Long income funds proved very resilient during the financial crisis. They still offer value in a different crisis – that of ultra-low or negative interest rates.

Low rates are a crisis all right for institutional investors such as pensions, endowments, insurance companies, and credit unions. And Europe is now again in negative territory. According to Alpha Real Capital, European long income property offers investors the opportunity for a significant yield differential over government and corporate bonds with comparable credit quality.

Long income property funds

Long income property is real estate let out on long leases from 15 – 200 years. These contracts generate secure, inflation-linked income-based returns that are relatively stable. They are also less sensitive to rising interest rates compared to liquid alternatives.

Institutional investors with long-term liabilities can channel funds into long income properties – these are a viable alternative source of long-dated secure income. These are especially sensible in an uncertain macroeconomic environment and offer useful portfolio diversification.

European long income property

“The Eurozone has a large pool of freehold, owner-operated (over 69%), high quality, income-generating assets,” says Alpha Real. These are ideal as Long Income Property.

Alpha Real’s European Long Income Fund (ELIF) will invest in commercial ground rounds, amortizing income strips, and long-lease property. The fund will target the needs of institutional investors.

It will look for euro-denominated, asset-backed, and secure inflation-linked income streams. The fund will focus on the Eurozone, especially Germany, Ireland, and the Netherlands.

Hugo James, partner and head of long income, Alpha Real, described long income property as “an attractive asset class.” European pension funds and insurers will appreciate the secure income streams from these assets. “Especially when nominal yields in northern Europe are likely to rule at close to zero or negative for the long term.”

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