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the new school of super podcast series

Episode 1

Listed vs unlisted assets

June 2018

For our first-ever episode, Sunsuper's Dream Team breaks down the difference between listed and unlisted assets and why Sunsuper members should be extra-interested when they take off on a flight from Brisbane Airport.

Voice-over: Welcome to the New School of Super, a fresh look at money matters, your super, and the things that could affect your financial dreams now and in future with Sunsuper's Chief Economist, Brian Parker and Head of Advice and Retail Distribution, Anne Fuchs.

Anne: Hello and thank you for listening. Welcome to the new school of super – Sunsuper's podcast covering all things money, investments, superannuation and most importantly, how to help you reach your retirement dreams. My name's Anne Fuchs and I head up financial advice at Sunsuper and I'm sitting here today with someone who's pretty special, the Chief Economist from Sunsuper. His name is Brian Parker and what this man doesn't know about investment markets isn't with knowing. Brian it's so great to see you.

Brian: Thanks Anne, it's good to be here.

Anne: So today we're talking about unlisted assets versus listed assets and you know, helping our listeners understand what this means and why it's important to their superannuation and retirement savings. But, I think before we start doing that the people upstairs in compliance need us to say something, don't they?

Brian: Yeah, they do. I think they want me to say that this is general information only and that we're not providing personal advice, and that if what we say today does actually spark an interest and does lead you to think that you need to do something, to change something about the way you invest your money, either in super, or outside of super, then

do get some personal financial advice. Because as you say Anne, you know very good personal financial advice can change people's lives.

Anne: Thank you Brian. So, we're talking about listed and unlisted assets. Listed assets I think are pretty well understood, aren't they Brian? They're just the stock exchange simply. How would you describe it?

Brian: Yeah, I think that's right Anne. I mean I think a lot of people can understand that their superannuation fund invests at least a portion of their assets, perhaps a large portion of their assets in shares. In other words, you're buying a piece of the business and that piece of the business, that share is actively traded, day to day on world share markets. And so, the value of that asset on any given day, in fact any minute of the day, can go up or down quite dramatically.

Anne: And highly liquid, so you can get your money at any given time.

Brian: Absolutely, if you go online or get on the phone and I can basically sell my shares in BHP or Commonwealth Bank. Literally within days.

Anne: Okay and so an unlisted asset means what?

Brian: Well it means I can't actually get on the phone or get online and actually sell my equity in an unlisted asset immediately. I'm effectively locking money up for a period of time. So, in other words, the value of these assets is not determined day to day in world markets. The value these assets is priced periodically by independent valuers.

Anne: Okay, so if that's still a bit of investment gobbledy-goop.

Brian: Oh, thanks for that.

Anne: Let's break it down even more. So, bring it to life. Like what does that mean? What are you talking about?

Brian: That's a very good question. It's interesting, I think a lot of people, when they look at their super fund, apart from saying I think there's some shares in there, I think that a lot of people actually don't really have a lot of understanding about where their money is invested. When we talk about unlisted assets, we're talking about primarily unlisted property assets, so direct property. We're talking about infrastructure assets, such as airports and ports for example, or what we call private equity. So, in other words, we're buying shares in businesses, but those shares are not traded day to day, on world markets, they're unlisted businesses.

Anne: It's still too abstract. How would I describe it to my mom?

Brian: Yeah absolutely, in words, I'm buying equity. I'm taking a stake in an asset say like Brisbane Airport, or if I look overseas, I'm taking a stake in the electricity distribution network in Finland, or I'm taking a stake in the gas distribution network in the Czech Republic. So, in other words, whenever anybody lands or takes off from Brisbane Airport, anyone in Finland turns on a light switch, anyone in the Czech Republic who turns on their gas stove, we will make money.

Anne: So, is this just something that Sunsuper does or do other super funds do it? How does that work?

Brian: Yeah look, a lot of the profit for member super funds and, in fact, I'd probably say most of the profit from member super funds in Australia, and indeed a lot of the big sovereign wealth funds and pension funds overseas, do invest a substantial part of their portfolio in unlisted assets. So, it's not just a Sunsuper thing. Why we are able to do it, is a more interesting question perhaps. We're able to do it because our members are overwhelmingly young. They're overwhelmingly investing in compulsory superannuation, which means that our members are not going to be drawing down on the fund, on average, anytime soon.Which means we can afford to worry less about day to day liquidity, than perhaps some of our competitors can.

Anne: So, what if you were describing it to some of our members or you know the listeners here today, what is the main big draw card about this asset class, the big why, behind why we do it? Why is it good for members?

Brian: Very, very simply – higher long-term returns. In particular, higher long-term real or after inflation returns, that are a smoother ride along the way.

Anne: So, does that mean when you say a smoother ride along the way, does that mean it doesn't follow what the stock market does? And that I lose less money? Is that what you're saying?

Brian: It means that the value of the assets we hold, by virtue of the fact that they not traded every minute of the day, it means the value doesn't move around dramatically, so you end up with the returns generated by Sunsuper or a similar profit from a member fund, being somewhat less volatile than a lot of other funds.

Anne: But the downside, risk side of it, does it help with managing that downside risk?

Brian: It does somewhat, yes. Because what you tend to find is during a major share market down turn, especially if that share market downturn is really prolonged, eventually the value of your unlisted assets, is going to be affected by that. But, what we find is the jury major share market downturns, the value of unlisted assets, doesn't decline anywhere near as much as share prices do.

Anne: So, what do you, as the investment managers, worry about? What can go wrong? Because it sounds just fantastic, but nothing's ever perfect. So, what do you worry about? What should we be looking out for to protect our members money?

Brian: Key things: One, is doing a due diligence on these assets. So, we make sure that we have really, really good managers, that are managing these assets day to day. Two, that we do our own due diligence, before we put a single dollar of members money into an asset. We also make sure that we and never, never exposed heavily to one single asset. We'd make sure that we build very well diversified portfolios of these assets and let me give you an example. One of our major assets, if not our largest single asset, is our shareholding in Brisbane Airport. That's a very, very major investment and a very major airport. The value of our equity in Brisbane Airport accounts for less than one percent of the fund. So we're talking about investing in literally a couple of dozen different infrastructure assets around the world. We're talking about in investing in perhaps about a hundred to two hundred individual property assets around the world. And literally thousands of unlisted businesses as part of our private equity folio.

Anne: So, what I'm fascinated by and I guess this is my last question, is how does a fund, look Sunsuper is an iconic Queensland brand, it's for a national fund, one point three million members around the country and all of that, and yes for a big player in Australia. However, how in earth does a fund like ours, get to buy the gas that goes into the Czech Republic, or turning on the electricity network in Finland? How do they even know we have the money to invest in these types of things?

Brian: That's a really good question. It means that you need to burn a lot of shoe leather and you need to spend a lot of time in international markets talking to the key players and making sure you have really good investment contacts all around the world. So that when these opportunities do arise, you're well placed to capitalise on them. We also have an advantage, in the sense that we can move quite quickly. The way Sunsuper is governed, a good deal of day to day investment responsibility, is delegated to the investment team, the internal team of professional investors. Which means that if an investment opportunity comes up to invest in a particular infrastructure asset, we can move quickly, and we can actually make decisions, perhaps more efficiently and faster than many of our competitors. That makes us a reliable investment partner for a range of global investment houses.

Anne: So Brian, before we finish up, for our listeners, one final tip around this particular asset class. How would members know how to access this investment class? How to find out whether their money is invested in unlisted assets?

Brian: That's a good question, Anne. If you look at Sunsuper's range of diversified investment options, the growth option, the balanced option, retirement and conservative option, all of those options have an allocation to unlisted assets. I should also point out though, it's important to realise that we're not talking about having eighty or ninety percent of the fund invested in these assets. We're talking about a third of the fund actually invested in alternative assets and unlisted assets in particular. We do worry about liquidity, we need to make sure we have the lion's share of the portfolio invested in liquid assets. So all of our diversified options have exposure to unlisted assets. For those members that want a particular discrete exposure, we also offer diversified alternatives option and we also offer a property option. That diversified alternatives option, it's been on the market now for a few months. That consists of a small amount of cash, but it also consists of our hedge fund alternative investment strategies and our infrastructure and private equity strategy. Now, our property option includes an allocation to liquid property or listed property, but it also includes a substantial allocation to Sunsuper's unlisted property portfolio. So our members can access it via our diversified options, but they can also access our diversified alternatives directly.

Anne: So, I guess the advice is, talk to your super fund. If you're a Sunsuper member call us. If you're a member of another profit for member super fund and you're really interested in this asset class, have a look online, give them a call. This incredibly fascinating asset class, I really love it and I've loved listening to you speak about it today Brian. Thanks so much.

Brian: Thanks Anne for you time.

Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage you super and enjoy your retirement, visit sunsuper.com.au/thedreamproject. Or if you've got a superannuation or investment question, you'd like Brian and Anne to discuss, then get in touch at the schoolofsuper.com, for it to feature in one The New School of Super podcasts.

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