Navigating Real Asset uncertainty and opportunity: our 2025 outlook

Key themes:

• Tariff policy is a key driver for 2025, AI megatrend to take-off
• More regional bifurcation with the US setting the tone
• Heightened market volatility demands portfolio diversification through Real Assets

Trump 2.0: a pivotal inflection point

With the onset of Trump 2.0 and its hawkish foreign policy, anticipated trade tariffs are expected to significantly impact global economies and markets. This analysis focuses on the potential effects on listed and unlisted Real Assets, including Infrastructure, Real Estate, and Natural Resources. The views presented here are intended to guide our portfolio positioning, though we acknowledge the importance of remaining nimble and adaptable as policies evolve.

In the Fulcrum Macro team’s latest paper on Trump Tariffs, we note historical precedents for much higher tariffs in the US, and the current administration’s alignment with Trump’s protectionist stance. We anticipate a range of possible scenarios, with one likely outcome being a 10% tariff on China and a 5% tariff on the EU, potentially escalating to 60% and 10%, respectively, over time. Our base case suggests a “Regional Bifurcation” scenario, with the US dominating growth over both Europe and Emerging Markets. Based on the current economic data, we only anticipate one rate cut in the US in 2025. Although this could potentially support Real Assets such as Infrastructure, Natural Resources, and Real Estate, worsening tariffs and geopolitical events could fuel inflation, potentially halting further rate cuts.

2025 marks the beginning of regime shifts, creating an unpredictable investment environment. Empirical evidence¹ in the US, Europe and Japan suggests that when inflation is high, traditional assets (Equities and Fixed Income) tend to become positively correlated. Consequently, the case for diversifying into Alternatives, such as select Real Assets, can become even stronger.

Source: Fulcrum Alternative Solutions

Reasons for optimism

While it is still early to determine the exact details and timing of tariffs, a gradual ramp-up seems more plausible than an immediate, aggressive approach. Even if the US intends to promote the reshoring of manufacturing, especially in sectors such as automotive, electronics, and semiconductors, the process will take years to materialise. This is due to significant challenges, including a shortage of skilled workers (further exacerbated by anti-immigration policies), rising labour costs, and infrastructural limitations.

Research indicates that US demand for Chinese goods will be price inelastic² in 2025, largely due to trade front-loading, with the full impact likely occurring in 2026. This timeline provides US companies with a window to adjust their operations, resulting in a slower rise in inflation — an outcome that would be more favourable for market stability. Since the introduction of tariffs in 2017, China’s share of US imports has decreased by 4%³, mitigating the potential inflation shock moving forward. This leads us to believe a smaller interest rate impact will benefit Real Assets from both a growth and valuation perspective

Opportunities within US infrastructure and real estate

In the infrastructure space, US sectors such as transportation, utilities, and digital infrastructure will benefit directly from reshoring efforts, driven by increased demand for energy and output volumes.

Overlooked sectors like waste treatment and recycling, which are tied to economic growth, are also poised to expand. Additionally, job creation from construction spending will support US Real Estate, particularly within logistics, storage, residential, and premium office segments.

In Fulcrum Alternative Solutions’ more optimistic “US Policy Succeeds” scenario, as outlined in the table above, where the US and Europe achieve political alignment and coordinate increased defence spending alongside policy stimulus, the benefits to Infrastructure and Real Estate could be even more pronounced. The Clean Energy sector may suffer as a consequence of US Energy policies but, ironically, benefit from economic growth.

AI megatrend to take-off

The rapid expansion of artificial intelligence (AI) – currently dominated by the US – will serve as a key driver of global economic progress, unlocking innovation across industries. The need for high-speed connectivity, power supply, cloud infrastructure, data centres, and cooling facilities will be essential to AI’s growth. Data centres currently account for 5.2% of US electricity demand and it is expected that this share will rise to 12% by 2030⁴. However, the intermittent nature of solar and wind energy presents challenges, as AI requires a continuous and reliable power supply. This creates vast opportunities for infrastructure managers, as well as for real estate managers entering the AI development space.

The recent announcement of more efficient AI models led by China-based DeepSeek-V3 and Qwen 2.5 has rattled equity markets, raising concerns about future electricity and data centre demand. Trained with less than 10% of the computational resources of OpenAI’s GPT and Meta’s Llama models⁵, DeepSeek’s efficiency breakthrough has prompted investors to rethink AI’s long-term energy impact. Like past technological shifts, lowering barriers to entry could spur higher adoption rates and potentially more overall electricity demand, known as Jevons Paradox⁶. While this makes investing in AI technology harder, we believe Real Assets offer a better way to capitalise on the undeniable long-term trajectory.

AI-enabled buildings that optimise energy consumption can reduce carbon emissions while lowering tenants’ operating costs. However, the deregulatory measures championed by Trump to position the US as an AI powerhouse raise concerns over potential misuse and ethical implications.

Diverging US and European trends

European equities lagged the US market in the past year, driven in part by the dominance of US tech stocks and political uncertainty linked to several elections, including last summer’s UK election and the upcoming German election in February. However, we expect the European Central Bank’s (ECB) rate cuts to outpace those of the Federal Reserve, creating a favourable environment for European Real Assets, which will benefit from solid earnings growth and strong cash flows. The UK remains undervalued and is positioned to benefit from increased M&A activity in 2025⁷.

While the US has stepped away from the Paris Climate Agreement, Europe continues to invest heavily in climate change solutions. The Labour Government’s accelerated target to decarbonise electricity grids by 2030 – alongside efforts to tackle hard to abate sectors, such as transport, heat, and industry, and to meet broader net zero goals – demands rapid action and collaboration between public (creation of the UK’s National Wealth Fund and GB Energy) and private sectors. Similar priorities and initiatives can be seen in the European Union.

Climate policy and energy transition

During his presidential campaign, Trump indicated plans to repeal or delay the Inflation Reduction Act (IRA) of 2022, which allocated $370 billion⁸ for clean energy investments. While a complete repeal seems unlikely, particularly as many Republican districts benefit from IRA initiatives, partial delays or reductions in funding are more probable. Although this uncertainty has placed downward pressure on the share prices of listed infrastructure and renewables, the recent Palisades and Eaton wildfires in Los Angeles, exacerbated by climate change and aging infrastructure⁹, have underscored the urgent need for continued investment in energy transition technologies.

Long-term implications of Trump’s energy policies

Trump’s declaration of a national emergency for energy security, which resulted in executive orders to ramp up fossil fuel production while sidelining renewables, poses long-term environmental risks. The emergency declaration mandated agencies, in effect, to identify and acquire private land for public use with compensation. Several laws protecting the environment; including the Clean Water Act, Marine Protection Research, and Sanctuaries Act and Endangered Species Act, have been suspended. Policies to accelerate fossil fuel drilling, coupled with the suspension of key environmental protections, will likely benefit midstream energy infrastructure and pipelines. However, we believe that further investment in fossil fuels at the expense of clean energy is not a sustainable pathway to energy security.

We are focused on investing in strategies that address climate change, such as carbon credit offsets through Natural Capital strategies, to hedge against rising emissions. The US has already achieved record levels of oil and gas production, and further expansion may not be economically viable in the wake of tariffs imposed on Mexican and Canadian imports that supply US refiners with feedstock and refined products. Some Big Energy executives have voiced concerns about polarised political environments and the potential risk of policy switching back and forth with each administration change.

Conclusion: navigating a complex and volatile environment

Further tariffs on Chinese imports could slow global economic activity and earnings, while ongoing geopolitical tensions are unlikely to fully offset the demand for industrial metals driven by AI. With 2025 projected to be the warmest year on record, natural resources and agriculture could face significant disruptions due to climate change.

Diverging central bank policies are likely to support a strong US dollar, which will benefit US domestic companies while posing challenges for corporations with significant foreign exposure. Should trade partners such as China and Europe retaliate (Scenario 3: “US Policy Derails”), the broader market could experience a downturn. In this scenario, we would consider rotating into higher-quality, non-US denominated bonds, cash, and selective natural resources to mitigate potential risks.

While markets tend to focus on the short term, we must maintain a long-term perspective, not investing for any single government or regime. In times of unpredictable investment environments, it becomes even more critical to ensure that portfolios are equipped with diverse levers to achieve investment objectives. Our investment universe offers a plethora of ideas across Real Assets, Alternative Credit, Private Equity and Diversifiers, where our ownership and active engagement can make a lasting impact.