Why are MLC MySuper investment portfolios invested in unlisted assets?
Unlisted assets now form an increasingly important part of the investment mix in MLC MySuper investment portfolios, as they provide diversification, relative return stability and potential for better risk-adjusted returns (essentially how much risk is involved in producing that outcome).
MLC MySuper investment portfolios invest in a range of unlisted growth assets such as property, infrastructure and private equity as these assets offer the potential to deliver higher returns to members over the long-term and tend to be less impacted by short-term market events.
Infrastructure investments
Within the MLC MySuper portfolios, there are unlisted infrastructure investments.
The cashflows of essential services, such as electricity transmission, are often linked to regulatory regimes with inflation protection, which, also makes them suited to times when inflation is high. Our investments in infrastructure also focus on assets that provide sustainable long-term cash flows.
Property investments
Our MLC MySuper portfolios also invest in high quality property assets, spread across office, retail and industrial sectors. The industrial sector continues to ride the e-commerce trend, which has meant that warehousing and logistics centres have become sought-after assets.
Private equity investments
Our private equity investments, that is, investments in companies not listed on sharemarkets, continue to be an important part of the MLC MySuper portfolios. MLC Asset Management, and our investment managers, can directly influence companies’ business strategies through private equity investments and by doing so drive operational and financial improvement. This has historically been a good source of return generation over and above that available in listed equity markets and MLC Asset Management believe is likely to continue to be a source of value add into the future.
Valuing unlisted assets
When compared to buying individual shares or bonds, unlisted assets like office buildings or power grids often require an investment amount in excess of $100 million.
We are able to pool our members’ super to invest in these assets which an individual investor couldn’t usually access. We then share ownership of the underlying asset with other large investors—this type of approach not only allows better diversification in our investment portfolios but also reduces the risks associated with such sizeable, single investments.
As unlisted assets are investments that aren’t listed on a public stock exchange, they are valued in a different way to shares, which can move up and down in value every day for instance.
Unlisted assets are valued based on a number of factors like the expected income growth of the asset, what similar assets have sold for recently, and changes in interest rates.
The Australian Prudential Regulation Authority (APRA) does not prescribe specific valuation methodologies for unlisted assets. Instead, it provides guidelines to super funds on the principles for valuing unlisted or illiquid assets. Therefore, the timing of the valuations for these assets varies throughout the year, and from fund to fund.
Why is this important for members?
In some situations, the valuation of unlisted assets can change sharply as they are typically valued infrequently.
Unlisted assets are also considered illiquid as they can be harder to trade or find buyers willing to transact at a given price. During distressed market environments, it may not be possible to sell unlisted assets at a fair or reasonable price.
As a result, MLC Asset Management actively manages the amount of illiquid assets that are included in our MLC MySuper portfolios to help address liquidity risks.
MLC’s investment approach
The cornerstone of MLC Asset Management’s investment philosophy is diversification while at the same time being selective and agile in capitalising on opportunities that arise.
The strategy for MLC MySuper includes cushioning portfolios when markets are choppy and positioning them for growth when conditions are more supportive.
Due to their long-term outlook and less frequent valuations, unlisted assets are less prone to short-term market ups and downs, in normal market environments.
As these kinds of assets have different return patterns to shares and traditional fixed income investments, they can also offer attractive returns that contrast with sharemarket volatility.
Unlisted assets are an integral part of MLC MySuper portfolios and have historically proven to be a great long-term investment.
Frequently Asked Questions
What are examples of unlisted assets?
Unlisted assets can include a wide range of investments, such as privately held stocks, venture capital investments, private equity funds and real estate partnerships.
What are the risks associated with unlisted assets?
Unlisted assets can be riskier than publicly traded investments as they may be less liquid (ability to access your money quickly), harder to value, and affected by market fluctuations.
