An Australian super fund with some of the largest exposures to property has informed members it would be discontinuing its single sector property and infrastructure investment options from 1 October 2023.
Instead, Hostplus would introduce six new “pre-mixed” investment options for its members.
The new options would include high growth, defensive, socially responsible investment – high growth, socially responsible investment – defensive, and two indexed options, indexed high growth and indexed defensive.
In making the decision to scrap its infrastructure and property options, Hostplus said it had considered factors including “the appropriate management of investment risk, costs, complexity, asset allocation, rebalancing and liquidity, and how these particularly relate to unlisted assets within these standalone sector options”.
“Taking these considerations into account, we believe withdrawing these options, while at the same time introducing a broader suite of new pre-mixed options, is appropriate and in members’ best financial interests,” it stated in a Significant Event Notice (SEN) sent to its more than 1.68 million members.
Members who wished to continue to invest in the asset classes were encouraged to do so by investing in listed property and/or infrastructure assets on the Australian Securities Exchange (ASX) or exchange traded funds (ETFs), via Hostplus’ Choiceplus option.
“Additionally, exposure to these asset classes, including unlisted assets, can also be achieved via a number of our pre-mixed ‘Core’ options,” it said.
Hostplus members would be unable to switch into the property or infrastructure option from 1 September 2023. Members who did not switch by October would see their property investments move into the Conservative Balanced option while infrastructure would shift to Hostplus’ default MySuper option.
According to Hostplus, member funds invested in the single sector property and infrastructure investment options represented less than 1 per cent of Hostplus’ total exposure to these asset class sectors, and it would continue to retain its investments in the property and infrastructure asset classes through the pre-mixed options.
“Refining and optimising our suite of investment products has been something we have been working towards for some time now,” a spokesperson told Super Review.
“Property is a very broad asset class, and there are many sectors within property in which we invest. Our exposure to certain non-traditional property sub-sectors, such as industrial, hospitality and medical offices, have been growth sectors and are experiencing strong rental growth, which in most cases has mitigated any impact from the increased pressure on the capitalisation rates.”
According to the fund, the active management and deliberate strategy to diversify its property portfolio away from the concentration in traditional sectors should translate to resilience through the current market cycle.
As of June 2022, investment holdings disclosures of the $100 billion superannuation fund showed allocations of almost 11 per cent to property.
However, the asset class had witnessed significant headwinds in recent years such as rising interest rates and tightening monetary policy; flexible work and remote working; and the growing popularity of online shopping.
According to the latest Australia Capital Trends report from MSCI Real Assets, industrial, office, and retail sectors all tumbled in Q1 2023, each posting declines in sales activity of over 70 per cent.
Additionally, the Australian Prudential Regulation Authority (APRA) had ramped up its scrutiny on unlisted asset valuation practices, which would include property, insisting on more timely reevaluations to avoid buying in at artificially high prices.
In January, APRA deputy chair Margaret Cole revealed the prudential regulator had already pulled up a number of super trustees for additional information in relation to their valuation practices of certain unlisted assets.
With Equip Super closing its property option in June 2022 and AustralianSuper dumping its property investment option in September 2021, Hostplus’ announcement marked a noticeable trend in Australia’s $3.4 trillion superannuation industry weaning away from property investments.
Reflecting on the decision to close its property option, AustralianSuper CIO, Mark Delaney, admitted its property investments had been “really disappointing” at the 2023 Morningstar Investment Conference Australia.
“We had a strategy of overweight on retail and a strategy of more international property than Australian. Both of them were the wrong decision and with property, it’s very hard to get out of. Retail got disintermediated by online shopping and we were overweight there then we had a short exposure to industrial so that was the worst of all worlds,” Delaney said.