JPMorgan Global Core Real Assets Limited (JARA) is a proposed investment company that will aim to generate an attractive income and total return by investing across real assets sectors which are usually only accessible to institutional investors. The target yield is 4%-6%, from a 7%-9% total return.
JARA will invest as a Limited Partner (LP) in private, perpetual life strategies run by the J.P. Morgan Global Alternatives Group. These will invest in private assets across, core global infrastructure, core real estate (US and Asia Pacific) and core global transportation sectors, which together will make up c. 80% of the portfolio. The remainder will be invested in publicly listed real asset securities, through segregated mandates investing in REITs (all-tranche) as well as infrastructure and transportation securities. The bespoke segregated mandates will provide flexibility, liquidity and compliment the private asset returns.
JARA’s aim is to provide a defensive income stream from high quality real assets with low correlation to major equity markets and a low volatility, thanks in part to their low cross-correlations. The “core” nature comes from the high quality of the underlying assets, and the fact that the managers believe these assets should generate steady returns through the cycle by generating two thirds of the return through highly predictable, mostly contracted sources of income.
The investment company will target a quarterly dividend payment. The target asset allocation would have generated income of over 5% last year, which compares favourably to the current listed infrastructure and property sector averages. In contrast to trusts in these sectors, JARA’s income will be generated from outside the UK (95% of the target portfolio), providing diversification for existing investors in these peer groups and exposure to assets that are currently difficult to access in a listed format.
The asset allocation of the portfolio will be managed by the Alternatives Solutions Group (ASG) with portfolio insights and design led by Jamie Kramer with assistance from Jason DeSena and Pulkit Sharma. This team has a history of structuring custom solutions incorporating Real Asset capabilities spanning over 10 years, with an objective-driven portfolio design process tailored to the individual preferences of investors and their consultants. ASG advise on and build multi-alternative portfolios for institutional clients from the $145bn of assets managed by the J.P. Morgan Global Alternatives Platform. JARA opens up this real asset pool to the UK wholesale and retail market for the first time.
J.P. Morgan are targeting a minimum raise of £100m with a cap of £500m. The expectation is that the trust will be 80% invested by six months, and 100% by 12 months, with the ramp-up being due to the investment queues currently present with the underlying private strategies.
The management fee will depend on the amount raised, with a 98bps maximum falling to 91bps if £500m is raised. There are also performance fees on two of the underlying strategies. We expect the OCF ex performance fees to come in at around 1.2% to 1.3%, which compares to an average OCF ex performance fees of 1.24% in the listed infrastructure sector, although as JARA grows this has the capacity to reduce markedly.
This is an opportunity for wholesale and retail investors to gain access to the return and income-generating potential in an investment universe usually only accessible to institutions due to high minimums and structure limitations. The combination of the defensive qualities and yield they offer makes JARA an interesting proposition, we believe, particularly in the current market environment in which yields on fixed income look compressed and the global economy is closer to the next downturn than expansion.
We expect few investors in the UK have significant private global infrastructure and property investments outside the UK, and diversifying the risks in the domestic economy seems particularly attractive at this juncture. Furthermore, the significant diversification across 500 plus assets would be hard to achieve without access to the JPMorgan real assets platform.
|Offers diversifying sources of income with the ability to shift strategically to maintain a yield
||Some of the diversification benefits of investing in real assets may be lost as the shares will trade on the stock market
|Offers access to sectors, asset classes and geographies hard to find elsewhere
||Amalgamation of exiting strategies, no full control over asset allocation
|Historic asset class returns suggest low correlation to markets and low beta, which could be attractive as we near the end of the cycle
||There are performance fees on two of the underlying strategies which may deter some|