Unlisted assets are smart super for workers


(As published in the Australian Financial Review on 31 July 2022)

​​​​​​​Forcing funds to disclose valuations would not be in the interests of working people whose superannuation returns benefit from multibillion-dollar infrastructure investments.

During the pandemic, there was a global sense of priorities being readjusted to bring health, social connection and community wellbeing to the forefront of people’s thinking.

But snap to this year, and we have geopolitical uncertainty, disrupted supply chains, interest rate increases, rising inflation and volatile share and bond markets understandably leading to greater focus on what it all means for the hip pocket of working Australians.

Part of this debate has included the hit this economic environment has had on superannuation returns and commentary about the value of unlisted companies held by Australian superannuation funds.

As a long-term investor, owned by and investing on behalf of industry superannuation funds who collectively represent about half the Australian workforce, IFM owns and manages a number of unlisted assets here in Australia and globally, including airports, toll roads, ports, and energy and water utilities.

We, therefore, have a good understanding of the immense value these investments can bring as part of a superannuation fund portfolio.

Before compulsory superannuation, most Australians simply couldn’t access large private market investments and had to forego the long-term returns and diversification benefits these opportunities presented.

Now, through their industry super fund, Australians’ retirement savings are the “smart money” in private market transactions; and no deal is too big, no deal is too complex, no deal is unreachable.

Working in your corner

This system allows working people – such as nurses, teachers, cleaners and construction, hospitality and logistics workers – to gain exposure to multibillion-dollar infrastructure investments that can hold up well in an inflationary environment and contribute to the resilience of their savings.

They also have global teams of expert fund managers in their corner, working every day on opportunities that protect and grow their retirement savings.

There are broader benefits as well. When super funds invest in unlisted investments, Australian workers end up owning or part-owning iconic Australian businesses, properties and infrastructure, such as Sydney Airport, where the dividends generated go back into their pockets.

Australian businesses also win. With super fund investors, they usually gain a long-term partner who will back them across economic cycles, supporting their growth, which, in turn, can benefit members’ retirement savings and the wider Australian economy.

That is the approach we take at IFM Investors – we expect to hold our infrastructure assets for decades. In fact, to this day, funds advised or managed by IFM Investors are still invested in more than 75 per cent of the assets purchased in the past 25 years.

Another benefit of these investments is that their value normally does not change every day. Being unlisted, they are not subjected to the short-term volatility of stock price fluctuations, which are often driven more by shifts in market sentiment than changes in fundamental value.

Obvious commercial sensitivity

Instead, their fair market value is exhaustively assessed every quarter by independent experts from global accounting firms who review an asset’s underlying fundamentals and market conditions, taking a detailed look at its current and projected operating results and valuing them using a discounted cashflow methodology.

The additional value derived from private ownership, drawn from the high level of strategic and operational control, is factored into the valuation process.

This regular and intensive process is the global industry norm and conforms with international accounting standards. Importantly, this is the same methodology that private market investors around the world use to consider acquisitions and disposals, and so best reflects the value at which an asset would change hands if it were to be bought or sold today.

Some have suggested that super funds should disclose these valuations, but their commercial sensitivity is obvious.

If they were in the public domain, when it came time to sell, potential buyers would know the exact price they should bid for an asset, instead of letting the market do its job.

Further, if all global private market investors had access to this sensitive information and no obligation to reciprocate the disclosure, an uneven playing field would be created. This would leave Australian superannuation funds to compete in a complex, highly competitive global industry with one hand tied behind their back, and superannuation fund members would bear the cost.

This risk was recognised by the Australian Federal Treasury and Coalition government who acted last year to protect the commercial sensitivities of unlisted valuations. This sensible decision means that returns for super members continue to be maximised in any sale process.

And that’s what it’s about for super fund managers – taking an unflinching, prudent and long-term view of investment portfolios in the pursuit of maximising the retirement savings of working Australians, so they can look forward to a retirement where presents for the grandkids, dining out and holidays are not unreachable.

It’s often the little things that add immeasurable quality of life in retirement, and after forty years of hard work and contribution to society, these things have been well-earned.