Australia’s largest superannuation fund is seeking to ramp up its exposure to global real estate, potentially to reach a third of its sector holdings within five years.
Jack McGougan, head of property for the A$75 billion ($70 billion) AustralianSuper, notes that the fund has just under A$6 billion invested in property at present, or 8.6% of its assets. It plans to raise this to 10% of overall AUM.
McGougan (pictured) says the way it aims to do this is to take a more global perspective both in making direct investments and in dishing out management mandates.
Just this month AusSuper awarded a mandate to manage a central London office property investment to TIAA Henderson Real Estate, a joint venture between TIAA-CREF and Henderson Global Investors. It is also set to announce a retail and office property mandate for continental Europe.
Moreover, it has just finalised its first real estate acquisition in the UK, paying $453 million for a 50% stake in a shopping mall in Milton Keynes. It bought the stake from Hermes Real Estate Investment Management, which retains a 50% stake on behalf of British Telecom pension fund.
These deals highlight the firm’s strategic shift to ramp up its international exposures, partly driven by the need to diversify from its domestic saturation.
“In our 2011 plan we originally expected to get to 20% offshore exposure, that reflected what we thought was achievable,” he tells AsianInvestor. “But with this [property management] mandate programme I think we will exceed that.
“Obviously we have a very high weighting to Australia. But within five years, I would be surprised if it wasn’t at least 30% in offshore markets.”
He notes that as a firm, AusSuper is underweight property, but adds its portfolio is increasing. “That’s why it’s important to take direct investment and a global perspective because we’re not going to meet our requirements locally,” he says.
“In real estate you get large-ticket assets. We are patient and we expect to find similar opportunities over the next 12 months.”
On its mandate programme, McGougan points out he has been meeting prospective mandate managers since joining the fund six years ago. “It’s been a long process, one of eliminating those that don’t really have a similar philosophy,” he explains.
“All the mandates we have are non-discretionary. We are an active owner and we maintain all the decision-making processes over buying, major leases and so on. That doesn’t appeal to some managers.”
However, he points out that the office property sector is cyclical and that currently prices are high in many markets, such as Hong Kong, Singapore and Beijing, as well as London and New York.
“You’ve got Korean, Dutch and Canadian pension plans all looking for the same prime assets. That’s inevitably going to have an impact on pricing.
“That’s no doubt the challenge we face. To secure the assets we want and the returns we want, it’s not going to be easy.”
As for AusSuper’s acquisition of a shopping mall in Milton Keynes, McGougan confirms that the transaction has gone smoothly. “That’s exactly the pattern we are looking to replicate elsewhere.
“We are looking for regional shopping centres in the US and Europe. Retail assets like that are effectively monopolies that dominate their catchment area.”
Asked if he would consider second-tier cities in the US as the opportunities have dried up in the largest markets, he adds: “That is not our strategy. We would rather find opportunities in New York, San Francisco, Washington and probably Boston. But we wouldn’t be looking to go to the next tier.”
Similarly in the UK he says AusSuper would not invest in office property outside of London, but for retail malls he points to large regional centres such as Birmingham, Leeds, Manchester and Liverpool.