Chant West reveals superannuation funds take 7.7 per cent cut on unlisted property plays amid office woes

Superannuation managers are admitting to bigger losses in unlisted property plays as a sustained slump in office blocks relegates traditional star performers to the chorus line. In what was otherwise a positive financial year, super researcher Chant West says funds have disclosed average losses of 7.7 per cent on their unlisted property holdings in 2023-24. This comes after fund bosses gave their valuations relatively modest trims averaging 2.3 per cent in their unlisted property holdings in 2022-23 in the face of ongoing upheaval in office building investment, particularly in the US. Super fund private asset practices are coming under increased scrutiny from the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission amid global volatility in listed property trusts. This year’s round of unlisted property investment downgrades by super funds have seen the likes of CFS FirstChoice Growth and IOOF Balanced Investor become among the top performing funds for 2023-24. These retail funds and small industry fund Mine Super’s growth option topped Chant West tables with returns of 10.7 per cent. Long-term star performance AustralianSuper’s balanced option returned a relatively modest 8.5 per cent, as did fellow star Hostplus’ balance choice with just 7.6 per cent as property downgrades took their toll. Chant West research chief Mano Mohankumar said the best performing funds for 2023-24 generally had higher allocations of shares, particularly international stocks. Mr Mohankumar said the lag in valuation downgrades for unlisted property holdings was an inherent part of their function as a buffer and their defensive role in times of upheaval and intense market downturns. The unlisted holding arguably better fitted property’s diversification role in super portfolio because their values did not surge like listed property trusts during share market booms and crash like they did in early 2020 and in the global financial crisis. “More often that not, the unlisted value is likely to be more accurate than the listed value,” he said. He pointed to super funds enjoying average returns of 23.8 per cent in 2023-24 from listed Australian property funds — and most of that growth being driven by industrial property and digital infrastructure play Goodman Group. A recent APRA survey found 10 of 46 big super managers did not have unlisted property assets valued at least quarterly. It also found 14 did not have quarterly revaluations for private equity and eight lacked regular updates with their unlisted infrastructure plays. Pointing to this study, APRA has told super fund managers that unlisted asset valuations were “a heightened surveillance priority”. And ASIC chair Joe Longo this week also put a top priority tag on his agency’s scrutiny of the private equity and private debt markets, both of which are heavily supported by some big super managers. “We don’t want misconduct, we don’t want conflicts of interest, we don’t want poor valuation practices, we don’t want investors being misled,” he said. Mr Mohankumar said Chant West’s fund ratings considered fund valuation policies and practices of funds as part of its rating measures. “We are broadly comfortable with funds, but some have better policies than others,” he said. He said a lot of funds did revaluations outside of their normal cycles at the depths of the COVID-19 crisis.