Real Assets Win in this Environment

Real Assets Win in this Environment 

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An excerpt from Brookfield Corp's letter to the shareholders for the 3rd quarter of 2025. Bruce Flatt is always essential reading

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Over the past 15 years, governments have responded to successive economic slowdowns with large fiscal programs. The global financial crisis, the sluggish growth of the mid-2010s, and the pandemic each led to expansive interventions. Together, those interventions contributed to a very significant buildup of public debt. The combination of large, ongoing government deficits and “higher” interest rates has made this fiscal trajectory increasingly unsustainable. 

Global public debt is heading toward 100% of GDP. In the U.S., that figure is about 125%, up from roughly 60% before the global financial crisis—and the cost of servicing this debt has almost doubled since 2020. Fiscal spending remains high while real growth across developed economies has slowed to less than 2% annually. With borrowing costs rising and growth subdued, debt ratios will continue to climb unless governments balance their budgets, which few countries seem to be able to do. 

For policymakers, there are a few paths to stabilize the debt burden. The most constructive outcome would be faster economic growth that outpaces the growth of debt, allowing leverage ratios to decline naturally over time. Artificial Intelligence and broad innovation can be the catalysts that drive productivity gains and support a growth-led reduction in debt. A second alternative path is reduced fiscal spending, but the political appetite for austerity seems to have dramatically diminished across much of the developed world. As a result, broad adoption of fiscal responsibility does not seem likely.  

The third alternative for policymakers is to quietly manage interest rates below inflation and gradually reduce debt burdens. We are already seeing this dynamic play out across the globe. Central banks are employing forms of yield-curve control and balance-sheet expansion to ensure that debt servicing remains manageable—Japan has done this for decades, and both China and parts of Europe more recently. In essence, short rates are going to be taken down and long rates will be “twisted” down without the system breaking to alleviate the interest burden. In the event that governments pursue this path, the likely result will be a period of declining real yields and low-ish nominal rates. This will create a different investment climate than that which we have experienced in recent years. 

This environment provides optimal conditions for the real assets in which we invest, offering inflation-linked cash flows backed by hard assets that protect real returns. The benefits of real assets are always evident, but in this evolving environment they become an essential part of an investment portfolio. A suppression of real yields will further amplify these benefits—specifically, lower rates will further enhance cash flows by reducing financing costs. 

Over the past 25 years, alternatives have evolved from a complement to traditional portfolios to a central component of the global investment landscape, particularly for investors seeking to preserve real returns. In a world defined by low real yields and persistent inflationary pressure, investors with medium- to long-term risk-adjusted return targets will find it increasingly difficult to meet their needs in traditional markets. Alternative investments in real assets are the solution—and they have been the foundation of our investment strategy throughout our history. 

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Source

https://bn.brookfield.com/reports-filings/quarterly-results