First State Super turns to Brookfield as it targets global real assets

Australia’s second largest not-for-profit superannuation fund, First State Super, has taken on an offshore partner, Brookfield Asset Management, to explore investment opportunities in real assets outside Australia.

First State Super participated in Brookfield’s two latest funds – Brookfield Strategic Real Estate Partners II and Brookfield Infrastructure Fund III – which closed recently after raising US$9bn (€8.1bn) and US$14bn, respectively.

Damien Webb, First Super’s head of income and real assets, declined to disclose the size of its commitments to the Brookfield funds, but described them as “material”.

First State Super manages around AUD50bn (€34bn) in accumulation funds and a further AUD20bn in retirement funds.

“There are already considerable dislocations in markets like Brazil”

Damien Webb

Webb said the investment with Brookfield will give First State Super exposure to global real estate and infrastructure, including in emerging markets.

“Brookfield works in partnerships, so we are exploring with them how and what we can invest with them,” he said.

“We will look for higher-return, opportunistic and value-add investments in real estate and infrastructure, including in Asia and in South America.”

Webb said Brookfield has a strong capability in South America, a region where he can see opportunities in what he calls “market dislocations”.

He added: “There are already considerable dislocations in markets like Brazil. We have been doing a lot of work internally to form our own views of the Brazilian and Latin American markets and whether that is an exposure we would like to do more of.”

Webb said First State Super is already an active debt investor and is particularly focused on real estate lending in the UK and Ireland.

He believes Brexit could create dislocations in the UK, opening the door for further debt investment. He noted evidence of property prices falling, with some clearing banks, such as Barclays, reducing their desire for lending to categories of borrowers.

“This will offer opportunities for institutional providers of debt capital, like us,” he said.

“With Brexit, it is more than likely Ireland will benefit, but fundamentals in the UK are starting to deteriorate.

“We are able to invest up and down the capital structure – in equity, senior debt or mezzanine – where the opportunities are great.”

Through the Brookfield Infrastructure Fund, First State Super will be looking to gain exposure to developed and emerging markets in Asia and Latin America.

“To be a successful investor in this environment, we need to be able to work with a range of partners and in a multitude of situations,” Webb said.

First State is also open to exploring opportunities to invest offshore with its Australian partners – such as Goodman Group and Lendlease – both of which have substantial global footprints.

Webb said the fund has held some early stage discussions with a number of its local real estate partners to see if there is a role for First State in their large investment platforms and their co-investments in club arrangements involving some of the world’s largest pension and sovereign funds.

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