Super funds moving out of property

Posted On Thursday, 02 October 2008 02:00 Published by
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Australia's superannuation funds have put as much as $2billion worth of their units in unlisted wholesale property trusts up for sale at discounts of as much as 10 per cent

Institutional investors such as superannuation funds have about $50 billion invested in unlisted property funds run by managers such as Lend Lease, AMP, Macquarie Group and GPT.

Analysts said the collapse in the price of equities meant super funds were holding too much property and they were trying to sell stakes in unlisted funds.

Australia's 150-odd superannuation funds have prescribed guidelines covering their investments in property, ranging from 5 per cent to 25 per cent.

The majority would hold 10 to 15 per cent of their investment portfolio in property.

Specialist asset allocators saidthe average overweight position was unlikely to be "more than 1-2 per cent", so super funds were not under pressure to redeem their units from managers.

"It depends on individual funds. Some will not tolerate breaching their weighting guidelines," said an industry source. About $2 billion worth of units were currently on the market.

Melbourne asset allocator Ken Atchison said: "It is a private market and difficult to get information from fund managers. Most definitely, units are for sale, but how much we don't know for sure."

In fact, even the size of the wholesale direct property trust market is unclear, with estimates ranging from $30 billion to the most commonly used figure of $50 billion.

Mr Atchison suggested buyers of these units may have to come from overseas, given the poor state of the market in Australia.

Several sources confirmed the sellers were prepared to discount their value by between 5 per cent and 10 per cent to move the units.

Lend Lease Investment Management Australia chief executive Tarun Gupta said: "Compared with two or three years ago, we've seen more redemption requests from investors that need to rebalance their portfolios." Mr Gupta added that the amount was "insignificant" compared with the $6 billion under management with Lend Lease.

An industry source said: "We have heard that some funds are receiving more redemption requests than others. One such fund is run by AMP."

An AMP spokeswoman said the AMP Australian Core Property Portfolio was meeting redemptions in line with its redemption terms.

"Because of volatility in the equity market, a number of institutional investors are slightly overweight in property and adjusting portfolio accordingly," the spokeswoman said.

Industry sources suggested one of the big four banks had established a unit to serve as "an agent" selling units from managers such as Lend Lease, GPT and Investa.

The Australian has been unable to confirm this with the bank in question.

QIC Asset Management chief executive Brad Holzberger said most super fund managers were "keeping a cool head" to avoid creating problems for themselves later.

Mr Holzberger said managers were mindful that the valuation of properties had yet to adjust to the current environment.

When property values started to fall, they would have to rework their numbers to balance their weighting again.

Tim Stringer, Colonial First State's unlisted property funds head, said values dropped 0.6 per cent in June this year from a year ago, according to a commercial property index.

By contrast, Mr Stringer said, the broader equities market dropped 30 per cent from its peak before the start of the global credit crisis last year.

There is a sense that property values would fall at least 5 per cent to 10 per cent, asset allocators said.

That being the case, if they were to sell now at discount of 5 per cent to 10 per cent, they would not be worse off.

IPAC chief investment officer Jeff Rogers said super funds tended to have 50 per cent of assets in the public sector and the balance in private sector -- including infrastructure, equity and property.

Mr Rogers said some managers may decide to lock in the 15 per cent annual gains achieved in the past few years before property values dissipated in a protracted downturn.

"By taking their money out now, they can put it into lower-risk assets," he said.

Publisher: The Australian

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