurance that the forecasts will be

achieved. Please see additional disclosures at the end of this presentation. Views and opinions expressed are for informational purposes only and do not constitute a recommendation by GSAM to

buy, sell, or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change, they should not be construed as investment advice.

• We anticipate high single digit returns:

Multiple expansion: none

Potential for upside from M&A activity

• In 2017, we believe LRA may:

Outperform fixed income

Outperform defensive equities (e.g. utilities, consumer staples)

Underperform cyclical equities (e.g. industrials, consumer discretionary)

2017 Return Expectations

Higher Total

Return

Lower Total

Return

Cyclical equities

Liquid Real Assets

Defensive equities

Fixed income


12

16%

31%

0

10

20

30

40

50

60

70

80

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Co

rrela

tio

n (

%)

S&P 500 3-month Pairwise Stock Correlation

3 mo Stock Correlation Long-term Average

85 bps

65 bps

20 bps

0

10

20

30

40

50

60

70

80

90


Global RealEstate

GlobalEquities

ETF Expense Ratios

Active Managers Have a

History of Outperforming2

70%

36%

82%

52%

92%

73%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Energy Infrastructure Global Real Estate

Return Percentile Rank of Select Benchmarks

(100th Percentile is the Lowest Rank)

Last 1 Year Last 5 Years Last 10 Years

Why Liquid Real Assets Now? We Believe an Active Approach is Prudent In Real Assets, Especially Today

Real Assets ETFs are Expensive1


1 Source: Morningstar. Alerian MLP ETF is used since there is no index that is representative of the opportunity set for offshore investors. iShares Global Real Estate UCITS ETF. iShares Core MSCI

World UCITS ETF. As of 31-Mar-2017. 2 Source: eVestment. As of 31-Mar-2017. Energy Infrastructure = Alerian MLP vs. MLP eVestment universe. Global REITs = FTSE EPRA/NAREIT Developed

Index vs. Global REIT eVestment universe. 3 Source: Goldman Sachs Global Investment Research. As of 31-Mar-2017. Past correlations are not indicative of future correlations, which may vary.

These examples are for illustrative purposes only and are not actual results. If any assumptions used do not prove to be true, results may vary substantially. The economic and market forecasts

presented herein are for informational purposes as of the date of this presentation. There can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of

this presentation. Past performance does not guarantee future results, which may vary.

Stock Correlations Have Come Down3

Likely Dispersion Ahead

• In our view, the equity return environment of the next 5 years will likely be very different than the last 5 years

• We believe varying interest rate policies, broadening growth opportunities, and increased M&A should create increased dispersion ahead

13

Portfolio Positioning: Global Listed/Public Real Estate We Currently Favor Companies with Higher Growth and Lower Rate Sensitivity

Source: Goldman Sachs Asset Management. As of 31-Mar-2017. These examples are for illustrative purposes only and are not actual results. If any assumptions used do not prove to be true,

results may vary substantially.

Sector Hotels Self Storage Residential Industrial Office Towers/Data

Centers Retail Health Care

Typical

Lease Term 1 night 1 month 1 year 3-5 years 5-10 years 5-10 years 5-10 years 10+ years

DURATION OF LEASE

Shorter Longer

Higher Economic Sensitivity

Lower Rate Sensitivity

Lower Economic Sensitivity

Higher Rate Sensitivity

Constructive

• Hotels

• Apartments

• Select retail (ex malls)

US UK & Europe Asia-Pacific

Neutral

• Office

• Self-storage

• Tech real estate / other

Cautious

• Select retail (malls)

• Industrials

• Health care

Constructive

• Australia

• Japan (C-Corps)

• Singapore

Neutral

• New Zealand

Constructive

• Spain office and retail

• Dublin office

• Germany residential

Neutral

• France office

Cautious

• UK (particularly London office)

Cautious

• Hong Kong

ECONOMIC & INTEREST RATE SENSITIVITY


14

Portfolio Positioning: Global Listed/Public Infrastructure

Source: Goldman Sachs Asset Management. Note: As of 31-Mar-2017. The economic and market forecasts presented herein are for informational purposes as of the date of this presentation.

There can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of this presentation.


Energy

Infrastructure

Infrastructure

Related

Transportation

Infrastructure

Selective: Structural bias against developers due to high cyclicality and unpredictable cash flows, but may

opportunistically add names levered to increase in U.S. fiscal spending.

Utilities Cautious: Regulated cash flows and inelastic demand create predictable but low-growth cash flows which make them

more exposed to rising interest rate risk.

Communications

Infrastructure Constructive: Stands to benefit from data-driven demand growth and rising penetration levels in developing markets.

Offers higher growth vs other sectors yet low economic sensitivity due to secular nature of demand.

Constructive: Energy production volumes poised to increase due to recovery in global commodity prices, improved

competitive position for U.S. producers, and favorable U.S. policy tailwinds (especially lower corporate taxes and less

regulation). Attractive relative valuations.

Neutral: Long lease terms and inelastic demand create predictable but low-growth cash flows which make them more

exposed to rising interest rate risk, but less so than utilities. Modestly overweight rail and toll roads, and underweight

airports.

Utilities Transportation Infrastructure Energy Infrastructure Communications

Infrastructure

Higher Growth

Lower Rate Sensitivity

Lower Growth

Higher Rate Sensitivity

We Currently Favor Companies with Higher Growth and Lower Rate Sensitivity

15

General Disclosures

This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.

Past performance does not guarantee future results, which may vary. The value of investments and the income derived from investments will fluctuate and can go down as well as up.

A loss of principal may occur.

THESE MATERIALS ARE PROVIDED SOLELY ON THE BASIS THAT THEY WILL NOT CONSTITUTE INVESTMENT ADVICE AND WILL NOT FORM A PRIMARY BASIS FOR ANY

PERSON'S OR PLAN'S INVESTMENT DECISIONS, AND GOLDMAN SACHS IS NOT A FIDUCIARY WITH RESPECT TO ANY PERSON OR PLAN BY REASON OF PROVIDING THE

MATERIAL OR CONTENT HEREIN. PLAN FIDUCIARIES SHOULD CONSIDER THEIR OWN CIRCUMSTANCES IN ASSESSING ANY POTENTIAL INVESTMENT COURSE OF ACTION.

This material is provided at your request for informational purposes only. It is not an offer or solicitation to buy or sell any securities.

The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.

This material contains information that discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions. It also pertains to past performance

or is the basis for previously-made discretionary investment decisions. This information should not be construed as a current recommendation, research or investment advice. It should not be

assumed that any investment decisions shown will prove to be profitable, or that any investment decisions made in the future will be profitable or will equal the performance of investments discussed

herein. Any mention of an investment decision is intended only to illustrate our investment approach and/or strategy, and is not indicative of the performance of our strategy as a whole. Any such

illustration is not necessarily representative of other investment decisions.

This material has been prepared by GSAM and is not financial research nor a product of Goldman Sachs Global Investment Research. . It was not prepared in compliance with applicable provisions

of law designed to promote the independence of financial analysis and is not subject to a prohibition on trading following the distribution of financial research. The views and opinions expressed may

differ from the views and opinions expressed by Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult

with their financial advisors before buying or selling any securities. This information should not be relied upon in making an investment decision. GSAM has no obligation to provide any updates or

changes.

Economic and market forecasts presented herein reflect a series of assumptions and judgments as of the date of this presentation and are subject to change without notice. These forecasts do not

take into account the specific investment objectives, restrictions, tax and financial situation or other needs of any specific client. Actual data will vary and may not be reflected here. These forecasts

are subject to high levels of uncertainty that may affect actual performance. Accordingly, these forecasts should be viewed as merely representative of a broad range of possible outcomes. These

forecasts are estimated, based on assumptions, and are subject to significant revision and may change materially as economic and market conditions change. Goldman Sachs has no obligation to

provide updates or changes to these forecasts. Case studies and examples are for illustrative purposes only.

Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. We have relied upon and assumed without

independent verification, the accuracy and completeness of all information available from public sources.

An investment in real estate securities is subject to greater price volatility and the special risks associated with direct ownership of real estate.

Views and opinions expressed are for informational purposes only and do not constitute a recommendation by GSAM to buy, sell, or hold any security. Views and opinions are current as of the date

of this presentation and may be subject to change, they should not be construed as investment advice.

Goldman Sachs does not provide accounting, tax, or legal advice. Notwithstanding anything in this document to the contrary, and except as required to enable compliance with applicable securities

law, you may disclose to any person the US federal and state income tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses)

that are provided to you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind. Investors should be aware that a determination of the tax

consequences to them should take into account their specific circumstances and that the tax law is subject to change in the future or retroactively and investors are strongly urged to consult with

their own tax advisor regarding any potential strategy, investment or transaction.

16

General Disclosures

Index Benchmarks

Indices are unmanaged. The figures for the index reflect the reinvestment of all income or dividends, as applicable, but do not reflect the deduction of any fees or expenses which would reduce

returns. Investors cannot invest directly in indices.

The indices referenced herein have been selected because they are well known, easily recognized by investors, and reflect those indices that the Investment Manager believes, in part based on

industry practice, provide a suitable benchmark against which to evaluate the investment or broader market described herein. The exclusion of “failed” or closed hedge funds may mean that each

index overstates the performance of hedge funds generally.

Confidentiality

No part of this material may, without GSAM’s prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee,

officer, director, or authorized agent of the recipient.

References to indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only and do not imply that the portfolio will

achieve similar results. The index composition may not reflect the manner in which a portfolio is constructed. While an adviser seeks to design a portfolio which reflects appropriate risk and return

features, portfolio characteristics may deviate from those of the benchmark.

© 2017 Goldman Sachs. All rights reserved.

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