AustralianSuper is changing the terms of its property option but says it is not in response to an impending property crash.
Starting November 19, Australia's largest super fund will put a 70% cap on the amount that a member can invest in its property option.
AustralianSuper will also have the ability to freeze the option's investment pool, denying withdrawals, contributions as well as switching in case of a market stress event - for a maximum of two years, it told members
Members invested in the property option have until 4pm AEDT today to log into their accounts and confirm they want to stay in the option. Any members who don't confirm will be automatically switched to the balanced option on November 16.
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Why the change?
Speaking at its member briefing in Sydney last week, AustralianSuper's group executive of product brand and reputation Paul Schroder said the changes were to manage liquidity risk.
"The bottom line is, the reason for the change is nothing to do with the property market and it's got nothing to do with the risk of being invested in property," Schroder said in response to a member question.
"It is simply that property is an illiquid asset - it takes time to buy it and it takes time to sell it. And if people could pull the money in and out very quickly, there is a risk in a market downturn that we would have to sell it at a poor price costing all of the members.
"In a really difficult situation, if there was one - and we are not expecting one - we need to be able to hold on to that property a bit longer to get a good price for all the members," he said.
Schroder said if that happens, it will be elevated to AustralianSuper's board.
AustralianSuper's property portfolio
The $140 billion fund had about $10.5 billion invested in property across all its investment options at June end, according to Rainmaker Research.
Of this, the property option captured only $1.3 billion or about 12% of the fund's total investment in property.
AustralianSuper invests in shopping centers and office buildings around the world, but more than half (57%) was in Australian assets at June end.
While AustralianSuper's balanced option was the highest-returning among peers over the last year, the fund slips to 38th position in property option rankings, SelectingSuper data shows.
It returned 7.5% in the year ending September. By contrast, the top performer in property option was Prime Super which returned 13.8% over the same horizon.
AustralianSuper's property option has been around since 1999 and has delivered an average annual return of 7.5% since then, according to the fund.
Crash predictions for housing, not commercial property
AustralianSuper acting head of property John Longo said the option's investments are largely unaffected by the predictions of a property market crash.
"While there has been a lot of media coverage about falling house prices in Australia, we don't expect these falls to have a large impact on the pricing of commercial property," Longo said in a video statement.
"The factors that drive these assets differ from what drives house prices. It takes time to buy and sell property. In normal property markets, this isn't a problem because there are lots of buyers and sellers. In extreme market events this can take a long time."
Longo said outing these changes in place now will give the fund the time it needs to sell assets at a reasonable price if such an event occurs, and protect members' long-term interests.
"These events are expected to be rare and outside the normal ebbs and flows of the property market," he said.
AustralianSuper said advisers can't consent/reject the property option changes on behalf of their clients.