Investments in unlisted assets

The Federal Government has created a temporary super early release scheme. If someone is out of work or has had a significant reduction in their income as a result of COVID-19, they can access two lots of up to $10,000 from their super if they really need to. The first window for these withdrawals opens on 20 April 2020, with the second window in July. Applications are through myGov and are assessed by the ATO.

 

Most super funds invest across a range of different investments and would usually only have a relatively small amount held in cash. We’re currently in an investment environment that is not ‘usual’, with a combination of falls in share markets along with members who may look to take out up to $20,000 each from their super account. It is for this reason you may have heard the term ‘liquidity’ being used. Liquidity is a fund’s ability to convert other types of investments, usually shares and bonds, into cash quickly.

As investments in unlisted assets generally can’t be sold quickly as listed assets like shares or bonds, some recent media commentary has muddied the water when it comes to thinking about the liquidity of a super fund, and their investments in unlisted assets. This article will go further into explaining what unlisted assets are and provide important information about the role they play in maximising your retirement outcomes.

 

What is the difference between listed and unlisted assets?

Listed (or public market) assets are investments that can be readily bought and sold on a public market, like shares through a stock exchange. Another common example of public market assets held by super funds are fixed interest assets like government bonds and cash securities. As these assets are traded frequently (with some being traded many times each day), their short-term performance is affected by the ups and downs of markets. These ups and downs are often in response to the latest news headlines and not necessarily due to a change in the fundamental value of the asset.

Unlisted (or private market) assets are another type of investment commonly held by super funds. As their name suggests, these assets are not ‘listed’ for trading on a public market or exchange, but instead are bought and sold through private market transactions. Some examples of unlisted assets commonly held by super funds include:

  • property (office buildings, shopping centres, distribution centres)
  • infrastructure (seaports, airports, toll roads, electricity transmission networks)
  • debt (loans to companies)
  • private equity (investment in private companies).

 

Why does Cbus invest in unlisted assets?

Unlisted property and infrastructure investments provide returns from the income they generate and the growth in that income over time. These investments are usually owned over a long period of time, which works well with the long-term investment timeframes of super. Their returns tend to be more stable than shares because the income from these assets can be linked to long-term contracts. Some examples of contracts held by Cbus include the long-term right to collect vehicle tolls on a major toll road, or the commercial leasing agreements to rent floor space to office tenants like the Queensland State Government or Victorian Police which can be reliably depended on to pay rent.

At the end of February 2020 almost 30% of the total investments held by Cbus were in unlisted assets; with the majority of these investments in the property (including Cbus Property) and infrastructure asset classes.

 

Valuing unlisted assets

When compared to buying individual shares or bonds, unlisted assets like seaports or office buildings are very large investments that often require an investment amount in excess of $100 million. One of the benefits of being with a fund the size of Cbus is we can pool our members’ super to invest in these assets which an individual investor couldn’t usually access. Unlisted assets are valued in a different way to shares which can move up and down every day. Unlisted assets are regularly valued by professional independent valuers based on a number of factors like the expected income growth of the asset, what similar assets have sold for recently, or changes in interest rates. While most unlisted assets are valued quarterly, in the current COVID-19 environment Cbus and our managers are valuing assets more frequently to ensure values are appropriately reflected in investment returns and accurately represent the Fund’s overall liquidity position.

 

Why is this important for members?

Changing investment options or withdrawing cash from your super is a big decision, especially after investment values have fallen like they have recently. Changing investment options or withdrawing cash from your super may mean you miss out on future growth through investment earnings, or you do not benefit from an increase in investment values when they recover. This can occur as a ‘market rebound’ - when an investment or asset value goes up (recovers) quickly after experiencing a fall.

It is important to remember that while investment markets may experience ups and downs over the short-term, Cbus has been able to deliver strong long-term returns for members through a range of market conditions since 1984 by investing in a wide range of both listed and unlisted assets.

Cbus would like to reassure our members that our Investment Team is watching and managing our liquidity position every single day so that Cbus can pay withdrawals if, or when they are needed. At the same time, we are also ensuring that our members’ unwithdrawn super balances in Cbus’ diversified investment options are well positioned to maximise risk-adjusted returns now and into the future.

If you have any concerns, please call Cbus Advice Services on 1300 361 784 and we will assist you at no additional cost. Please note that we are currently experiencing an increased volume of calls.