Listen to Portfolio Manager Rob Sicilia explain what Real Assets are,
how we find and invest in them, and how they can build and protect
members’ retirement savings.”
Key points in this CIO Update
- Real Assets are tangible, physical investments— roads and bridges, renewable energy assets, and direct property.
- We aim to continually improve the quality and scale of our Real Assets portfolio. It’s an asset class we know well and we’re a seasoned investor in it.
- In the last two years alone we’ve invested around A$1.3 billion in Real Assets.
- Our Real Assets investments like Wheelabrator and Quay Quarter Tower assist in enhancing the diversification of the investment structure by capturing new investment opportunities with positive sustainability features.
Read more about Real Assets in our Real Assets fact sheets (pdf)
What are Real Assets investments and how do they work in a portfolio?
When you invest in a Real Asset, you’re investing in an asset that’s physical. Real Assets include natural resources like timber, infrastructure projects such as roads and renewable energy assets, and direct property assets like office buildings. Real Assets tend to be immobile, connected to the real world, and have an operational element. A good example is an airport (VicSuper invests in Melbourne Airport).
Real Assets used to compete with non-physical financial assets like stocks and bonds for investor capital. Today, Real Assets complement financial assets in an investment portfolio. Combining both types of asset can help improve investment diversification and enhance long-term returns.
Why invest in Real Assets?
VicSuper invests in Real Assets because they provide key benefits for the broader investment portfolio:
- Diversification and protection against investment volatility - Real Assets tend to behave differently from core asset classes like shares (e.g. returns generally do not move in sync), which helps provide investment protection in volatile markets.
- Protection against inflation - Real Assets like direct property and infrastructure assets are regarded as good inflation hedges.
- Greater certainty of future income - the underlying revenues of Real Assets are often forms with sustainable profits or inflation-protected.
- Sustainability - our Real Assets have a strong sustainability theme; we aim to deliver positive, viable investment returns for members while being a responsible corporate citizen.
Evolving our Real Assets portfolioAt VicSuper, we’ve long recognised the value of investing in Real Assets as a core asset class. Within VicSuper’s Real Assets are four sub-asset classes:
Property, Infrastructure, Timber, and Agriculture
Large scale Real Assets like infrastructure and direct property are not readily and easily accessible for investment by the public and self-managed superannuation funds (SMSFs).
VicSuper members in diversified options like Growth, Balanced, or Socially Conscious benefit from investing in Real Assets as well as from investing in Equities, Fixed Interest, Cash, and Alternatives (Alternatives are generally considered as non-mainstream assets).
What is diversification?
Diversification means having a mix of various investments in your portfolio. Diversification helps an overall investment portfolio as different investments provide different returns in any one period.
Asset class diversification is a sound way of helping to protect a portfolio from relying on poor returns in any one asset class.
How VicSuper invests in Real Assets
We invest in Real Assets mainly through unlisted private funds. These hold underlying portfolios of infrastructure, property, and timber investments. We also invest in Real Assets directly, such as agriculture. Sometimes we invest directly in Real Assets by co-investing with a partner or partners (see below for more information).
We have continually improved the quality and scale of our Real Assets portfolio over the last 10 years. In recent years we have diversified the Fund’s property exposure through investing in US and European property. Our agricultural investments are focused in north-west Victoria, where agricultural land has been rehabilitated by converting it from less productive land to land used for horticulture.
In the last two years alone we’ve invested around A$1.3 billion in Real Assets, including those below which are all through investment partners:
- A high quality diversified Australian property fund.
- Two of the highest quality Australian office-only property funds.
- A diversified US property fund.
- Additional allocations to existing diversified core infrastructure funds—via the IFM Australia Infrastructure Funds and Morrison UTA.
- Additional allocations to existing diversified core infrastructure funds.
- A US-focused, ‘core-plus’ infrastructure Fund.
Case study #1: Wheelabrator Technologies (north-east USA, UK)
Wheelabrator Technologies (Wheelabrator) is one of the largest infrastructure asset exposures within Real Assets and provides an exposure to the Energy-from-Waste sector within the US. The US Energy-from-Waste industry is expected to be worth more than A$50 billion by 2024. Energy-from-Waste uses solid waste as a fuel to generate renewable energy via thermal and biological technologies.
Other key attractions of the Wheelabrator business include:
- The opportunity to play a part in the solution to the long term power needs for the north-east part of the United States. Wheelabrator has an electricity generating capacity of 732 mega-watts/hour, which is enough to power 670,000 homes.
- Providing an alternative environmental solution to municipal waste landfill, as well as the competitive advantage from the cost of producing the power (i.e. being paid to take the waste which is an input cost to power production).
Wheelabrator McKay Bay, Tampa, Florida USA | Energy from waste drives sustainability
Source: Wheelabrator website
Case study #2: Quay Quarter Tower (Sydney, Australia)
Quay Quarter Tower (QQT) is a property development which involves the transformation of an existing asset at 50 Bridge Street, Sydney. QQT will provide premium office and retail accommodation. QQT is currently 85% pre-leased to AMP Capital, law firm Baker Mackenzie, and financial services firm Deloitte Australia.
The development is located in arguably the best location in Sydney (and Australia), being opposite Circular Quay with views of the Sydney Opera House, Sydney Harbour Bridge and the Sydney heads. Public transport is nearby with Circular Quay train station located opposite the building.
- QQT has a unique design in that it twists at higher levels, providing sustainability benefits (shade, air movement). The building has been designed and constructed to achieve the highest level of environmental sustainability. QQT’s construction commenced in 2018 with the appointment of Multiplex as the constructor and is expected to be completed by 2022.
Talk to VicSuper about your retirement savings’ investments
In times when the market is more volatile, investing in Real Assets helps provide investment protection as well additional sources of returns. It can help to talk to someone about your super—or even if you just want to find out more about your investment options and how we’re investing your money in Real Assets or any other asset class. At VicSuper, you get financial advice at no additional cost in most cases. For more information about our advice services, go to Help and advice.
For more information about how we harness different sources of investment returns for our members:— Read more about Real Assets in our Real Assets fact sheets
— Read other articles and subscribe to Investment News
— Learn about investment basics to help you understand your super better
— Find out about VicSuper's investment strategy
— Learn about how we invest responsibly
This advice has been prepared without taking into account your objectives, financial situation or needs. You should therefore consider the appropriateness of the advice in light of your individual circumstances before acting on the advice. You should also obtain and consider a copy of the relevant Product Disclosure Statement available at www.vicsuper.com.au before making any decisions. VicSuper Pty Ltd ABN 69 087 619 412, AFSL 237333, Trustee of Victorian Superannuation Fund ABN 85 977 964 496.