Hostplus it closing its property fund as rising interest rates and work from home bite

Hostplus is closing its stand-alone property fund and launching multisector options in response to sector challenges and regulatory obligations.

Hostplus chief executive David Elia in Melbourne. Picture: Nicki Connolly

Hostplus, one of the funds with the largest exposures to the property sector, is closing down its dedicated fund to the challenged asset class.

Rising interest rates and higher office vacancies hurt by the impact from work from home, have put pressure on the sector.

From October 2023, Hostplus will be closing the property and the infrastructure stand-alone funds, a spokesman for the $100bn super fund said in a statement.

The fund, which was singled out alongside Hesta, during a recent senate estimates hearing, for having some of the highest exposures to the property sector of all super funds will open six multisector options on the same date.

The decision was partly “underpinned by the design and distribution obligations (DDO)” and was “not uncommon, to introduce or close investment options over time,” the spokesman said.

He did not disclose the performance of the portfolios but said that neither the performance of the asset class, nor the performance of the underlying assets within the portfolios had been a “key driver” for the fund’s decision to close the portfolios.

The property option (pension) posted a 17 per cent return in 2022, according to its website. The website does not show current return for the investment pool.

The property exposure of the Hostplus (MySuper) balanced option, in which most of its members are invested, is about 11 per cent. That portfolio returned 3.89 per cent in the past year and 11.34 per cent in the three-year investment period, the website shows.

Hostplus’s exposure to property compares with a 5 per cent total exposure to the sector at AustralianSuper, and an 8.5 per cent for Australian Retirement Trust – Australia’s two largest pension funds.

AustralianSuper chief investment officer Mark Delaney last month told a conference that returns on the fund’s property portfolio had been “really disappointing”. So much so, it had stopped allocating new funds to the asset class.

TCorp chief investment officer Stewart Brentnall this month said that higher interest rates and inflation would likely lead to double-digit writedowns in the values of Australia’s commercial properties this year, particularly for non-prime properties with high vacancies.

“We are seeing a couple of commercial property assets on the market in Sydney at the moment at discounts between 10 and 20 per cent from their independent net asset valuations,” Mr Brentnall told The Australian.

“We believe that they are a reasonable signal of what’s to come.”

Hostplus’s decision to close the property and infrastructure options comes as the prudential regulator increases its pressure on superannuation funds to ensure the valuation of their unlisted asset portfolios reflect their current market value.

But valuations of unlisted assets are a controversial issue. The Australian Prudential Regulation Authority has toughened its stance, although a lack of actual transactions is making it difficult to accurately assess market values.

“Hostplus rigorously applies a highly prudent valuation policy across all its assets, including private market assets,” the spokesman for Hostplus said.

DDO requires that trustees design and distribute financial products, including investment options, to meet “the contemporary needs of consumers and to distribute their products in an appropriately targeted manner that meets their financial objectives,” he said.