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Pension fund AustralianSuper targets global property loans

[SYDNEY] Australia's largest pension fund, AustralianSuper, aims to make large loans for commercial and residential property developments in the United States, Australia and the United Kingdom.

In an interview as part of the Reuters Global Investment 2018 Outlook Summit, Jason Peasley, AustralianSuper head of mid-risk assets, said that the investor was keen to extend loans of up to A$500 million (S$498.1 million) per asset in developed markets.

"What we are finding particularly interesting about US property is the fact that we have the ability to play across the capital structure," Peasley said on Tuesday.

"So we look at the market quite nimbly in terms of early stage development with the view to potentially... deploying mezzanine and second lien debt into the commercial real estate market in the US, which is quite deep and liquid," he said.

For the fund, which receives net cash inflows of about A$870 million a month, a sharp reduction in Australian real estate lending by the country's banks has created opportunities to lend at higher rates than they charged.

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"We probably have a bit of appetite to take a bit more development risk than traditional bank lenders would do, as we are active and experienced from an equity point of view in those markets," Peasley told Reuters.

He said the pension fund's A$30 billion portfolio of real estate and infrastructure assets is expected to grow to between A$55 billion-A$65 billion by mid-2023.

Earlier this year, AustralianSuper funded most of the senior construction loan for One Crown Place, a 370,5000 square feet mixed use development in east-end London. The 230 million pound (S$409.4 million) loan is typical of the amounts it wishes to deploy per transaction for the right developments, Peasley said.

"There are capital providers in those markets [UK and the US], I think the difference is that there aren't many players providing commercial real estate, particularly development loans, in scale," Peasley said.


In August, the A$140 billion fund was part of a consortium that bought Sydney's WestConnex tollroad for A$9.3 billion, Australia's largest privatisation sale.

Last year, it invested A$2.5 billion as part of a consortium that bought electricity company Ausgrid for A$16 billion.

Peasley would not say if the fund would seek to acquire the country's biggest gas pipeline company, APA Group. Australia is poised to block a bid from Hong-Kong-based CK Group, based on a preliminary government view it would be against the national interest.

Despite the fund's need to seek opportunities, Peasley said it expected its appetite for what the fund calls mid-risk assets - including unlisted property, unlisted infrastructure and sub-investment grade credit - to abate in 2019.

"We feel that the rising interest rate environment is something that potentially acts as a headwind to the property and infrastructure asset classes specifically," he said.

"The consequence for a growing fund like us is that the weight of those assets will shrink slowly... so we still need to be active and we still need to be looking for opportunities. However the quantum of capital we feel we need to invest in those asset classes is less than we have done historically for the next 12-month outlook period."

Australia's A$2.7 trillion pool of tax-advantaged retirement savings, known locally as "superannuation" or "super" funds, is larger than the country's gross domestic product and among the world's largest pension-fund pools after the United States, UK, Japan and Canada.


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