Australian superfunds’ infra returns fall in 2018-19

Unlisted assets, including infrastructure, continued to deliver solid returns for Australian superfunds but returns were down on 2017-18 as listed assets bounced back.

Unlisted infrastructure achieved double-digit returns for Australian superfunds in the 2018-19 financial year but these were down on the year before, new research has found.

A report from superfund consultancy Chant West found that unlisted infrastructure returned 10.9 percent in the year ending 30 June 2019, falling from 12.6 percent in the 12 months to June 2018. Three-year returns are now at 11.9 percent for the asset class, a result Chant West senior investment research manager Mano Mohankumar described as “solid”.

This placed unlisted infrastructure as superfunds’ sixth-best performing asset class in 2018-19, with listed assets leading the way. The top performer was Australian listed property, which returned 19.4 percent, followed by global listed infrastructure which returned 14.9 percent – the latter rising from a return of 4.2 percent last year.

The other asset classes that outperformed unlisted infrastructure were private equity, Australian shares and international shares.

The unlisted asset classes were all slightly down on last year. Private equity returned 12.7 percent, down from 17.6 percent in 2017-18, and unlisted real estate returned 6.6 percent, down from 10.4 percent last year.

Although shares and listed assets delivered strong returns in 2018-19, Mohankumar said infrastructure and other unlisted asset classes had been significant contributors to the superfunds’ recent run of strong returns.

This was the 10th consecutive financial year in which superfunds posted positive returns, with the median growth fund achieving a return of 7 percent. Chant West said the period between 1992-93 and 2000-01 was the only other time it had seen such a sustained trend of positive returns.

Mohankumar said industry funds, which are not-for-profit organisations that generally return profits to their members, generally have greater exposure to unlisted assets than retail funds, which will also return profits to shareholders and investors.

“Infrastructure has not achieved as high returns as recent years, but still had a solid year, achieving double-digit growth,” he told Infrastructure Investor.

“Infrastructure has been a key part of industry funds’ portfolios for some time now, with those funds having an allocation to the asset class of around 8 percent on average. Retail fund exposure is quite small because liquidity is of greater concern, whereas industry funds have had very strong cashflows.”

Industry funds have seen large inflows of capital this year after a Royal Commission was critical of some retail funds. AustralianSuper, the country’s largest industry fund, recorded net inflows of A$16 billion ($11.2 billion; €10.0 billion) in the year to 30 June 2019. This was up 90 percent from the previous year’s figure of $9.2 billion, and took the fund’s assets under management to approximately A$165 billion.

“These inflows also present some challenges to industry funds around where they invest that capital,” Mohankumar said. “It can take time to find unlisted assets – some funds would like to have more exposure to infrastructure, for example, but have been cautious and are taking their time because they see the asset class as pretty fully valued and quite expensive.”

Mohankumar said global listed infrastructure had performed strongly as part of a broader share market rally, adding that the disparity between annual returns was not unexpected. “Many retail funds use listed infrastructure to gain exposure to the asset class,” he said. “It is more closely tied to market sentiment, so you’ll see returns fluctuate a lot more than in unlisted infra.”

QSuper and Unisuper’s balanced options were tied as the top performer in 2018-19, with each achieving a return of 9.9 percent. QSuper has a significant allocation to unlisted assets, including infrastructure, although Unisuper has little invested in unlisted assets, unlike most industry superfunds. Media Super took third spot with a return of 8.8 percent, with AustralianSuper in fourth place on 8.7 percent.