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Accessing Private Securities in Real Asset Markets

Ben Rotenberg, portfolio manager with Principal and the Closed-End Fund Association discuss the potential for interval funds to provide access to private securities in the real assets sectors as part of CEFA’s CEF Insights podcast series. The podcast audio can be heard here.

CEFA: Welcome to CEF Insights, your source for closed-end fund information and education, brought to you by the Closed-End Fund Association. My name is Diane Merritt.

Before we start our discussion, I would like to note the Closed-End Fund Association is holding an educational conference for registered investment advisors on March 10th in Fort Lauderdale, Florida. For more information and registration, please go to

Today we are joined by Ben Rotenberg, portfolio manager with Principal and the Principal Portfolio Strategies team. We are very happy to have you with us today, Ben.

BR: Thanks. I'm happy to be here.

CEFA: Ben, you are part of the team that recently launched and now manages an interval fund. Many investors may be unfamiliar with this structure. Can you discuss the characteristics of interval funds and how they may benefit investors?

BR: Sure, Diane. We think that the less liquid structure of interval funds is perfect for this type of opportunity, because it allows us as a portfolio management team to more closely match the illiquid exposures of the underlying portfolio with the liquidity of the structure. In some ways, it allows investors to benefit from the opportunities that we see in the less liquid asset classes in real assets, and some investment opportunities that previously they probably could not get exposure to in a more typical liquid structure like a mutual fund.

CEFA: Some investors may struggle with the liquidity constraints of an interval fund investment. How should an investor consider positioning interval funds in their portfolio to offset any hesitation they may have?

BR: The way I think about it is that an interval fund is probably not appropriate for an entire portfolio for any investor. But there certainly is liquidity at the structure level. The liquidity is limited at the fund level, but any individual investor may certainly be able to have liquidity when they need it. And that will just depend on other requested withdrawals from other investors. I certainly think that investors should consider an investment in an interval fund or any less liquid investment as a portion of their portfolio, not for the entire piece. And the way that I think about that is, most investors are taking some type of risk. And in this case I think about exchanging a piece of volatility risk, for example, for some illiquidity risk. And there certainly is a piece of most client portfolios where you could take some illiquidity risk or delay, if you will, delay the time horizon for that piece of the portfolio to a later time.

CEFA: Your team manages Principal Diversified Select Real Asset Fund, symbol PDSYX. What sectors do you consider for your portfolio of real asset securities?

BR: So we're considering three broad sectors: infrastructure, natural resources and real estate. For us, the two core exposures will be in infrastructure and natural resources. And those both have many components or sub industries, if you will. Within infrastructure, we›re certainly considering debt instruments as well as equity. And really all over different parts of the infrastructure world, infrastructure sectors tend to include things like transportation, roads and rails if you will, but also energy pipelines. Infrastructure also would include other sectors within transportation, such as airports or sea ports, as well as utilities and utility related sectors.  And again, we'd be investing in both equity and fixed income opportunities within those infrastructure sectors.

Natural resources would include things like agriculture and timber related investments. Again, here both equity and debt related opportunities are available. And there certainly are some other areas within natural resources that may be less opportune at this time, such as energy or mining related investments. I think for now we're pretty focused on agriculture and timber.

The real estate piece of the portfolio we think of as certainly part of the investment universe, and a place where we want to find opportunities. But we're less likely to invest in core private real estate. Many investors already have that as part of their portfolios today. And we're more likely to invest in areas slightly outside of the core, maybe a little bit nichier opportunities in real estate debt or in equities outside of the core.

CEFA: How active are you in allocating among these sectors, and what goals and/or risks are you trying to address as you modify those allocations?

BR: First and foremost, our goal is to deliver outstanding risk adjusted returns as well as good real returns, which we define as CPI plus. We also want to deliver attractive current yield to the portfolio. And we think that we can do that by allocating to a combination of private investment partnerships and in separately managed accounts, both in private or less liquid opportunities as well as in public securities to deliver on those objectives.
CEFA: PDSYX provides exposure to both public securities and private investments. How do you allocate among public and private investments, and what are the advantages of this blend of securities?

BR: Well, we think that the advantage of blending private and public securities is that it improves the risk characteristics of the portfolio. It allows us to deliver better risk adjusted returns and hopefully do so with less volatility than a public securities only portfolio. The target allocation would be approximately 70% in private or less liquid investments, and 30% in liquid or what we think of as mostly liquid investments. But that will change over time depending on the investment environment and what the opportunity set is that we see before us.

CEFA: Ben, the Fed has indicated that they are on hold for the near future. U.S. growth is steady, but global growth has been modest and headline inflation has not been significant for some time. How does all this position real asset investments in the current market and what is your outlook for 2020?

BR: I'm glad you asked, Diane. We're pretty constructive on 2020. There certainly are risks on the horizon. When we first started thinking about our outlook for 2020, the coronavirus was not even really on people›s radar screen, and now obviously that's a key risk that we have to factor in. But the global economy is growing. It's being supported by the world's central banks, all of whom are fairly accommodative today. We don't see a recession in the U.S. in our near-term future. And so there's certainly a lot to be optimistic about even in the face of the risks that we see, whether that's coronavirus, Brexit, the elections in the United States, all of which certainly have potential to cause doubt and fear in markets.

Inflation frankly hasn't been a problem for a long time, really as long as many current investors have been investing, since the early 1980s. But we believe that inflation can still take a bite out of investment portfolios. And so we think that it makes sense to position portfolios with some dose of exposures that can do well when inflation is a problem. That's certainly why many institutional investors allocate to real assets.

But we think that even in today's fairly benign inflation environment, you can build a portfolio of diversified real assets that can do well in a variety of environments. Another element that we think about when allocating to real assets is that while financial assets have been trading at or near all-time highs and at fairly expensive valuations in some cases, we think there's some very attractive valuation opportunities for many of the real asset classes to which we are allocating.
CEFA: We spoke about positioning interval funds in a portfolio, but what about an allocation to real assets? How do you see an allocation to real assets best positioned in an investor's diversified portfolio?
BR:  We often see institutional investors and other sophisticated investors carving out a separate bucket in their asset allocations for real assets. This is often 10 to 20% of portfolios, whether that›s pension plans or other portfolios. And quite frequently endowments and foundations have even larger allocations to real assets. And we think that probably the appropriate place to source those allocations is from a combination of equity and fixed income allocations.

CEFA:  Ben, we want to thank you so much for taking the time to join us today.

BR:  I appreciate the opportunity to be here.
CEFA:  Jeff, with interest rates at current levels, how do you believe an allocation to energy infrastructure is best positioned in the portfolio of an incoming seeking investor?
CEFA:  And we want to thank you for tuning into another CEF INSIGHTS Podcast. For more educational content, please visit our website at


Closed-end funds trade on exchanges at prices that may be more or less than their NAVs. There is no guarantee that an investor can sell shares at a price greater than or equal to the purchase price, or that a CEF's discount will narrow or be eliminated. CEFs often use leverage, which increases a fund's risk or volatility. The actual amount of distributions may vary with fund performance and market conditions. Past performance is no guarantee for future results.



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