There are many approaches an astute investor may employ when it comes to discovering a profitable real estate investment solution. One of them is committing capital, mainly when a new opportunity arises. While a general rule of thumb still largely remains the wide limits on each asset class, the lucrativeness of each opportunity ultimately determines the direction the investment process takes.
In this pragmatic method, the benefits of individual deals are significantly emphasized upon. However, the risk of unplanned or random factor biases being created in the portfolio still remains.
This, however, is countered by a complementary factor-oriented method that develops factor targets to yield better factor exposures before investing and sourcing capital. The downside of this process is the lengthy implementation process it usually has.
GoGlux provides a hybrid solution to this. While the basis is still demanding factor targeting and analysis, the opportunistic deal choice is still allowed thanks to the flexibility of this approach. To execute this strategy successfully, private investments must be combined with public real asset strategies.
- The deal-oriented opportunistic method
Many tangible assets have a private nature which implies that building a portfolio based on real assets only would be determined by the availability of deals. As funds get raised by general partners, the most lucrative deals get selected by institutional investors for their portfolios.
The result is that a portfolio gets created by this opportunistic method that consists of both assets and their associated risk exposures getting driven by the nature of the dynamic between the investor and his real asset partners and the deal flow.
However, the perks of being well-positioned to make tactical commitments and respond promptly to new opportunities for the portfolio are countered by the cost of bringing in unplanned factor biases in it.
- The strategic factor-oriented method
A rather strategic method to construct a real asset portfolio is taking a strategic factor-oriented approach. Specific factor exposures get targeted to determine portfolio composition. Before they commit the capital, investors find out what their optimal factor exposures are. Factor exposure targets then get populated by sourced opportunities.
The risk of unplanned factor concentrations also gets mitigated by the portfolio’s overall asset allocation, which includes developments of the said targets. Care must be taken to follow this approach very rigidly since that makes investors reject lucrative opportunities that don’t entirely meet their set factor exposure targets.
- The hybrid method that practically implements allocations
The approach proposed by GoGlux brings in the best of both the discussed methods. The result is a factor-based, strategic method with enough flexibility to facilitate tactical asset allocation as opportunities arise for new investment.
The practical process of meeting factor exposure targets even to a certain degree is quite challenging. Investment in real assets relies largely on fund offerings and the availability of new and lucrative opportunities. This holds true not only for private investment mechanisms but even for public pools investing in similar basic assets as private entities.
The achievement of the investor’s objectives requires a thorough assessment of these investment opportunities for their potential. If such an opportunity has potential, then capital must be sourced timely to make the most of the offer.