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e combination of high prices and ris- ing rates has already changed the calculus for many large investors, he noted. "As debt becomes more expensive, it becomes increas- ingly challenging to pay these heady prices," says Deihl. Institutional investors are pursuing what Deihl calls a bifurcated strategy. ose with a high hurdle rate, or relatively high cost of cap- ital, are taking on a bit more risk by acquiring assets that "are less core in nature," he says. Others, such as pension funds, are beginning to accept potentially lower returns for "more- core" assets that tend to be resilient through multiple economic cycles. "One of the historic rationales for investing in infrastructure is that it's uncorrelated to the broader equity markets," explains Deihl. "If you stay core, that's still true today. But to the extent that you are doing a lot of core-plus or value-add, you are introducing a fair amount of beta risk that is a challenge to manage in a multi-asset portfolio, especially if you hold a lot of stocks and bonds," he cautions. THE LONG ROAD Indeed, as they look across the late-cycle uni- verse, many investors favor real assets that are expected to benefit from longer-term trends, such as the apartment and industrial sectors. e apartment sector has seen a great deal of development in recent years, but demand continues to outstrip supply in many mar- kets, and home affordability remains an issue for many would-be buyers, particularly mid- dle-income Americans, says Reagan of TH Real Estate. Strong market conditions contributed to a 6 percent increase in multifamily lending during 2017, as lenders provided a record $285 billion in new mortgages for apart- ment buildings with five or more units, according to the Mortgage Bankers Associa- tion's 2018 annual report on the multifam- ily lending market. Meanwhile, industrial properties, partic- ularly light-industrial buildings near cites, are benefitting from the rise of e-commerce, including online sales by traditional retailers. "Retailers are expanding their e-commerce platforms, and we don't see that trend going away anytime soon," says Reagan. BACK TO THE FUTURE For its part, MAI Capital Management remains bullish on energy-oriented master limited partnerships (MLPs), specifically midstream pipeline operators that are often described as toll-road-like businesses. e publicly traded MLPs generate revenue by collecting fees for moving, storing or process- ing energy. e volume of traffic, rather than the price of the material transported, deter- mines how much revenue they collect. Midstream MLPs give investors exposure to what has been dubbed one of the most-attrac- tive secular growth stories in North America, the revolution in production techniques that made the United States the world's largest pro- ducer of oil and natural gas. MAI began investing in midstream MLPs on behalf of some clients nearly 10 years ago, and its instincts proved right. e U.S. oil and natural gas markets subsequently took off, as did the growth and valuations of mid- stream MLPs. "We saw a business that owned very stable, cashflow-producing assets that also distrib- uted a large majority of income to sharehold- ers on a yearly basis and had steady growth, both from the inflation escalators built into pipeline contracts and the growth of the U.S. natural gas and oil markets," says John Zaller, the firm's CIO. en came the oil crisis of 2015, caused by a global, crude oil glut that pushed prices down to levels not seen since the financial crisis. Technological advances in drilling and Saudi Arabia's refusal to cut production as prices fell contributed to the glut. In response to the crisis, many midstream MLPs restructured their businesses and cut their growth rates and dividends. eir bal- ance sheets and fundamentals have improved dramatically over the past couple years, but their stock prices have not kept pace, says Zaller. Oil and natural gas prices have trended upward since 2016, although oil fell back into bear-market territory earlier this year. "Going forward, it feels like we are back to the environment we identified when we ini- tially invested in the space," says Zaller. "You have stable, cashflow-producing assets with probably more-modest growth than had been expected in 2013 or 2014, but still pretty steady growth." With the yield on Alerian MLP Index at slightly more than 8 percent (as of early November), the midstream MLP space, he said, represents an "attractive total-return opportunity" tied to the country's dominance of the global energy markets. What about the looming threat posed by the proliferation of electric cars, which is expected to reduce worldwide oil demand? Zaller and his colleagues think it is too soon to write the oil industry's obituary. ey argue that breakthroughs in electric-vehicle battery technology are likely to be slower than many others anticipate. "e whole question is how much power batteries can store," says Buoncore. "ere has been major movement on that, but not anywhere close to what's needed to take a car from Portland [Ore.] to Cleveland without worrying about recharging." For the next several years, at least, MAI Capital Management and other advisers will be looking to midstream MLPs and other real assets to provide downside protection and enhanced returns in a shifting investment universe. Anna Robaton is a freelance business jour- nalist based in Portland, Ore. REALASSETS ADVISER | D E C E M B E R 2 0 1 8 41