Funds Management

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Temporary changes to the foreign investment review framework have created unintended consequences for funds managers that could create additional headwinds for struggling businesses at a time when equity and debt funding is desperately needed to drive the Australian economy.
Executive Chairman of Atlas Advisors Australia, Guy Hedley said the Australian Government’s recent reform, requiring all foreign investment be scrutinized by the Foreign Investment Review Board, has unintentionally captured some managed funds and could reduce interest in Australia as an investment destination at a time when the nation has a desperate need for capital.
“The reforms importantly aim to safeguard the national interest against opportunism amidst the COVID-19 crisis,” Mr Hedley said.
“However, it also creates needless complications for managed funds that invest broadly across different industries and sectors on behalf investors in areas that require capital support.
“In today’s fast-moving business environment, where innovation is key to survival, enterprise cannot wait unreasonably long periods of time for the delivery of outcomes.”
Mr Hedley said that by unintentionally adding some categories of managed funds to the non- FIRB exemption rules could have the effect of stymieing business opportunities that are critical to drive economic growth both now and in the future.
“These measures will leave thousands of Australian startups, emerging, listed and private companies stranded without critical funds needed to drive business continuity and change,” he said.
“Many of these companies will inevitably collapse, forgoing billions of dollars’ worth of tax and employment generating business opportunities.”
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New temporary FIRB rules hurt the economic recovery

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Fractional property investment company DomaCom has been approved by Trustee Partners for the inclusion of the DomaCom Fund as an investment option for their retail Superannuation Fund.
Trustee Partners currently offer 33 domestic and global managed funds managed by 17 leading fund managers. DomaCom will join this list to provide access to Australian residential, commercial and farmland property delivering further diversification.
DomaCom CEO Arthur Naoumidis said, accessing retail super is another significant first for DomaCom, further broadening their potential in the retail space.
"Most advisers have a significant proportion of their clients in retail super who have not been able to access the DomaCom Fund until now," he said.
“DomaCom has the ability to pave the way for creating thematic investment funds to give investors earnings potential in otherwise difficult to access assets such as residential property and farmland. For those interested in investments with impact we can also offer affordable housing, energy and other socially responsible investments”.
Andrew Peterson, CEO of Trustee Partners, says it is a unique offering for financial advisers and their clients.
“Financial Advisers can now create their own white labelled retail super offerings that include direct property using the DomaCom solution and Trustee Partners."
To read more about DomaCom <a href="https://domacom.com.au/" target="_blank">click here.</a>
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Trustee Partners approves DomaCom for retail super

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Leading real estate fund manager EG has acquired the former Roche Products Australia facility in Sydney for $55 million, in a new addition to its Yield Plus Infrastructure Fund No. 2 portfolio.
The facility at <a href="https://www.domain.com.au/property-profile/100-south-creek-road-cromer-nsw-2099" target="_blank">100 South Creek Rd, Cromer</a> is 20 km north of the Sydney CBD.
It is close to the newly constructed $1 billion Northern Beaches Hospital, the $500 million B-line project for improved bus services to the CBD, and the recently announced Beaches Link Tunnel project. It is also near to the Dee Why Town Centre, which is undergoing refurbishment. 
The property has a net lettable area of nearly 26,000 sqm and sits on a landholding of 74,670 sqm. 
EG’s fund No. 2 was launched in 2016 and worth $750 million. It follows the success of its Yield Plus Infrastructure Fund No. 1 (YPI 1), which is known for its strategic acquisitions with future development upside, such as the recently developed Flour Mill of Summer Hill.
The fund also acquired a storage facility in Northcote in January for $13.45 million. 
Its investment strategy includes assets along new or upgraded infrastructure around Australia.   
“The proximity to new and upgraded infrastructure enhances the long term value of the site,” said associate director Capital Transactions Sean Fleming. 
“There’s significant potential to reposition the asset into a multi-tenanted business park in the heart of the northern beaches. It can capitalise on the high levels of demand for quality industrial accommodation.” 
The vendor was Roche Products Australia and the deal was brokered by Charles Gonzalez of Cushman and Wakefield. 
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Fund manager EG acquires former Roche Products site in Sydney's northern beaches for $55 million

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The Future Fund is dispensing with its government bond holdings and beefing up cash levels in readiness for rising global interest rates, which its chairman Peter Costello says is “just a question of when”.
The sovereign wealth fund reported an annual return of 8.7 per cent that helped lift its assets to $133.5 billion from the initial $60.5 billion contribution 10 years ago.
But its cash weighting of more than $28 billion was once again a focus of attention.
"Markets are trying to adjust and central banks are trying to give them direction so when the adjustment comes it's not a surprise," Costello was cited as saying by The Australian Financial Review.
The fund's chief executive, David Neal, stressed that the fund's outlook had hardly changed over the year and that even though it had a large cash position, the fund in aggregate was taking risks. For instance it had risky positions in property, venture capital and high yield debt.
The fund has about 6 percent invested in property assets.
Recently, Treasurer Scott Morrison cited strong demand for low-yielding government bonds as the reason the Federal government would not draw on the fund’s assets to meet the its unfunded pension liabilities, for at least 10 years.
"We just had our 1000th bond tender earlier this week, [it was] four times oversubscribed," Morrison said at a Bloomberg Event on Thursday.
"Being able to borrow at those rates means we have made the decision not to draw down on the Future Fund – which is earning at 6 to 8 per cent," he said.
"And why would you draw down when it has that cost to your returns, when you can [borrow] at this other level, maintain the Future Fund for another 10 years to ensure your unfunded superannuation liabilities are covered off."
With nearly a decade since the GFC, Costello said central banks would try to return to normal interest rates.
"You don't stay in a state of emergency long after the storm has passed," he said.
Costello said there shouldn't be any surprises that Australians have increased their borrowings in a period of low interest rates.
"When central banks supported by governments reduce interest rates they are asking people to borrow and Australians have responded by borrowing," he said.
“But when they raise interest rates they are asking people to cut borrowing and when they start [that process] asset prices will readjust."
High debt-to-wages ratio has been worrying the RBA.
"Virtually all of our debt is in high risk investments seeking higher returns than a traditional portfolio,” Neal added.
"We have no sovereign bonds in our debt portfolios – they are in specialist investments that are trying to deliver equity like returns and when you put that together you end up with a higher cash weighting."
Neal said sovereign, or government bonds, were "expensive".
"At some point those rates will rise and even if they don't you aren't getting paid much to hold them so instead we have a cash position."
While low interest rates may be putting the Future Fund off sovereign bonds and other assets tied to long term interest rates, governments are benefiting from cheap funding. Australia's 10-year bond rate of 2.7 per cent remains well below the 20-year average of 4.90 per cent, and fell as low as 1.9 per cent in July 2016.
The fund, said it had become more liquid, which Neal said increased its "ability to reposition the portfolio in response to whatever the market throws at us".
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Future Fund bolsters cash levels as it sees global interest rate hikes

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Leading hospitality group Redcape Hotel Group and its 25 pubs have been bought by a Moelis Australia managed fund in a $677 million deal, as it prepares for a public float of its pub fund.
The deal to acquire Redcape and its 25 pubs in NSW and Queensland from US hedge fund owners Varde Partners and York Capital comes at a time when pub values are rising, according to The Australian Financial Review.
Moelis Australia CEO Andrew Pridham said the plan was to float the pub fund in 12 to 18 months.
Most of the Redcape portfolio is in Sydney and includes the El Cortez Hotel in Canley Heights, Minsky's Hotel in Cremorne, the Willoughby Hotel in Willoughby North and the Eastwood Hotel in the eastern suburbs.
Moelis and Redcape had signed a heads of agreement last year, which allowed a <a href="https://www.urban.com.au/expert-insights/investing/50845-moelis-in-redcape-deal" target="_blank">final due diligence</a>.
Redcape was formed after the two US hedge funds snapped up the distressed pub portfolios of National Leisure and Gaming and the Hedley Group when pub values collapsed in the aftermath of the GFC. 
In 2013, they carved out 41 Coles-managed pubs and successfully floated them as Hotel Property Investments (HPI) leaving the remaining pubs up for grabs.
Moelis Australia is funding the acquisition from a combination of existing managed funds, wealthy investors, family offices and Moelis Australia directors and executives.
Moelis Australia will invest $40 million in Moelis Australia Redcape Hotel Group as a strategic investment that will represent a 10 per cent interest in the fund. The fund is forecast to deliver an initial cash yield to investors of 8.75 per cent per annum.
"We know the market well through our investments in pubs since 2014. The attributes of this portfolio is its solid returns and the fact that all the properties are in densely populated areas that will benefit from investment in nearby infrastructure," Pridham was quoted as saying by the AFR.
On the back of the deal and its acquisition of Armada Funds Management, ASX-listed Moelis, raised its forecast underlying earnings (EBITDA) for the year ending December 31 to $29 million, a 25 per cent increase on its IPO Prospectus forecast.
Moelis expects to have more than $2.5 billion of assets under management by December 31.
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Moelis Australia snaps up Redcape Hotel Group's pubs for $677 million 

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Investment firm AMP Capital has got a commitment of $100 million from the Australian government’s Clean Energy Finance Corporation (CEFC) for its green office fund. 
CEFC’s investment would go to the AMP Capital Wholesale Office Fund (AWOF), which is aiming to be carbon neutral by 2030.
The fund has a portfolio of 12 properties, which includes Quay Quarter Sydney and Australian Technology Park, which is targeting a 6 Star Green Star and 5.5 star NABERS rating once completed.
Other existing premium commercial office assets include 200 George Street in Sydney and 700 Bourke Street in Melbourne, which was recently awarded a 6 Green Star Performance rating, becoming the fourth building in Australia to achieve the rating.
“Having achieved the 6 Green Star Performance rating for 700 Bourke Street, AMP Capital is now focusing on achieving Green Star Performance ratings for all other wholly-owned assets in 2017,” AWOF fund manager Nick McGrath said.
CEFC’s investment in AWOF indicates investor appetite for demonstrably sustainable portfolios, AMP said in a press release.
AWOF drew in more than $700 million in equity investment in 2016. 
CEFC Investment Funds lead Rory Lonergan said the CEFC investment in the $4.7 billion AMP Capital fund would help accelerate the development of world-leading energy efficient commercial property portfolios in Australia.
“AMP Capital was selected for this mandate due to the quality and performance of the AWOF portfolio and AMP Capital’s broader commitment to achieve long-term sustainable outcomes,” Lonergan said.
“There is enormous opportunity to reduce emissions from buildings and to really push the boundaries of energy efficiency in the property sector.  With this investment, the CEFC is pleased to support AMP Capital in its objective to deliver net zero emissions across the commercial property portfolio.”
 
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AMP Capital gets $100 million commitment from government-backed green bank

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ASX-listed 360 Capital Group is set to sell its real estate funds management platform to Centuria Capital Group.
Both companies' shares went into a trading halt this morning, ahead of an announcement.
A deal is expected to be announced before the end of the week.  
Centuria Capital is expected to tap equity markets to fund the transaction which was hanging in the balance on the back of recent market volatility. 
Centuria and 360 Capital have been in takeover talks, as exclusively revealed by The Australian's DataRoom column last week, in a deal which will involve Centuria raising about $250 million in cash for the transaction through advisory firm Moelis.
360 Capital is a rival real estate group founded by former Mirvac Group executive Tony Pitt.
Both own retail, offices and industrial properties.
 
Centuria made a $300 million bid earlier this year for the GPT spin-off through, but South Africa-based Growthpoint Properties Australia trumped its offer.
 
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Trading halt for Centuria and 360 Capital

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ASX-listed fund manager Centuria Capital Limited (Centuria) has appointed a new board member who presently works at Google.
 
Susan Wheeldon-Steele is the head of performance at Google where she develops and delivers growth strategies for clients. 
 
Wheeldon-Steele moved to Toowoomba in Queensland when she was four from Charleville and attended Concordia Lutheran College from years one to 12 before starting her further studies at the University of Southern Queensland and working at Murdoch Toowoomba Lawyers, according to a report in the Chronicle. 
 
Centuria chairman Garry Charny said having Wheeldon-Steele on the board was “a step towards the future”.
 
She was previously head of Brand &amp; Retail at AMP Capital Shopping Centres, and was responsible for delivering alternative revenue from 38 retail assets across Australia and New Zealand with combined annual sales in excess of $5 billion.
 
She holds an MBA from the Australian Graduate School of Management (AGSM) and is a member of the Australian Institute of Company Directors.
 
Centuria Capital has $1.9 billion in funds under management, including listed and unlisted property funds as well as tax-effective investment bonds.
 
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Centuria Capital gets a new board member in Susan Wheeldon-Steele

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Property developer and funds manager Charter Hall Group announced operating earnings of 15 cents per security in the six months to December-end, a rise of 9.5 percent from the previous comparable period, and raised its outlook for FY 16.
The company made a statutory profit after tax of $143.5 million, up 259.6 percent from pcp, helped by $89 million in property valuation gains.
Operating earnings rose 26.3 percent to $61.2 million over the comparable period. The group made property deals worth $1.7 billion, and grew its funds under management to $15.9 billion, a 17 percent rise.
“Given volatility across global equity markets, we expect quality property with secure cash flow to remain highly attractive to both institutional and retail investors. We will continue to focus on portfolio security by investing in assets with strong tenant covenants and long lease durations delivering sustainable income and capital growth for securityholders,” Charter Hall’s managing director and group CEO David Harrison said.
The company increased its distribution of 13.3 cents per security, up 9.9 percent over pcp and raised its operating earnings outlook for FY16 to 8-10 percent growth over FY15.
Charter Hall focuses on two key earnings streams; property investment income generated from investing alongside its capital partners in property funds and partnerships and earnings generated from property funds management.
The group focuses on office, retail, industrial and hospitality.
Charter Hall $15.9 billion property portfolio had a total occupancy of 98.1 percent and a stable WALE (weighted average lease expiry) of 7.9 years. This followed 283 leasing deals, including new ones with Target and The Reject Shop in Melbourne, and Amazon Corporate Services and Twitter in Sydney.
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