Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
ISPT’s Melbourne tower, core fund see double-digit write-downs
ISPT has written down the value of its 50 Lonsdale Street Property Trust – a special purpose vehicle “created to develop and manage one of Melbourne’s leading commercial buildings” – by -30.01 per cent over the last year, according to 30 June valuations seen by ISN.
The steep decline – which puts the value of 50 Lonsdale Street somewhere in the vicinity of $506 million, down from $723 million at 30 June 2023 – is apparently not attributable to lease expirations, though sources suggested that income might be less certain in the future with work from home arrangements more entrenched in Melbourne than Sydney. Gearing, which ISPT previously said has been relatively conservative in the Lonsdale Street Property Trust, could also explain some of the decrease in value, which has left investors in the fund with a five year p.a. return of -2.70 per cent.
ISPT declined to comment.
Five floors of the 33-floor 50 Lonsdale Street – which boasts a 5.5 star NABERS energy rating, end of trip facilities and five levels of basement parking – currently lie vacant, according to a listing from JLL Property: 25, 26, 27, 32 and 33. AustralianSuper, which previously occupied level 33 (it’s moved down the street to Wesley Place) sublet its space to the Department of Health and Human Services. The Victorian state government is the building’s cornerstone tenant, though its lease was reported to be close to expiration in November 2023, resulting in a devaluation.
The decline was not quite as sharp, though not much less harrowing, in ISPT’s $18 billion Core Fund, which has been written down a very hefty -13.94 per cent over the last year. For their trouble, its investors have scraped around 0.86 per cent p.a. over the last five years.
There are bright spots in the wider portfolio, with its Retail Australia Property Trust, which invests in non-discretionary retail assets (supermarkets etc), and Community Infrastructure Property Fund seeing robust five year returns, though these funds only account for $2.6 billion of ISPT’s assets under management.
ISPT manages circa $22 billion of assets on behalf of superannuation funds like AustralianSuper, HESTA, Hostplus and others. It was established as Industry Superannuation Property Trust in the early 90s, when the property crash sent values plummeting and cleared out many of the existing unlisted property trusts even as the actual commercial properties were selling on attractive yields with strong tenancies.
ISPT was last year lining up a merger with big asset manager IFM at the request of both organisations’ shareholders. ISPT was set up as a not-for-profit fund manager – and shareholders, which include AustralianSuper, Cbus, and HESTA, sit on the board – while IFM was a more independent for-profit manager owned by the industry funds; that model was perhaps better suited to growth and globalisation, and offshore clients now contribute a greater chunk of revenues than the industry funds.
