Diversification drives super investment

Diversification drives super investmentDiversification is driving superannuation funds to consider investing in new sectors beyond commercial and retail property and to seek opportunities offshore, says QIC’s Brian Delaney.Australians now have more than $2 trillion sitting in superannuation savings – trailing only the United States and United Kingdom. This figure is expected to grow to $3.5 trillion by 2025.According to KPMG’s May Supertrends report, the superannuation industry now accounts for 24 per cent of total Australian financial institution assets – second only to the banks. Australian superannuation assets have grown fastest in the world, posting positive investment returns for nine out of the last 11 years.”With bond yields and interest rates so low, funds are increasingly looking at the attractive yields of property as a potential alternative for their fixed-income investments,” says Brian Delaney, QIC’s executive director of strategy for clients and global markets. But with such astronomical amounts of money on the table, the appetite of superannuation funds for commercial and retail property is far outpacing supply. “This is forcing funds to look to new markets and beyond Australia’s shores,” Delaney explains.”Superannuation funds have a much larger range of investment choices than they did five to 10 years ago, with far more competition for their investable dollars. A lot of funds are now thinking about new models for accessing real estate.”Traditionally, superannuation funds would appoint a manager, invest in a pooled vehicle along with other investors, and the manager would select a range of assets against agreed criteria. “As funds have grown, they’ve hired their own in-house resources, and have begun taking a far more sophisticated approach to asset acquisition.”Delaney says funds are looking beyond retail, industrial and commercial property to the small end of the market, as well as residential land banks. “In some cases, they are becoming developers at the early stage of projects,” he says.What’s more, some funds are providing debt financing within the property sector, effectively “becoming the bank post-GFC when credit tightened”.Increasingly, funds are also looking offshore. Delaney points to AustralianSuper, one of the nation’s largest superannuation funds, which has recently established partnerships with providers around the world. “They are working with each provider to identify opportunities – such as retail centres in the US – and are building specific portfolios in each geographic region,” he says.In March, AustralianSuper snapped up a $1.1 billion stake in Honolulu’s Ala Moana mall, the world’s largest open-air shopping centre. The deal was brokered by QIC, which is currently managing US investments on behalf of the fund.”Australia has high yields, and once you go offshore, yields are not as attractive. The total return from offshore investments are made up of different components, and fund managers need to get comfortable with this different mix. But ultimately they understand they must get comfortable because they need to diversify.”Brian Delaney will be moderating a panel of people “with their hands close to the money” at The Property Congress on the Gold Coast in October. Portfolio managers from QSuper, CBUS Super Fund, REST and NSW Treasury Corporation will explore insights into the opportunities and challenges they face and what this means for the property sector in the “Super Power” session sponsored by Dexus. Reserve your place at The Property Congress today.