Super funds look offshore to sate growing demand for property
Next year is expected to be a watershed year for superannuation funds investing in offshore unlisted property as their overall appetite for bricks and mortar grows.
According to a new survey of 39 institutional investors – mostly super funds – many institutions are now undertaking “in-depth due diligence trips abroad to understand offshore opportunities”.
Over the next two years, the proportion of property assets held by institutions is forecast to rise from 9.7% to 10.5%, an 8% increase, with the proportion of offshore assets rising from 2.3% to 3.2%, a 34% increase.
In monetary terms, super funds are looking to invest up to $40 billion of new capital, more than can be handled by domestic property markets, and will need to look offshore to achieve this growth, according to the July 2011 survey was carried out by Russell Investments in conjunction with the Asian Association for Investors in non-listed Real Estate Vehicles Limited (ANREV) and the Australian Institute of Superannuation Trustees.
Collectively, the 39 institutions hold around $360 billion funds under management. Nearly 90% of the institutions surveyed were superannuation funds.
Interviewees reported that a year ago they were especially cautious about the prospect of investing offshore and were choosing to invest their real estate allocation within the domestic market. This caution stemmed in part from their experiences prior to the GFC, when some Australian investors chose to invest in the new offshore ventures of domestic fund managers, with mixed results.
However, interviewees said they recognised that offshore investment was the next major evolution in institutional and superannuation fund property portfolios.
About 72% of institutions surveyed said diversification was the main reason for investing in non-listed real estate funds offshore.
About half listed inadequate supply of attractive real estate investment opportunities in Australia as a key reason for going offshore, while 43% said they wanted access to high growth markets.
“While Australian institutional investors have long discussed the need to capture global property opportunities, it seems a definite move is now underway,” says Martin Lamb, director, Asia Pacific Real Estate Investment at Russell Investments.
“International property will be increasingly on the radar of those funds looking greater diversification,” says AIST chief executive Fiona Reynolds.