Australian superfunds are targeting offshore property investment with the launch of a new joint venture platform between IFM Investors and Industry Super Property Trust.
The 50:50 joint venture is called International Property Funds Management and first order is the formation of a vehicle for European real estate investments.
Speaking to PERE, chief executive Tony McCormack said ISPT had been established because there was an increasing need for Australian superfunds to diversify their property investments offshore.
“For investors who’ve primarily invested in Australian real estate, the returns have been really good for a long time. But I think that returns over the next 10 years are going to dramatically decline, partly due to lots of offshore international investment that’s compressing yields,” he said. “The arguments for not diversifying offshore [for Australian investors] just aren’t there anymore.”
IPFM will focus on building a diversified portfolio with an emphasis on core, income-producing assets. It will directly pursue both on and off-market opportunities.
“For investors who’ve primarily invested in Australian real estate, the returns have been really good for a long time. But I think that returns over the next 10 years are going to dramatically decline, partly due to lots of offshore international investment that’s compressing yields.” – Tony McCormack, CEO of International Property Funds Management
McCormack said that IPFM hoped to have its first product ready within the next six months, which it intends to be a diversified pooled fund, but could not answer questions about the size of the investment it hopes to raise initially.
“The size of the fund isn’t of much consequence for us at the moment. Until we get a product ready, there are so many questions that go ahead of the size of it,” he said.
IPFM is targeting “gateway European cities”, according to a statement issued on the launch, with McCormack confirming this is likely to mean a focus on the UK, Germany, France and Spain – with forays into other countries possible once a beachhead has been established.
The platform has been at least 18 months in the making, McCormack added, with the firm carrying out research into which regions to target, ruling out the Americas and Asia-Pacific for now in favour of Europe.
“On the US, that’s because it’s probably ahead of the cycle now, with interest rates going up, with Europe slightly lagging behind. In the UK and Europe, we spotted a gap because the sector is far less sophisticated, as so much real estate is still owned by private owners and even institutional investors are less sophisticated than Australian institutions are,” McCormack said.
IFM and IPST are both joint-owned by 27 industry superfunds and McCormack acknowledged that IPFM has been set up with “some level of self-interest” from those organisations in investing in the platform. But he emphasised that there were “no exclusions” on approaching other investors.
He added that IPFM would combine IFM’s global footprint and local relationships stemming from infrastructure investments with IPST’s “intricate property expertise” gleaned from the Australian market.
As well as McCormack as CEO, IPFM will be led by Tim Stringer as chief investment officer and Tony Singh and Marc Fegredo as investment managers.
Australian industry superfunds have a limited footprint in offshore property investment, after many suffered losses during the global financial crisis, with a few notable exceptions. One of these is AustralianSuper, the largest superfund in the country with A$130 billion ($98.48 billion; €81.56 billion) of assets under management.