Aware Super, Australia’s second largest super fund, which has $A10 billion ($7.47 billion) invested in real estate, is set to increase its real allocation to Europe and is considering making its first investment into Asia’s real estate market.
Alek Misev, portfolio manager for property at Aware Super in Sydney told AsianInvestor the risk/return dynamics in the Asia property region have not been as appealing as Europe and the US, adding that the fund lacks networks or familiarity in those markets.
“We have found attractive opportunities in the US and Europe, with similar or slightly lower returns for less risk,” he said, highlighting currency, political and liquidity risks. Currently 25% of Aware Super's real estate portfolio is invested abroad and 75% is invested in Australia.
Misev also pointed to the lack of maturity of Asia’s real estate market in niche sectors that the fund was targeting, notably multi-family and retirement. He expected this would change in future, but declined to give a timeline for the fund’s first Asian allocation.
“We haven’t yet started working with advisors or partners in Asia, but it is something we are looking into now as we go through our strategy in property for the next five years. We don’t have a target for when we want to have our first investment in Asia, but we expect over the next few years,” he said.
By 2025, the fund plans to move $A2.5 billion out of managed investments and into direct investments.
“We have around 35% invested directly in operating platforms with the aim to get to more than 60% by 2025,” Misev said.
Since 2015, Aware Super has moved from investing entirely through managers towards direct investing in operating platforms globally, building up a five-person team in Sydney. The fund typically targets an internal rate of return (IRR) in the mid-teens for development projects, which make up a large portion of its new real estate investments and are typically held for 10 years or more.
Misev said the asset owner was planning a large additional investment in Europe over the next two years, focusing on sites across the UK and Europe, in key cities such as London, Dublin, Lisbon, Copenhagen, Madrid and Barcelona, although he declined to give details of the amount.
He said it is likely to open a European office, probably in London in the next few years. Currently Europe comprises 15% of Aware Super's total real estate allocation.
Most of the growth is expected to come through existing platform investments - City ID and Vivenio - where the superannuation fund is invested, alongside Dutch pension provider APG Asset Management.
In September, in Aware Super’s first direct operating platform investment outside Australia, it purchased a 45% stake in City ID a European apartment operator with 250 units in Amsterdam, for €100 million ($117.91 million), with APG taking a 45% stake for the same price.
In the US multi-family sector, limited competition during the pandemic provided a good opportunity to buy, Misev told AsianInvestor.
In January 2021, Aware Super announced $780 million partnership with Lendlease, the Australian developer, on a mixed-use development in Los Angeles.
It is the fund’s fifth project with Lendlease since the two committed to a joint venture in 2018. Aware Super has so far committed $500 million to projects in San Francisco, Los Angeles, Boston, Chicago and New York, which will have a combined completed value of $3.25 billion.
FOCUS ON RESIDENTIAL
The fund’s global residential strategy currently focuses on retirement housing and build-to-rent key worker housing in Australia, multifamily overseas and the serviced apartment space in Europe as well.
Today it has 30% of the allocation in office buildings, 30% in industrial, 15% in retail, 10% in multi-family and 10% in senior living and 5% in hotels and serviced apartments.
Over the next three years, Misev predicts the three residential sectors will increase to around 30% in total, with allocations funded by new contributions and selling in retail and office holdings.
The industrial allocation will stay at 30%. Just five years ago, the spread was 50% invested in retail, 40% in office and 10% in industrial.
In the past six years, Aware Super's total assets under management have increased from A$35 billion to A$145 billion, and its property allocation from A$3 billion to A$10 billion. The growth has come both organically via contributions and through mergers, including with StatePlus in 2017 and VicSuper in 2020.
Despite the travel restrictions imposed by the pandemic, the asset owner did more deals in 2020 and 2021 than 2019.
“We doubled down during the pandemic. Because we couldn’t travel, we reached out [to partners] globally,” Misev said, noting the increase in allocations to niche sectors including the multi-family acquisition in the US and Australia and the purchase of a serviced apartment business in Europe.
The company’s investing continued in February in Australia, where it paid A$460 million for a 25% stake in the retirement living business of Lendlease, once again alongside APG which picked up an additional 25% stake.