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Investors are seeking diversification beyond corporate exposures

As corporate valuations reach record highs, investors are increasingly turning to alternative income-oriented private asset opportunities.

Real estate debt and infrastructure stand out as two compelling candidates – each backed by physical assets that provide inherent diversification from traditional corporate exposures. While both offer attractive risk-adjusted returns, their investment outcomes are differentiated yet highly complementary.

Real estate debt and infrastructure – how they differ yet fit together

  Infrastructure Real Estate Debt
Underlying Assets Physical infrastructure providing essential services with reduced demand cyclicality Backed by real estate such as multifamily residential complexes, retail centres or industrial facilities
Capital Structure Equity, typically with modest leverage Typically, senior secured with equity cushion providing insulation from real estate valuation volatility
Investment Horizon Typically, 10 years or more Typically, 2–3 years with 1–2 one-year extensions
Yield Lower proportion of return from income Higher proportion of return from income
Inflation Hedge Contractual cash flows often with regulated pricing and inflation ratchets Asset values and rents historically have risen with inflation

 

Diversification benefits of real estate debt and infrastructure

US real estate debt and infrastructure offer meaningful diversification benefits, having shown low-to-negative correlation with public markets. Their inclusion is increasingly compelling given concerns over elevated public equity valuations and the resulting pressure on future return expectations.

Ten Years Rolling Q4 2015–Q3 2025

  US Real Estate Debt Global Infrastructure US Direct Lending US Equities US Investment Grade
US Real Estate Debt 1.00        
Global Infrastructure 0.08 1.00      
US Direct Lending 0.06 0.48 1.00    
US Equities 0.16 -0.02 0.71 1.00  
US Investment Grade 0.20 -0.62 0.01 0.52 1.00

Source: Franklin Templeton Financial Markets Team as of 30/09/2025. US real estate debt: Giliberto-Levy High Yield Commercial Real Estate Index, global infrastructure: Preqin Global Private Infrastructure Index, US direct lending: Cliffwater Direct Lending Index, US equities: S&P 500 Index, US investment grade: Bloomberg US Aggregate Bond Index.

Combining real estate debt and infrastructure

Individually, infrastructure and real estate debt may provide attractive risk-adjusted returns, but a combination has the potential to compound the benefit.

Q4 2015–Q3 2025 US Real Estate Debt Global Infrastructure 50/50 Portfolio
Annualised Returns 9.8% 9.5% 9.7%
Volatility 1.6% 3.0% 1.5%
Sharpe Ratio 3.5 2.2 3.5

Source: Franklin Templeton Financial Markets Team as of 30/09/2025. US real estate debt: Giliberto-Levy High Yield Commercial Real Estate Index, global infrastructure: Preqin Global Private Infrastructure Index. The 50/50 portfolio blend and the unmanaged indexes do not reflect the impact of fees and expenses associated with managed products.

Why real estate debt matters now

Traditional lenders pulling back

With traditional lenders reducing their activity, strong private lenders are stepping in to fill a crucial gap, making well-capitalized firms essential.

Wave of maturities ahead

A significant wave of maturities ahead in the real estate market further enhances the demand for flexible private capital to bridge financing needs.

Attractive entry point

Multifamily property values have declined by ~30%1 from their Q4 2021 peak, with all major markets impacted.

Franklin Templeton Private Markets

Comprehensive $274bn2 AUM platform access

Proven expertise through Benefit Street Partners (BSP) with 20+ years credit investing

Integrated research and risk management across private markets

Benefit Street Partners

Footnotes

  1. Source: Green Street, 09/30/2025.
  2. Source: Franklin Templeton. Month-end assets under management as of 31/12/2025. Alternative assets may include liquid alternatives and other unconstrained strategies that are not defined as private market securities. AUM category classifications are subject to change without any notice. BSP Awards announced in 2026 for the 2025 period. No compensation was paid by BSP to receive these awards. BSP has paid PERE & PDI for advertorials.

 

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