Based in Geneva, Switzerland, Celestin Pepin is a private market investment management specialist with significant experience of various asset classes, including alternative assets. This article will look at real assets and their potential to hedge against inflation.
Comprising assets such as infrastructure, real estate, and natural capital assets, real assets are physical assets that have an essential or true value that is derived from their physical properties. Examples might include land, precious metals, or agricultural equipment. Conversely, intangible assets are assets that cannot be held or seen. However, intangible assets can also be incredibly valuable, encompassing everything from commercial goodwill and branding to patents and trademarks.
Real assets and financial assets are distinct asset classes. Whereas real assets have an intrinsic value, financial assets derive their value from a contractual claim on an underlying asset. For example, while property and commodities are real assets, exchange-traded funds and real estate investment trusts constitute financial assets, with their value dependent on the performance of the underlying real assets.
Investing in real assets has various pros and cons. While their value tends to be more stable, they have less liquidity than financial assets, taking longer to sell and typically attracting higher transaction fees. Real assets generally have higher carrying and storage costs than financial assets too. For example, gold bullion is often stored in third-party facilities, which charge monthly insurance and rental fees.
During the 1980s, the Federal Reserve, along with other Central Banks, changed their monetary policy with the aim of combating high inflation. This policy change culminated in decades of low inflation, until recently. Due to this sustained period of economic stability, there is limited data available to gauge how different asset classes can be used to hedge against inflation. In addition, many asset classes are tied to operating businesses, with their profitability heavily influenced by leadership decisions.
Following a long period of low inflation, the U.S. economy saw sharp price increases in 2021 that only began to ease in 2025. The Federal Reserve recently estimated that annual inflation over the next 10 years would only amount to around 2.3%, although some economists caution that higher inflation may persist due to continuing budget constraints, tighter labor markets, and the continuing threat of tariff increases.
In the lead up to 2021, the global economy saw more than three decades of comparably low inflation, limiting the scope of past analyses. However, with new inflationary trends, analysts now have a different set of data to evaluate, providing vital insights through their evolving research.
The lion’s share of this research has focused on public market securities due to a lack of robust long-term data for private assets. However, as private markets become more established, future research could provide insights into how effective such assets might be as inflation hedges compared to public markets.
A paper published in 2023 by the National Bureau of Economic Research provided valuable insights into the inflation-hedging capabilities of public asset classes. The study revealed that, in the short term, only commodities offer an effective hedge against inflation, suggesting that, of all commodities, investing in the energy market had the greatest impact.
Nevertheless, the research also revealed that none of the traditional asset classes, including commodities, offered meaningful protection against anticipated inflation. Rather, they only provided protection where inflation arose unexpectedly. Over a longer period of eight quarters, the study suggested that no asset class could offer meaningful protection against inflation.
While this is just one study, and others may arrive at differing conclusions, the National Bureau of Economic Research paper does offer a cautionary perspective for investors keen to safeguard their portfolios against inflation.