Although you might not know it, there’s a very high chance you already have a stake in a piece of commercial real estate in Australia.
That is if you are one of the 16 million superannuation fund members across the country.
But how many of us could rattle off the addresses – or even the types of buildings – that our retirement money is invested in? It’s a pertinent question when considering the vast sums of money tied up in super and recent moves to force superannuation funds to disclose their holdings.
Superannuation assets totalled a whopping $3 trillion at the end of 2020, according to the Australian Prudential Regulation Authority. Of that, $2 trillion was tied up in regulated superannuation funds.
Super Ratings executive director Kirby Rappell said funds generally invested in six main asset classes: local shares, international shares, fixed interest (i.e. bonds), cash, property and alternatives.
“Typically what you find is that 8 or 9 per cent of a funds’ default portfolio is usually sitting in property,” Mr Rappell said.
Taking into account only regulated superannuation funds, that equates to at least $160 billion worth of superannuation money parked in property.
Show me the money
The most common ways super funds invest in property is via listed or unlisted property funds, which own large pools of assets – although some super funds will invest in individual property directly.
Listed funds are known as Real Estate Investment Trusts (REIT) and are listed on the stock exchange. “That might be Lendlease, Mirvac or Stockland,” Mr Rappell said.
“But one of the big things we’ve seen in the past 10 or 15 years is the rise of super funds investing in unlisted property.”
Unlisted property is seen as less volatile than equity markets, according to Mary Power, principal consultant at financial consultancy firm JANA.
“We’ve also liked unlisted property because it provides a buffer against equity market risk,” Ms Power said. “Specifically with unlisted you want access to income and capital growth that individual property sectors can provide.”
Retail and offices make up the most significant areas of investment followed by the growing industrial sector. Residential property was the least developed sector from an institutional perspective but Ms Power said interest in build-to-rent schemes was growing.
Super funds and property funds will look to change the make-up of their property portfolio, depending on how each sector is performing.
For example, Ms Power noted a shift to invest in industrial property following the e-commerce boom during the pandemic last year.
Overall, it is desirable for the different property sectors that a fund invests in to move out of sync with each other.
“That’s the beauty of having a diversified portfolio; you don’t want everything going the one way in a downturn,” Ms Power said. “Retail for instance has had a very tough time in the past couple of years.”
Disclosing the details
Those interested in finding out the nitty-gritty details of super fund investments could have their work cut out for them.
“To date, it’s probably been harder than it should be for people to see where their money is allocated,” Mr Rappell said.
There has been a push to increase transparency in the industry, with most funds publishing financial statements or quarterly investment reports on their websites. “Usually, you’ve got to delve for the details,” Mr Rappell said.
So, is it possible to find out if your super fund has invested in properties that might clash with your ethics?
If the super fund is invested in a property fund, it becomes much harder to track down, Mr Rappell said. “Then it’s probably in a pool fund … and you’ll probably go crazy before you find the answer.”
Ms Power said the area of ethics was never black and white.
“Your ethics will be different to mine. It’s such an individual thing,” she said. “You need to make your enquiries to find the fund for you.”
“I’m all for disclosure and finding out where the physical bricks and mortar is, and your super fund should be able to find that out.”
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