Investment in property by Australian superannuation schemes

Abstract

The superannuation sector in Australia accounts for close to AUD 2.5 trillion, representing major institutional investors in both a local and global context, of assets under management (AUM) in Australia's managed fund industry. This level of AUM makes up the majority of AUM in the industry. Over the past few decades, superannuation schemes have come to regard property as a key asset class to include in their multi-asset portfolios. This thesis explores the decision-making made by superannuation schemes when investing in property. lt does this by identifying the main criteria used in this decision-making through a survey process and rigorous analysis. To establish a background for the research in the thesis, an overview of the superannuation industry and descriptive case studies are undertaken to provide an understanding of the property exposure and allocation strategies of Australian superannuation schemes and overseas pension funds. The level of investment in direct property and indirect property, that is unlisted property funds and separate accounts, and listed property, is analysed. This background and the literature review on previous decision-making surveys allow seven independent factors and twentytwo independent sub-factors to be identified as the main criteria influencing the property investment decision-making process by institutional investors. The questionnaire models used in previous surveys did not allow respondents to indicate their level of preference for each of the factors and sub-factors. Consequently, a multi-criteria decision-making model was adopted to construct questions where respondents used pair-wise comparisons to indicate the importance of each factor or sub-factor relative to another factor or sub-factor. This allowed degrees of importance for each factor or sub-factor to be established. Two sample groups, superannuation schemes and wholesale property funds, are surveyed by way of face-to-face interviews. A broad range of non-profit superannuation schemes of different sizes were surveyed, with the respondents being a chief investment officer or investment manager. As property is such an expensive asset to invest in, superannuation schemes often invest in wholesale property funds to obtain property exposure. Consequently, managers of wholesale property funds that invest on behalf of superannuation schemes in direct property were also surveyed. While time and travel restrictions limited the number of superannuation schemes and wholesale property funds that could be surveyed, the AHP methodology allows reliable and consistent findings to be generated from the survey responses. Strategic decision-making is found to be the main factor influencing property investment by the superannuation schemes and wholesale property funds. The degree of importance placed on strategic decision-making by the survey respondents is considerably higher than the degree of importance they place on the other factors. This is in contrast to previous surveys undertaken over the past fifty years, which identified property type and location as the main factors influencing decisionmaking. Core, risk-adjusted return and return are found to be the main sub-factors. Previous surveys had ranked return analysis above risk-adjusted analysis. The responses by sub-groups of the superannuation schemes and the wholesale property funds were also analysed. Four significant differences were found to exist between the responses made by the superannuation scheme sub-groups, which are small, medium and large superannuation schemes. The differences are for two factors, property type and investment style, and two sub-factors, return analysis and local experience. Restrictive mandates and the lower level of funds held by the smaller superannuation schemes relative to the larger superannuation schemes could be reasons for these differences. Only one significant difference existed between the sub-group responses made by the diversified, retail, office and industrial wholesale property funds. lt was for the sub-factor unlisted property fund. This thesis contributes in three ways to the limited knowledge currently available on property investment decision-making by institutional investors. Firstly, it provides an in-depth analysis of the current strategic property allocation by superannuation schemes. Secondly, it identifies the main decision-making factors and sub-factors. Lastly, differences in the decision-making by the sub-groups of superannuation schemes and wholesale property funds are found to exist. Future research should be undertaken on the main factors and sub-factors identified in this thesis, to find out why they are so important. The reasons for the differences between the sub-groups decision-making should also be researched to establish if they affect the returns on their investment in property.

Date of Award	2019
Original language	English