AustralianSuper Opens New York Office, Offshore Private Debt Portfolio to Focus on US and Europe | Asset owners

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Australia’s largest pension fund has opened its US office in New York as it focuses its private lending portfolio in developed markets.

The 225 billion Australian dollars (163.8 billion dollars) fund opened its office in New York in late August after a year of delay due to travel restrictions induced by Covid.

AustralianSuper has pledged to triple its private debt investments to A $ 15 billion by 2024, the fund said in a statement in July.

In addition to its New York office, the fund also has a three-person London office dedicated to private credit. The team has seven more people based in Melbourne and will add six more in London and New York over the next 12 months.

DEVELOPED MARKETS

Of its current AU $ 5 billion private credit portfolio, about three-quarters is real estate debt in Australia, Western Europe and the United States.

Nick Ward, Super Australian

“In terms of regional focus, we still like Australia a lot. But the size of the market is quite small. We have largely outsourced the Australian component of the home loans to a manager who finances the building construction on our behalf. And that’s Australia’s lion’s share, ”said Nick Ward, newly appointed head of private credit at AustralianSuper. AsianInvestor from Melbourne.

“And then the other two geographies we’re focusing on are Western Europe and North America. We have a lot of exposure in the United States with respect to some of the transactions that we have done in the last 12 months. I would say we’re pretty selective, around the theme of playing Covid winners and losers, ”said Ward, whose plans to move to the New York office have been put on hold due to the pandemic.

On why the fund isn’t looking to invest in private debt markets in Asia, “I would say we just don’t know the markets in Asia,” he said.

“We don’t know about China or India, which are the two markets it makes the most sense to look at because of our size and the size of those markets. We would need to work on this or partner with a manager to hold our hands and familiarize ourselves with the space first, ”he said.

With regard to other Asian markets, “some of the smaller countries, you’re kind of wondering if you’re going to get the scale to achieve the size of the investments AustralianSuper is looking to make.”

Australia’s largest A $ 225 billion super fund is targeting large loans of at least A $ 100 million as part of its private debt strategy, the fund said in a July statement.

OFFICE AND TRADE

Despite growing interest from institutional investors in data centers and logistics real estate assets, AustralianSuper’s most notable transactions have been in the more traditional spaces of office and retail assets.

“I think retail is a bit of a bad word, generally across the market. When you talk about retail, people paint it with the same brush and they just don’t look at the opportunity. There are many malls in the United States and not all of them are going to go away, ”he said.

“Maybe the poorest 10-20% will, but there will also be a lot that will survive and a lot that will thrive as a result, because you will see a consolidation. Where you had four or five really big malls in a big city, it could be reduced to one or two, ”he said.

The fund invested “in mezzanine debt” at a major Chicago mall, which outperformed, Ward said, without providing further details.

The fund also recently completed an office transaction in Manhattan and new construction in the San Francisco Bay Area.

“It will be on the market in a few years and is suitable for hybrid operation. It will be a new build and will have both augmented reality (augmented reality) and virtual reality (virtual reality) to address all of Covid’s long-term issues, ”he said. “It’s pretty close to Silicon Valley. So it also plays on the strength of the region. We like this dynamic in terms of offices.

“There is no doubt that the offices will survive,” added Ward. “For us, it’s more of an equity risk if people are going to renew and re-let for the same amount of space… The assets that will struggle are the older assets. There is definitely a flight to quality, ”he said.

“People also talk about suburban offices rather than city offices, since people are decentralizing a bit with the phenomenon of working from home. But we still believe that megacities like New York, London, etc., will always be extremely viable. It just depends on which office you’re talking about, ”he said.

INTERNAL RELOCATION

AustralianSuper has relied on managers in Europe and the US, but will eventually move some of the investments in-house.

“We are looking to hire someone to lead the global infrastructure debt strategy; we’re open to whether it’s New York or London. But we will have a dedicated role on the infrastructure debt side and we will do all of that directly internally, ”Ward said.

He added that having managers has been helpful in helping the fund become familiar with the market and as a source of origination, but the fund will evolve to reduce its reliance on them over time.

“As we build the internal team, local recruits will bring local expertise and we will be able to manage the assets ourselves and fend for ourselves,” he said.

This would apply to both Europe and the United States, but for the latter, “given that we’ve just opened the office there and we’re still looking to increase that, that’s probably in several years “.

The fund also holds AU $ 14 billion of real estate investments and 7% is allocated to real estate in total. The proportion will be maintained for now, “but as the fund will double in four to five years to reach A $ 400 billion, that real estate exposure will also need to double,” Ward said.

Look for Part 2 of this story which explains why asset owners focus on developed markets in their private debt portfolios and the pitfalls to watch out for.

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