In times of uncertainty big super isn’t afraid to invest offshore

As the world watches Trump’s return in the US and political events in Europe, the offshore exposure of Australian super funds is actually growing.

Dark clouds linger over international geopolitical stability but that hasn’t stopped Australia’s big super funds investing offshore.

As the world watches the arrival of the Trump administration and political events in Europe, the offshore exposure of Australian super funds is increasing.

While much attention is given to the offshore investments of big Australian companies such as BHP, Rio, CSL and ResMed, there is less focus on the expansion of the big industry super funds, which are making offshore investments of hundreds of millions of dollars in some cases.

The latest announcement comes from the $350bn AustralianSuper, which has bought a half-interest in a $1.4bn European industrial and logistics portfolio as part of its long-term plans to expand its global real estate portfolio. The portfolio comprises some 730,000sq m of logistics and distribution warehouses across 76 assets in western Europe.

The deal will see AustralianSuper also co-own the M7 Real Estate management platform with Oxford Properties, a subsidiary of the Ontario Municipal Employees Retirement System.

Oxford Properties plans to use the M7 platform, which it bought in 2021, to expand in the region.

Announcing the deal, AustralianSuper said the joint venture partners planned to grow the venture to $7.5bn in the next three to five years.

Oxford executive vice-president and head of Europe, Joanne McNamara, said the move would create a strategic partnership between the two global pension funds to grow their real estate investment in Europe “as we enter a new real estate cycle”.

Oxford Properties had a “compelling pipeline of investment opportunities which we expect to announce in short order”.

AustralianSuper’s global real assets portfolio is now around $56bn, including more than $10bn invested in Europe.

Its portfolio includes the King’s Cross Estate and the Canada Water regeneration projects in London and the Wiri Logistics Estate in New Zealand.

That announcement was followed by a more modest deal: industry super fund vehicle IFM Investors and health industry super fund HESTA are making a “significant investment” to buy a 49 per cent stake in Australian-owned Splend Group, which provides cars for rideshare drivers in Australia and Britain.

IFM said it also planned to support the company to expand its fleet and operations.

Some 45 per cent of the money invested by the industry and retail super funds is already invested offshore.

Alex Joiner, the chief economist with the $220bn IFM Investors, which was set up more than 25 years ago as a key investment vehicle for industry super funds, estimates the percentage of offshore investment will continue to grow as the funds look to invest billions of dollars of net capital inflow.

With the super sector expected to grow from some $4 trillion today to $11 trillion by around 2040, the total invested offshore- in absolute and percentage terms will become very significant.

As Joiner explains, Australia is not big enough to absorb the increase in capital that needs to be invested.

“We haven’t got an estimate of where the 45 per will get to over time, but it would be uncontroversial to say that it will push beyond 50 per cent in the not too distant future, and towards 60 per cent over the longer term,” he told The Australian.

AustralianSuper has some $20bn a year in net cashflow to invest, and the local market – whether it be shares, property, infrastructure or private debt and equity – is too small to accommodate it.

Concerns that big super funds are becoming too powerful in the local sharemarket, particularly in sectors like banking, will add to pressure on their chief investment officers to invest offshore.

The compulsory super system will get another shot in the arm in July when the mandatory super contribution goes from 11.5 to 12 per cent of salary.

Recent figures show APRA-regulated funds (which exclude self-managed super funds) now have 30 per cent of their assets invested in international shares and 24 per cent in Australian shares.

Some 6 per cent is invested in offshore fixed interest, compared with 13 per cent in Australia.

Investment in offshore infrastructure, private debt and credit is also growing.

Joiner points out that IFM, which has $110bn invested in infrastructure in total, has a global unlisted infrastructure fund which is already larger than its Australian infrastructure investments.

Given the size of Australia and the opportunities offshore, the infrastructure investments are expected to increase.

IFM has long had a presence offshore, given its pioneering role in making big-ticket investments for super funds in airports, ports and toll roads around the world.

Recent years have seen the big super funds take more of their investment management in house, which has, in turn, seen them expand their offshore offices to allow them to be better plugged into the big capital markets, particularly in London and New York, and get access to the big deals.

AustralianSuper has been the most aggressive, with more than half of its assets invested offshore: 30 per cent in the US, 5 per cent in Britain and 7.9 per cent in Europe.

Its deputy chief investment officer, Damien Molony, is based in the fund’s London office, where it has a staff of 150.

The fund is expecting to see its total assets grow to $700bn by 2030, with plans to have more than 70 per cent of its net cash flows invested offshore by the time it grows to $1 trillion. It has announced plans to boost its London staff to manage its plans to double its British investment to around $26bn by 2030.

In North America, it plans to expand its staff from the current 60 to 120 in the next two years.

Australia’s second largest super fund, the Australian Retirement Trust, which has some 40 per cent of its assets invested offshore, opened its first overseas office in London in April last year.

With more than $25bn invested in Britain and Europe, the fund said it planned to further build out its global investment capability.

Aware Super opened its London office in late 2023 and has moved quickly to expand its British footprint, announcing a $2bn partnership with British property manager Delancey Real Estate.

This follows its move to buy a 22 per cent stake in Get Living, Britain’s top build-to-rent developer, founded by Delancey.

For the big super funds, the future is investing offshore, which provides much more investment opportunities but also currency risks which need to be managed.

Ordinary Australians are much more exposed to the global investment markets – and the skills of their super funds – than ever before.

Originally published as In times of uncertainty big super isn’t afraid to invest offshore