The COVID-19 pandemic and the monetary support that followed exacerbated the long-term secular decline in interest rates.
As yields across traditional fixed income asset classes plunged to new historical lows in 2020, many investors enjoyed strong returns from their fixed income allocations thanks to rising prices. At the same time, however, real yields on core fixed income investments turned increasingly negative.
Given low yields across most fixed income asset classes today, traditional fixed income portfolios face significant downside risks if rates move higher yet offer little upside if rates decline. With this in mind, institutional investors have increasingly turned to alternative asset classes to fill the role that core fixed income typically played within a portfolio.
In this report, we discuss how CRE debt strategies may provide investors with the income, stability and capital preservation that traditional fixed income portfolios historically offered. We also review how the search for alternative income solutions is changing the investor base among CRE debt investors.