Ask the Expert with Nuveen Dissecting the shift

In this Ask the Expert interview, Abigail Dean, Global Head of Strategic Insights at Nuveen, teases out the finer points of Nuveen’s new report on megatrends and real assets. She’s in conversation with Chipo Muwowo, Head of Content.

Why have you and your team decided to take this deep dive into these megatrends?

We’ve focused on these megatrends for well over a decade now. It’s a core underpinning of our real assets investment strategy. Real assets are driven just as much, if not more, by these long-term structural trends than they are by market cycles. So, it’s really crucial that we have a deep understanding of them. They are by nature not very changeable, they are juggernauts that significantly impact global economies, but we’ve had a period of unprecedented volatility over the last decade—geopolitical events, global conflicts, economic volatility and the global pandemic. So, it’s seemed appropriate to look at how these events have impacted these key megatrends.

The new research paper helpfully breaks down the key megatrends into three broad categories: “Acceleration,” “Continuation,” and “Disruption.” Please describe the key characteristics of each.

The megatrends in the “Acceleration” category include the transition to a low carbon economy, technological transformation, and rising inequality. Within the “Continuation” category, we have physical climate change and the aging population. These trends are baked in and are incredibly difficult to disrupt, so a decade isn’t really enough time to significantly change their progress. Finally, under the “Disruption” category we have globalisation, urbanisation and the growth of the eastern (i.e., Asian) economies. Despite what you hear, we’re not yet in a deglobalized world. The growth of the Eastern economies is still hugely significant. However, they haven’t accelerated in the way that we would have expected when we first did this research 10 years ago.

“It’s appropriate to look at how [this unprecedented global volatility has] impacted these key megatrends.”

Generative (Gen)AI comes under your “Acceleration” category. From your research, how is this particular megatrend affecting real assets?

GenAI is having a significant impact across all real assets. I think one of the immediate and obvious things is how its rapid growth is driving demand for power. And we’re only really at the beginning of that. The next decade will see the acceleration in demand for power as a result of GenAI, digitalization and electrification. Demand for power from data centers is specifically driving investment into renewable energy sources. This is hugely transformational for infrastructure and real estate assets. In addition, AI and other new technologies have the potential to deliver significant efficiency gains in areas such as natural capital and logistics. Largely, we see GenAI as a driver of growth. We don’t see it as a replacement of jobs but rather, an enhancer of productivity.

That all sounds very positive but what would you say are some of the major limitations of this trend?

While growth and demand for power has positive ramifications for infrastructure investment, it raises some key questions. Can we quickly bring enough clean energy on board to deal with the growing demand? How much will the availability of power limit GenAI’s ability to continue growing at a rapid pace? Can the grid adapt and deal with this growing power demand from data centers? We then come to regulation of AI. It’s evolving but we’re very much at the beginning and it’s difficult to know what it’s going to look like in different parts of the world. Data quality is another important area. The ability of real assets to leverage AI in the way that liquid assets might do is limited by the fact that datasets are by their very nature incomplete and unstructured. Clean data is needed in order to train these large models. And finally, there is also the issue of data hallucinations. These are phenomena produced by GenAI. As a consequence, many investors are rightly approaching this with caution and taking their time to think about the role that GenAI can play in their investment decision making. It’s certainly not integrated at the moment but we’re hugely excited about the future potential.

The article continues on page 11 of our Special Report: 'Real assets: Megatrends revisited'