AustralianSuper, the country’s largest superannuation fund with A$263 billion ($175 billion) of AUM, has expressed a downbeat outlook on global property markets, while singling out Australia’s economy as relatively resilient when compared to other developed markets.
“In general, we are cautious about the outlook for valuations across most sectors of property,” Bevan Towning, head of property at AustralianSuper in Melbourne, told AsianInvestor.
He contrasted a bleak outlook for markets in the US and Europe with the fund’s more optimistic view on the sector in Australia.
“We are monitoring closely the increased negative sentiment in the UK and US relative to Australia, and the more positive economic outlook in Australia relative to other major developed markets,” he said.
But, despite the concerns, Towning said the fund had not made significant changes to its geographical allocations this year in the face of global economic headwinds, higher inflation and higher interest rates. And he said the remained committed in the long term to property sectors including industrial, despite significant spread compression in recent years.
“Longer term we still believe in the fundamental structural drivers of rents in the industrial sector,” he said.
Global investors have enacted a sharp slowdown in property allocations in recent months as prices of listed property investments continue to fall this year.
According to the latest global capital trends report published by MSCI Real Assets, a property data provider, on November 3, global investors allocated $33 billion to APAC property in Q3, down 38% on a year earlier. CBRE’s Asia Pacific Q3 data, published on November 13, showed a 20% fall in commercial real estate allocations to APAC over the period compared with a year earlier, to $27.3 billion.
The $153 billion allocated to the US in Q3 by global investors was down 21% on a year earlier, according to MSCI Real Assets. The $51 billion allocated to EMEA was down 44%.
As of 15 December, the FTSE EPRA/Nareit Global Real Estate Index was down 21% year to date.
However, these declines had not generally been reflected in the price of private assets, partly since valuations by qualified appraisers consider previous deal prices, many of which were agreed in 2021, according to Jeffrey Hobbs, head of private markets at bfinance in London, whose clients include a number of Asian sovereign, pension and insurance funds.
“Prices have not come down immediately: we expect valuations to fall over the coming quarters. Investors in general are unlikely to see buying opportunities until they do,” said Hobbs.
Towning’s caution concerning European property is a departure from an aggressive plan of expansion into European real assets announced earlier this year by the fund. In February, Damian Moloney, AustralianSuper’s head of international investments, said the fund would increase its European property allocation as part of a £15.4 billion ($24.3 billion) of new investment into European property, infrastructure, and direct private credit. A further £8 billion would go to these sectors in the UK by 2026.
To support the expansion, Moloney said the fund planned to double the headcount in its London office from 50 to 100. In May, Towning told AsianInvestor that AustralianSuper planned to make its first property investment in continental Europe within months and would begin investing in Asia properties within five years.
“[European investments will come] definitely within in a year into multiple assets and sectors, probably with a number of different [investment] partners,” he said at the time, adding that the fund’s initial focus would be on leading Western European cities including Paris, Frankfurt, Berlin, Madrid, although the fund would consider looking further to Europe’s east, too.
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Towning said AustralianSuper’s current caution reflected the immediate investment outlook rather than any pressure the fund felt to rebalance its asset mix.
NO SELLING PRESSURE
“We have the benefit of being in a growing fund with strong net cashflows,” said Towning. “This tends to mean that allocation changes that arise from changing valuations in other assets classes don't necessarily create pressure to sell.”
In many cases, smaller Australian super funds as well as other pension and institutional funds across Asia are facing pressure to sell property and other real assets in order to rebalance portfolios, following steep declines in the value of equity and fixed income assets in 2022.
“If equity or bonds are down is down 20 per cent and real assets are flat or up, they will be well above their strategic allocation,” said Hobbs of bfinance.
“The bigger and longer-term investors can withstand that, but among those [whose asset mix] is more highly regulated or have nearer term liabilities, some investors are having to redeem because they are over-allocated,” he added.