On a visit to meet with Australian institutional investors, Netherlands-based members of Aberdeen’s global Property Multi-Manager team said they were surprised by how receptive funds have been to offshore property.
“I spent a few years in Sydney so I know the market and the funds well, but I was surprised – I thought it was going to be difficult to explain why [super funds] should go global but they’ve already taken that step in the six months I’ve been away,” said Alek Misev, portfolio manager with Aberdeen’s Property Multi-Manager team.
“I’m always prepared to explain why, but funds are saying they understand they need to go offshore.”
Mr Misev said competition is also an issue because there is so much capital from offshore investors looking for core assets in Australia that super funds are now struggling to find good assets, while it is also driving prices up.
Karin Koks, head of global mandates for Aberdeen’s Property Multi-Manager team told InvestorDaily that driving funds to look more offshore is definitely “a push factor, not a pull factor”.
“People are getting nervous, and rightfully so, because of the overheating of the market,” Ms Koks said.
“There are just not enough assets to take up all the capital. Putting all your eggs in this basket, pricing is getting ahead of itself and people recognise that.”
The yield profile, quality and transparency of the Australian market are pretty good so it’s easy to see why funds have been reluctant to take that step, she added.
Mr Misev said funds now know they want to go offshore but they’re not sure in what way – for example, the options include direct investing, co-investments and pooled funds.
Bigger funds prefer to go direct for offshore property in a separate account format because they want more control and lower fees. “They compete with each other so everyone wants a lower MER, which is why they want to go direct but only the funds with more money can afford to,” he said.
Only a small number of funds can afford to spare the $300-$400 million in equity to go offshore direct effectively. “For smaller funds, a multi-manager approach may be more suitable,” he added.
“They also want to know what’s a realistic return; they can’t get 9 to 10 per cent with core property offshore,” Mr Misev said.
Those rates have been available here but that’s going down because of the wall of money coming in, and returns will drop to 7 or 8 per cent here over time, he added.
“In Europe you’re looking at 6 per cent, with more leverage and risk. That’s the main thing [Australian funds are] struggling with: if they need 7 or 8 per cent what kind of risk do they need to take to get that offshore? And that’s the critical question for everyone.”
