From shopping centres and office blocks to industrial and logistics hubs and student and retirement living complexes, they’ve funnelled an increasing proportion of members’ retirement savings into institutional grade assets — and reaped the returns from a rising market.
Property and infrastructure accounted for 16.2 per cent of total fund investment in the December 2022 quarter, according to research from the Association of Superannuation Funds of Australia.
Assets under management
Historically, funds have looked to external investment managers to make the real estate buying and selling decisions for them. They gained exposure via a combined approach of both listed and unlisted real estate investment trusts (REITs).
Typically, a REIT would be given a mandate to expose the fund in question to a specified asset class. The specialist team managing the REIT would deliver end–to-end service — acquisition, management, reporting, and divestment — and super fund trustees would receive monthly or quarterly updates.
It’s an arrangement that has worked well for both parties: super funds can pursue customised investment strategies easily and efficiently, while REITs (and their managers) benefit from growing their funds under management via an expanded base upon which management fees are derived.
Exploring the DIY option
In a bid to recapture management and performance fees for their members, superannuation funds have begun — to varying extents — insourcing funds management of their commercial property investment mandates.
Some of the country’s larger funds have done more than ponder. They’ve forged ahead with establishing their own specialist teams of property experts to make the calls and manage the assets. These include AustralianSuper, Aware Super, REST and Cbus.
Whether or not it makes sense to make the switch is a question of economics. As the size of Australia’s super pool continues to grow — it was worth an eye watering $3.4 trillion in December 2022 — services which are costed on a commission basis, in this instance as a percentage of funds under management, are becoming progressively more expensive.
Conversely, the fixed costs associated with establishing an in-house investment function are looking increasingly reasonable, particularly as the direct funds’ assets under management compound in value.
Generating returns for members
That’s always assuming the in-house division is able to generate returns that are commensurate with those delivered by external investment specialists. In today’s volatile times, picking winners and losers is a challenge for property teams of all stripes.
It remains to be seen how in-house specialised property teams in Australia’s biggest superannuation funds will perform in a very different macro-economic environment that all of Australia’s funds managers find themselves in. Being able to anticipate the peaks and the troughs and identify compelling buying opportunities is vital.
Turning to technology
That’s where specialist fund managers may have the edge over recently created in-house property teams. The former have been pushing forward with digitisation programs, improved system designs, and in some cases, exploited knowledge in particular sectors (for example multifamily and build to rent).
Scott Willson, CEO of Forbury