Rising Sovereign Risk and Debt Exposure in Real Asset Funds

Mitt Chen
Aug 8
2 min read

“You didn’t lose money on the deal. The country seized your upside.” Allocators are hunting real yield in real assets. But they’re ignoring a not-so-sexy threat: Sovereign risk is back. And it’s playing poker with your fund docs. You bought farmland in a currency crisis? You didn’t diversify—you nationalized your risk profile. Real asset funds that ignored sovereign claws are now learning: governments don’t just default on bonds. They default on reality.

A pile of one-dollar bills representing financial abundance and economic challenge.

Data Meets Drama

Let’s talk numbers that bite:

Russia froze over $300B in foreign reserves in retaliation for sanctions. Western investors with CRE exposure in Moscow? Ghosted.
Argentina’s 2024 inflation topped 270%. Local rents? Functionally worthless in USD.
Turkey's 2025 capital controls blocked over $10B in cross-border transfers for funds holding energy infra.

Now the kicker stat:

Venezuela seized over 1,000 foreign-owned companies in two decades — from steel plants to coffee farms. One U.S. investor found out their factory was expropriated.. via satellite image. (Cato Institute, WSJ)

You underwrite 9% yield. They underwrite regime loyalty. Good luck arbitraging that.

Operator Case: The Expat GP Play

A former NYC prop desk alum raised a $30M farmland fund to buy irrigated ag land in Zimbabwe, Uruguay, and Kazakhstan.

Pitch deck was clean: ag yield, sovereign diversification, food demand hedge.

Reality?

Zimbabwe revoked foreign titles after regime change.
Uruguay restricted land sales to foreign entities.
Kazakhstan taxed capital gains retroactively.

His LPs got landlocked in policy whiplash. He now runs a guesthouse in Madeira. They raised a microfund. Then a megavoid.

Mitt’s View: Respect the Flag

Sovereign risk isn’t theoretical. It’s the fine print behind every offshore SPV, every treaty loophole, every comfort letter your lawyers said "should be fine." You can hedge interest rates. You can insure against fire. But there’s no hedge for a pissed-off president with a pen and army.

If your real asset fund depends on:

Regulatory goodwill
Subsidy renewals
Stable convertibility

Then congrats, you’re not investing. You’re negotiating with nations.

The Vault View

One Vault contributor said it best: “We modeled for flood, fire, and FX. We didn’t model for the minister's nephew owning the zoning board.” Another LP allocates to “safe-haven CRE” but adds a clause: no countries with Twitter-active presidents. It’s crude, but correct.

The Allocator Playbook

Want exposure to real assets without waking up to a sovereign seizure? Here’s the unfiltered checklist:

Question	Why It Matters
Treaty Tested?	Is there a double-tax or investor protection treaty?
Local Counsel or Local Capture?	Your lawyers may not beat nepotism.
FX Control Risk?	Can you even get your profits out?
Title Verified?	Does your deed hold up in court… or coups?
Country Rating vs Regime Mood?	Credit ratings don’t measure expropriation impulse.

Bonus: Consider structuring through hybrid fund stacks (Lux + DIFC + local SPV) to create exit valves in crisis. Or, as one Vault operator does: "Buy sovereign chaos. Lease with local faces. Exit through common law."

Final Hit

Real asset alpha ain’t passive. You’re underwriting the politics, not just the property. You want global yield? You better pack geopolitical insurance. Because your upside doesn’t matter if you’re investing in someone else’s expropriation plan.