Asset Class Deep Dive

Real Assets & Infrastructure

Physical assets with intrinsic value, from commercial real estate and toll roads to data centers and power grids, providing inflation protection, durable income, and portfolio stability.

What Are Real Assets?

The Building Blocks of the Physical Economy

Real assets encompass physical assets that have intrinsic value because of their substance and properties. They include commercial real estate, infrastructure systems (transportation, digital, power, utilities), farmland, timber, and natural resources.

Unlike financial assets, stocks, bonds, derivatives, real assets generate returns tied directly to the physical world: rents, tolls, transmission fees, and commodity prices. This connection to tangible economic activity makes them one of the most reliable long-term inflation hedges available to institutional investors.

For UHNW investors, private real assets provide something public REITs and infrastructure ETFs cannot: direct ownership, negotiated terms, tax structuring optionality, and the ability to hold assets inside PPLI wrappers that eliminate the most punishing aspects of real asset tax treatment.

Inflation Protection

Contracts tied to CPI escalators, commodity prices, and replacement costs rise with inflation, preserving purchasing power that fixed-income cannot.

Durable Income

Leases, toll agreements, and power purchase contracts generate predictable, long-duration cash flows that institutional investors prize for liability matching.

Portfolio Stability

Physical assets are valued infrequently, their income is contractually defined, and their prices are less correlated to public equity market volatility.

Government-Backed Demand

A $15 trillion global infrastructure investment gap means governments worldwide need private capital to fund critical systems, creating durable investment opportunities.

Infrastructure

Privately Funded Public Systems

Infrastructure consists of the physical systems required for economies to function, transportation networks, energy grids, water systems, digital connectivity. Governments worldwide increasingly rely on private capital to finance, build, and operate these assets in exchange for long-term contracted revenue streams.

Global Infrastructure Investment Gap

$15T

The estimated shortfall between what the world must spend on infrastructure by 2040 and what governments can be expected to fund, creating a structural, decades-long investment opportunity for private capital.

Source: G20 Global Infrastructure Outlook

Infrastructure Sectors

Transportation

Toll roads, airports, rail networks, ports

Digital Infrastructure

Data centers, fiber networks, cell towers, cloud infrastructure

Power & Energy

Power generation, transmission, renewable energy assets

Utilities

Water systems, gas distribution, waste management

Industrial & Social

Hospitals, schools, government facilities, logistics hubs

Investment Characteristics

Essential services supported by hard assets

Long-term contracted or regulated revenue streams

Inflation escalation built into most contract structures

Well-established market positions with high replacement cost

Commercial Real Estate

Private Real Estate Investing

Commercial real estate refers to properties used for business or investment purposes with the goal of generating capital appreciation, income, or both. Private real estate investments are directly negotiated, not traded on public exchanges, allowing for custom structuring and superior tax treatment.

Sectors We Access

Industrial & Logistics

Warehouses, distribution centers, cold storage

Residential

Multifamily, single-family rental, manufactured housing

Office

Urban high-rise, suburban campus, life science properties

Retail

Grocery-anchored centers, necessity retail, outlet centers

Hospitality

Select-service hotels, extended stay, resort properties

Equity vs. Credit

Real Estate Equity

Ownership interest in a property. Returns come from rental income and property appreciation. Higher risk and return potential, equity holders absorb both upside and downside in property value.

Real Estate Credit

Mortgage loans and mezzanine debt secured by real property. Returns come from contractual interest payments. More senior in the capital stack, debt holders have priority claim on assets in distress scenarios.

Tax Efficiency

Solving the Real Asset Tax Problem with PPLI

Real assets generate several complex tax problems that PPLI neutralizes with surgical precision. Depreciation recapture taxes penalize real estate investors on sale. UBTI (Unrelated Business Taxable Income) creates surprise tax bills in real estate and infrastructure fund structures. And the K-1 complexity of real asset partnerships rivals any asset class.

Inside a PPLI policy, UBTI is eliminated entirely, the insurance wrapper shields all underlying income from this tax. Depreciation recapture never materializes because gains inside the policy are never recognized as taxable events. The entire return, income, appreciation, and carried interest, compounds tax-free.

Learn how PPLI works

Depreciation Recapture

Eliminated by PPLI

When real estate is sold, depreciation previously taken is recaptured at 25%, a tax that can be deferred indefinitely inside PPLI.

UBTI (Unrelated Business Taxable Income)

Eliminated by PPLI

Real estate and infrastructure fund structures often generate UBTI, taxable even in tax-exempt accounts. PPLI eliminates it completely.

Annual K-1 Complexity

Eliminated by PPLI

Multiple K-1 forms from fund partnerships require expensive CPA reconciliation every year. Inside PPLI, no K-1s pass through to the policyholder.

1031 Exchange Requirements

Eliminated by PPLI

Without PPLI, real estate investors must orchestrate complex 1031 exchanges to defer capital gains. Inside PPLI, gains are never triggered, eliminating the need for exchanges.

Considerations

What to Understand Before Investing

Illiquidity and Long Hold Periods

Real estate and infrastructure funds typically hold assets for 7–12 years. Secondary market transactions exist but are illiquid and may involve significant discounts. Capital must be treated as committed for the duration.

Leverage and Interest Rate Sensitivity

Real assets are typically acquired with significant debt. Rising interest rates increase financing costs, compress cap rates, and can reduce property values. Interest rate risk is the primary macro risk for the asset class.

Geographic and Sector Concentration

Individual real asset funds may be concentrated in specific markets, property types, or infrastructure sectors. Diversification across geographies and sectors is an important risk management consideration.

Active Asset Management Required

Unlike a passive stock holding, real assets require active management, leasing, maintenance, financing, regulatory compliance, and eventual exit strategy. Manager operational capability is as important as investment selection.

Frequently Asked Questions

What counts as a real asset?

Real assets are physical or tangible assets with intrinsic value, including commercial real estate, infrastructure (toll roads, airports, power grids, data centers), farmland, timber, and natural resources. They are distinct from financial assets, which derive value from contractual claims rather than physical substance.

Why are real assets considered inflation hedges?

Real assets generate income that is typically tied to contracts with explicit inflation escalators (infrastructure), or to the price of goods and services that rise with inflation (commodity-linked real estate, farmland). As inflation increases the cost of replacing physical assets, existing real asset values also rise. This makes them one of the most effective long-term inflation hedges in a diversified portfolio.

What is the $15 trillion infrastructure gap?

The G20 Global Infrastructure Outlook estimates a $15 trillion gap between what the world needs to spend on infrastructure by 2040 and what governments can be expected to provide. This funding gap has made private infrastructure one of the fastest-growing segments of alternative investment, as asset managers step in to finance roads, bridges, power infrastructure, and digital connectivity.

What are the tax issues with real estate and infrastructure?

Real estate investments generate depreciation recapture taxes on sale, Unrelated Business Taxable Income (UBTI) for tax-exempt holders, and complex K-1 structures. Infrastructure funds can generate similar UBTI and phantom income events. PPLI eliminates UBTI exposure entirely and defers all other tax events for the life of the policy.

Explore Real Asset Allocations

Gideon sources institutional real estate and infrastructure managers and structure allocations for maximum after-tax efficiency inside PPLI.