An investigation of property-related decision practice of Australian fund managers
| Date | 01 April 2014 |
| Published date | 01 April 2014 |
| Pages | 282-305 |
| DOI | https://doi.org/10.1108/JPIF-02-2014-0014 |
| Author | Wejendra Reddy,David Higgins,Ron Wakefield |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
An investigation of
property-related decision practice
of Australian fund managers
Wejendra Reddy, David Higgins and Ron Wakefield
School of Property, Construction and Project Management,
RMIT University, Melbourne, Australia
Abstract
Purpose – In Australia, the A$2.2 trillion managed funds industry including the large pension funds
(known locally as superannuation funds) are the dominant institutional property investors. While
statistical information on the level of Australian managed fund investments in property assets is
widely available, comprehensive practical evidence on property asset allocation decision-making
process is underdeveloped. The purpose of this research is to identify Australian fund manager’s
property asset allocation strategies and decision-making frameworks at strategic level.
Design/methodology/approach – The research was undertaken in May-August 2011 using an
in-depth semi-structured questionnaire administered by mail. The survey was targeted at 130 leading
managed funds and asset consultants within Australia.
Findings – The evaluation of the 79 survey respondents indicated that Australian fund manager’s
property allocation decision-making process is an interactive, sequential and continuous process
involving multiple decision-makers (internal and external) complete with feedback loops. It involves a
combination of quantitative analysis (mainly mean-variance analysis) and qualitative overlay (mainly
judgement, or “gut-feeling”, and experience). In addition, the research provided evidence that the
property allocation decision-making process varies depending on the size and type of managed fund.
Practical implications – This research makes important contributions to both practical and
academic fields. Information on strategic property allocation models and variables is not widely
available, and there is little guiding theory related to the subject. Therefore, the conceptual
frameworks developed from the research will help enhance academic theory and understanding in the
area of property allocation decision making. Furthermore, the research provides small fund managers
and industry practitioners with a platform from which to improve their own property allocation
processes.
Originality/value – In contrast to previous property decision-making research in Australia which
has mainly focused on strategies at the property fund investment level, this research investigates the
institutional property allocation decision-making process from a strategic position involving all major
groups in the Australian managed funds industry.
Keywords Australia,Property, Asset allocation strategies,Asset consultants, Decision-making theory,
Funds management
Paper type Research paper
I. Introduction
The Australian managed funds industry is the largest and fastest growing investment
sector in Australia. Underpinned by the Australian Government’s compulsory
superannuation policy, the industry has grown nearly ninefold from A$171 billion in
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1463-578X.htm
The authors would like to acknowledge the support of the many Australian fund managers and
asset consultants who gave up time to complete the industry survey.
Received 18 February 2014
Revised 18 February 2014
Accepted 19 February 2014
Journal of Property Investment &
Finance
Vol. 32 No. 3, 2014
pp. 282-305
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/JPIF-02-2014-0014
JPIF
32,3
282
1988 to A$2.2 trillion in 2013 (ABS, 2013). Even with this phenomenal growth rate,
according to Australian Prudential Regulation Authority (APRA) (2007, 2014, p. 57),
the level of allocation to property asset class in institutional portfolios has remained
constant in recent decades, restricted at 10 percent or lower. This can be attributed to
the property asset allocation principles and frameworks employed by individual fund
managers. The focus of this research is to identify and document the Australian fund
manager’s property asset allocation strategies, processes and de cision-making
frameworks.
Property as an asset class plays an important role in institutional managed fund
portfolios in Australia. The A$300 billion Australian property market offers a diverse
range of investments, differentiated by asset sectors and sub-sectors. Institutional
investors have access to more than 1,000 different property funds across Australian real
estate investment trusts (A-REITs), property securities funds, and unlisted funds such
as wholesale property funds and property syndicates (PCA, 2011). According to Higgins
(2007), when compared to the overseas markets, institutions own a significant portion
(70 percent) of the Australian core property market. This can be attributed to the
developed A-REITs market and the impact of introducing compulsory superannuation.
Superannuation funds, representing 82 percent of the Australian managed fund
industry’s assets under management, provide a good measure of institutional property
allocation level in Australia. The continued aging of the population has led to higher
weighting to property assets. Real estate provides the advantage of a regular income
stream with the benefit of capital preservation. Superannuation fund investments in
property assets have increased nearly threefold, from A$24.4 billion at June 2004 to
A$95.9 billion as at June 2013. They hold interest in commercial property, both directly
and indirectly, via exposure to property funds or through mandates and partnerships
with other investment management funds (ABS, 2013; APRA, 2014, p. 38).
Figure 1 illustrates a typical Australian managed fund industry property
asset allocation structure, the number of institutions that responded to the survey and
their fund value. The allocation structure is developed from the superannuation fund
perspective.
Each managed fund type has distinct property allocation strategies and investment
processes. Fund managers’ asset allocation decisions are also influenced significantly
Figure 1.
Property investment
structure and
number/value of
institutions surveyed
Australian fund
managers
283
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