Unlisted infra key to Australian superfunds’ success

Private markets exposure is paying off Down Under, according to research from consultancy Chant West, with infra and PE among the best-performing asset classes.

Australia’s best-performing superfunds were those with higher allocations to unlisted assets such as infrastructure and property, new research has found.

Research conducted by superfund consultancy Chant West found unlisted infrastructure generated returns of 12.6 percent for superfunds in the year to 30 June 2018. This made it one of the top 5 best-performing asset classes, only bettered by private equity (with 12-month returns of 17.6 percent), unhedged international shares (15.4 percent), Australian shares (13.2 percent) and Australian listed property (13.2 percent).

In contrast, global listed infrastructure returned a far more modest 4.2 percent.

Industry funds outperformed retail funds over the past 12 months, returning 10.3 percent compared with 9 percent, and showed an advantage over the medium and longer terms. Industry funds have traditionally had greater exposure to unlisted assets, which partly explains the greater returns, Mano Mohankumar, senior investment manager at Chant West, told Infrastructure Investor.

Industry funds are not-for-profit organisations that generally return profits to their members, whereas retail funds will also return profits to shareholders and investors. There are approximately 230 superannuation funds operating in the country with assets under management totalling A$2.6 trillion ($1.9 trillion; €1.6 trillion) at the end of March, according to the Association of Superannuation Funds of Australia.

“Industry funds have been big supporters of unlisted assets for many years, which is why they’ve outperformed retail funds over the long term,” Mohankumar said. “Those industry funds have strong cashflows, so illiquidity is less of a concern than it is for the retail funds. Many retail funds operate on the basis that members should be able to get their money out straight away.”

Specifically, industry funds have tended to have higher allocations to unlisted assets such as private equity, unlisted property and unlisted infrastructure (currently 21 percent versus 5 percent), Chant West said.

This, in turn, meant industry funds usually have less capital invested in traditional asset classes such as listed shares, REITs and bonds. Their allocations to unlisted assets have also meant slightly higher investment costs, but these have been offset by their better performance and lower volatility, Mohankumar added.

“Historically, industry funds have also been more prepared to shift away from their longer-term target-asset allocations to take advantage of mispricing or to preserve capital, and those medium-term shifts have had a positive effect on their performance,” he said.

Retail funds are unlikely to move into unlisted assets in any major way, Mohankumar said, because those assets are currently more expensive than others, especially for new entrants.

The median growth fund in Chant West’s research finished the year up 9.2 percent, the ninth consecutive year it has found positive median returns. The period from 1992-93 to 2000-01 was the only other time Chant West had seen such a sustained trend of positive returns, it said.

HostPlus (Balanced) took top spot as the best-performing growth fund, returning 12.5 percent, followed by AustSafe MySuper (Balanced) with 11.4 percent and Statewide Super MySuper with 11.3 percent.