Super funds housing investment ‘not a subsidy’, IFM says
IFM Investors chairwoman Cath Bowtell has highlighted the commercial basis of the fund manager’s plans to invest money for Cbus Super, CareSuper, Hostplus, Rest in social and affordable housing, rejecting any notion the move went beyond the industry super funds’ core purpose.
Ms Bowtell said the industry super-owned platform IFM’s plan to provide debt financing for community housing providers (CHP) in the tender round under way for financing from the federal government’s Housing Australia Future Fund (HAFF), was to get a risk-adjusted return on a largely derisked investment. The investment could potentially stretch into hundreds of millions of dollars.
The investment was not about choosing housing development over a good return, Ms Bowtell said on Monday.
“When we invest in Australian companies that create jobs for Australians, no one says ‘What are you doing investing in job-creating companies?’,” she told The Australian Financial Review on the sidelines of a conference in Melbourne about investment in affordable housing.
“We invest in stocks because equity returns are good. So we’re making the same decisions. We apply the same lens to this. Risk adjusted is a good investment and debt has always had a place in our portfolios.”
Ms Bowtell declined to say how much the four funds were intending to invest in the HAFF funding round that opened last month and closes in March, describing it as “meaningful” but a “starting point” that would allow the funds and their manager to understand the emerging sector better before committing more capital.
Disbursements worth a million $500 million a year from the $10 billion HAFF fund as well as a further $70 million from the federal government’s National Housing Accord Facility, aim to support the development of 40,000 social and affordable homes over the next five years.
The subsidies in the form of concessional loans and so-called availability payments to make up the shortfall in income that came from receiving below market-rate rents meant that returns to the super fund investors suffered no discount, Ms Bowtell said.
“We don’t have to take a lower return, we will take a risk-adjusted return,” she said.
“What we’ve had to become comfortable with is understanding the nature of the risks in this sector, which are different to standard property and build to sell [apartments]. It sits somewhere between property and social infrastructure, so it’s its own asset class with its own risk and return characteristics”.
One hurdle that has prevented Australia’s large superannuation funds from investing in housing is their need for scale. Cbus Super, CareSuper, Hostplus and Rest collectively have more than $505 billion in funds under management, and it has not been feasible for them to invest in single projects.
The HAFF mechanism offered a new way for the funds to provide funding that would give them a longer-term return, Ms Bowtell said.
“For our funds, it works quite well, it’s long term, it’s up to 25 years,” she said. “So we’ll be able to provide long-term funding, debt funding.”
This meant IFM was likely to pair with larger providers with bigger portfolios of projects and that was likely to mean a focus in metropolitan areas, she said.
“They need to be able to bring projects and scale to the table,” Ms Bowtell said.
“And it probably needs to be repeatable. It’ll be more likely the larger CHPs. And more likely, I think, city projects.”