AustralianSuper CIO: ‘Low interest rates favour alternative assets’

AustralianSuper chief investment officer Mark Delaney has reiterated his confidence in infrastructure assets and has said he’d buy them “every day of the week”.

Speaking at the Australian Financial Review Business Summit in Sydney this week, Delaney participated in a panel discussing how to generate returns in a low-interest, low-yield investment environment.

“When infrastructure [investment] started back in 2000, the expectation of investors was that the target return would be about 4 percent more than bonds,” he said.

“Now, the yield of infrastructure is still about 8.5 percent, but bond yields are at 0.5 percent. That’s 8 percent above bonds. So, if you can get an asset with stable cashflows that’s CPI [consumer price index]-linked, and that has some growth, and that returns 8 percent above bonds, you’d buy them every day of the week.”

Delaney, who is also AustralianSuper’s deputy chief executive, said that there was high competition for alternative assets like infrastructure and property, which posed a challenge for investors.

“[These assets] benefit from lower interest rates, but they also benefit from underlying economic growth,” he said.

“So, if there’s going to be layoffs in employment [during a recession] we’d probably struggle in property because there’ll be less tenants. But in the longer term, interest rates favour these alternative yield assets.”

Delaney added that investors who had moved into alternative assets in the past were increasingly looking at private credit, too.

“I think that trend is going to continue, particularly as regulation of the banking sector is forcing money out of the regulated banking sector into alternative sources, with people willing to pay higher amounts to get access to capital.”

In its 2019 annual report, AustralianSuper said that holding unlisted assets such as infrastructure had “helped to protect members’ returns from the impact of volatility”. Its infrastructure portfolio at 30 June 2019, was valued at more than A$16.5 billion ($10.7 billion; €9.5 billion), split roughly in half between internally managed direct investments and assets managed by IFM Investors.

The fund also has a real asset alternative debt portfolio that had committed more than A$1.4 billion in loans to property and infrastructure assets as at 30 June 2019.