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The $85bn industry fund Cbus is set to step up its investment in property, both in Australia and offshore, as it looks to take advantage of weaker global markets, according to the funds newly appointed chief investment officer Brett Chatfield.
The plans come despite Cbus’ property investments, which account for 12 per cent of its total portfolio, delivering a small negative return in the year to June 30 as a result of writedowns of some assets.
But stronger performance in other sectors, including equities, credit, and infrastructure, offset the weakness in property, allowing the fund to report a full year return of almost 8.5 per cent, after last year’s negative 3.77 per cent.
Chatfield, who has taken over as CIO following the promotion of former investment head Kristian Fok to chief executive officer, tells Investment Magazine that Cbus is still committed to investing in property.
“Over the long term, we think unlisted assets, particularly property, have delivered for us,” Chatfield says.
“Property has been a very strong competitive advantage for us for many years.”
Chatfield says the weakness in some markets, particularly in the US at the moment, could provide some good buying opportunities.
“Typically, in softer periods, where there are headwinds, it is often a very good time to start investing in new money and looking for new opportunities,” he says.
Cbus has some $3 billion a year in net cash inflow and invests in property directly, and through its wholly owned subsidiary, Cbus Property, which is both an investor and a property developer.
“Both ourselves and Cbus Property continue to look for attractive opportunities in the market,” Chatfield says.
Opportunities in the US
At the moment, Cbus has most of its property investments in Australia with a small exposure in the US. But Chatfield says the US market, which has been much weaker than the Australian market recently, could provide some good buying opportunities.
“In property, particularly in the US, there may be some good opportunities,” he says. “It is an area where we are looking very closely.”
Cbus is one of four industry super funds which announced in May they were collectively investing more than $280 million in global asset manager Nuveen, to get exposure to alternative workplace assets such as those in life science, medical, research and technology production in US cities.
The investments were made to give them access to a broader suite of property assets, than traditional office blocks and retail.
Hostplus, TWU Super, and another unidentified super fund made the investment to give them exposure to property assets not readily available in the Australian market.
“We think it [the investment in Nuveen]will prove a good point of entry, given a lot of those areas have already had significant downward revaluations,” Chatfield says.
He said Cbus had seen some write downs of its property assets, particularly in the office block sector.
“We have seen some downward revaluations across the broader property sector,” he says.
“Obviously, office has been weaker than other sectors like retail and industrial.”
“Offshore property has been a lot weaker than Australian property, particularly US property.”
Cbus Property itself will report a small positive return.
Offsetting the impact of writedowns
Mr Chatfield said Cbus Property had enjoyed some good returns from projects in the financial year, including the settlement of a major residential development in 17 Spring Street in Melbourne, which had helped to offset the impact of some write downs of some of its other investments.
Property companies Dexus and Charter Hall have both recently announced writedowns of their portfolios, particularly in office buildings.
Chatfield says industrial and retail property markets have held up better than office buildings in terms of valuations.
Cbus says the fundamentals have “continued to improve” for Cbus Property’s Pacific Fair, on the Gold Coast, with strong retails sales over the year as tourism returned to the region.
“While we won’t see the 15 per cent returns for Cbus Property this financial year that we’ve become used to, their foresight in diversifying the portfolio and concentrating on quality will likely see them deliver a small positive return,” Chatfield says.
Cbus’ total returns for the 2022-23 financial year mean it now has a three-year rolling average of annual returns of close to 7.5 per cent, despite continued volatility in global markets.
“We are very pleased with where the returns are sitting. It is quite a good absolute return following a small negative last year,” Chatfield says.
“It goes to the diversity and the quality of the portfolio and our other drivers of return.”
Cbus now manages some 40 per cent of its investments in house, with plans to increase this to more than 50 per cent.
“Part of our five-year strategy is to build internal capabilities,” Chatfield says.
He says this will include more inhouse management of its equity investment as well as some other new areas.
Equities buoying returns
Chatfield said he expected that other super funds would also report positive returns for the 2022-23 financial year, as a result of strong returns in the equities market in particular.
“We expect most funds will have good absolute returns,” he says.
“Those which have much more in equities and less in unlisted assets will do better, because equities have done so well.”
“It is good for members given the negative returns last year.”
But Chatfield says Cbus still likes its exposure to unlisted assets including property, and infrastructure , a category which returned around eight per cent in the 2022-23 financial year.
He says the fund is also looking to increase its exposure to infrastructure assets, and at expanding its investments in renewable energy where it is currently involved in projects in offshore Victoria and Western Australia.
“It is early days in terms of opportunities, but we think over the next 12 to 24 months, there could be some quite interesting opportunities to partner with governments for them to be able to achieve the quite ambitious energy plans they have in terms of moving to renewables,” he says.
The fund is also stepping up its investment in the private credit market, with its investments in global credit returning around seven per cent in the financial year.
“We are deploying some more money into lending to mid-sized businesses in the US and Europe,” Chatfield says.
“We think it’s quite an attractive space where you can get high single-digit and potentially double-digit returns, for quite a solid risk profile.”
Supporter of affordable housing
Chatfield says Cbus has been a long term supporter of the affordable housing market and is still hoping to become more involved in the sector through the proposed Housing Australia Future Fund, whose enabling legislation is stalled in the Senate.
He says Cbus is keen to work with governments to develop structures which would make it attractive for super funds to invest in affordable housing.
The fund has invested through buying bonds issued by the National Housing Finance and Investment Corporation (NHFIC), which provides funds for community housing providers, and has also done some more direct lending to these not for profit organisations including one project in Melbourne suburb of Parkville.
“It is an area we are keen to participate in, but it needs to go through parliament first,” Chatfield says.
He says the fund is expecting further interest rate rises and believed there was a “reasonable prospect” of a recession in the US.
He says this means the fund is “more defensively positioned” at the moment, including being about 3.5 per cent underweight in both Australian and global shares, which is offset by a small overweight in investments in emerging markets.
