In the decade leading up to the COVID pandemic, industry superannuation fund executives became fond of boasting about capitalising on the so-called “illiquidity premium” derived from tying up member’s assets in long-dated, illiquid assets, namely unlisted property and infrastructure.
However, the world has changed over the past 12-18 months. Unlisted commercial property has been especially troublesome and infrastructure is also proving challenging.
Write-downs
Over the past 12-18 months, office towers globally have been subject to significant write-downs because of elevated interest rates and subdued demand from tenants. Therefore, if you have a third of your assets in these unlisted, illiquid assets, that’s a very difficult adjustment to make.
Also, old buildings are also costly to upgrade and may therefore have to be sold at heavy losses.
Many Industry Super funds wrote down unlisted assets by as much as 20% last financial year. The longer interest rates remain elevated, the greater the pressure on valuations.
AustralianSuper takes billion-dollar hit on a failed venture capital investment
AustralianSuper’s $4.5 billion-plus private credit portfolio is heavily exposed to the commercial property market in the United States, where office valuations are struggling as remote working reconfigures the sector across the country. The fund recorded a return of negative 8 per cent last financial year for unlisted property.
The fund has also aggressively expanded its investments in private credit and private equity, however, it has now been forced to write off more than $1.1 billion in equity and loans tied to an American online education start-up (Pluralsight, a Utah-based video training firm).
AustralianSuper’s disclosures show some 100 private debt investments are also skewed towards real estate assets. These include several in which the fund is invested on multiple levels, including in primary and mezzanine debt. They also included eight Washington office towers, one of which the fund already wrote off last year as valuations plummeted.
The Australian Prudential Regulation Authority (APRA) has warned the country’s major industry superannuation funds that their investments in private credit are opaque and it has serious concerns amid a surge of money flowing into this high-risk, high-return asset class.
At Goldsborough, we aim to achieve the best possible return for our clients with a level of risk that they feel comfortable with. Each client is different with different past experiences, goals and needs. We tailor our recommendations specifically for our clients.
Please call me on (08) 8378 4000 if you would like to review your current superannuation investments.
