AUSTRALIA – Australian superannuation funds are moving into social infrastructure as an alternative to traditional real estate despite a lack of familiarity or available assets, according to Nick Anagostou, chief executive of social infrastructure funds at specialist property fund manager Folkestone.
Despite the relative maturity of pure infrastructure as an asset subclass in the Australian market, Anagostou said 'supers' had until recently been reluctant to consider specialised social infrastructure assets because they lack familiarity with the dynamics influencing returns in the sector.
"The asset class is maturing rather than mature," he said. "The specialised nature of the assets requires a different means of analysis that is typically more micro than macro."
An additional intractable barrier to supers' willingness to invest in social infrastructure up to now has been the limited supply of institutional-grade large-scale assets.
Folkestone, which in September agreed to acquire fund manager Austock's property funds business, including the AUD103m (€84m) listed Australian Social Infrastructure Fund, expects more development opportunities to emerge in the short term.
Moreover, Anagostou said social infrastructure rents underpinned by low risk of oversupply and relative immunity to macro factors and market sentiment had made supers reconsider infrastructure as an alternative to overweight positions in commercial and retail real estate assets.
"Social infrastructure assets don't necessarily respond to the same macro factors that drive traditional commercial, retail and industrial returns from real estate," he said.
"Assuming that prudent asset selection criteria is adhered to, [social infrastructure] assets are seen as defensive but generally able to provide relatively strong returns without the volatility that characterises asset classes such as traditional real estate and equities."
He said the strongest potential for growth would be in healthcare elder care, childcare and medical services assets, with demand driven by a combination of endogenous population increases and significant immigration resulting in annual average growth of 1.7% in recent years.
Meanwhile, the government has not matched incentives to expand urban boundaries with an increase in spending on social infrastructure.
"As a result, there is a shortage of infrastructure in education, healthcare, policing and emergency services that service communities across the growing, as well as well established, urban areas as the population grows," he said.
In separate news, Australian supers and Canadian pension schemes will drive a "major wave of new investment" in global real estate over the next decade, according to Knight Frank.
Forecasting average real estate allocations for both groups of more than 10%, the consultancy said in a report published this week that Australian supers would significantly increase their investments in core European and North American property markets as they sought to deploy potentially "tens of billions" raised following domestic legislation that would increase compulsory pension contributions over the next eight years.
In contrast to Canadian schemes, Australian supers have up to now focused primarily on their domestic market.