Does Your Super Fund Own Commercial Property?
When it comes to superannuation, one key area that often gets overlooked is where your super is actually being invested. Recently, there’s been a lot of talk in the media about the risks in the commercial real estate market, particularly with office buildings facing challenges due to the rise of remote working. Investment expert Marco Mellado recently shared his insights on this issue, especially the potential impact it could have on super balances.
The Changing Landscape of Commercial Property Investments
Marco began by discussing how the commercial real estate market, including office and retail properties, is facing some serious challenges. With more people working from home, office buildings are losing value. Retail properties are also struggling as online shopping continues to surge. As a result, the way these properties are being valued is shifting. And while many super funds are invested in commercial property, the real question is: how accurately are these properties being valued, and how does that impact your super balance?
As Marco pointed out, this issue is particularly relevant today. A super fund with significant exposure to commercial property may find that its assets are overvalued, especially since many of these properties have not yet adjusted to the current market conditions. Higher interest rates, changes in consumer behavior, and the work-from-home trend are all factors that will likely lead to a downward revaluation in the near future.
How to Find Out What Your Super Is Invested In
One of the most common questions investors have is: how can I check what my super fund is invested in, especially when it comes to commercial property? Marco acknowledges that it’s not always an easy task. The level of transparency varies depending on the type of super fund you have.
If you have a self-managed super fund (SMSF), you have complete visibility over your investments, meaning you know exactly what properties or assets your fund holds. However, if you’re in a more traditional super fund, like an industry fund, it can be a lot trickier. While these funds often provide broad categories of investments, such as shares, property, and infrastructure, they don’t usually offer the level of detail needed to assess whether your super is exposed to specific commercial properties.
In particular, many industry funds invest in “unlisted assets” — this includes things like property, private equity, and infrastructure. These assets are often difficult to value and are not as transparent as listed assets (like stocks). This lack of transparency can make it hard to determine the quality of the commercial properties your super fund might own or how often they are being revalued.
Should You Care About What Your Super Is Invested In?
The short answer: yes. Your super balance is directly impacted by where your money is invested. As Marco mentioned, if your super fund has a large exposure to commercial property, and those properties are overvalued or facing downward pressure, your balance could decrease once those properties are revalued down.
For instance, if your super fund owns office buildings that are underperforming because of the remote work trend, or retail properties that are losing value due to online shopping, you could see a drop in your super balance when those assets are reassessed.
How to Start Educating Yourself About Your Super
While it may not be easy, there are steps you can take to better understand where your super is invested. Marco recommends starting by looking at the menu of investment options available to you. Super funds typically categorize their investments into asset classes such as shares, real estate, and fixed interest. This will give you an overview of the main areas your money is being invested in.
To dive deeper, Marco suggests checking for any investment policies or annual reports on the super fund’s website. Though these documents can be long and tedious to read, they provide valuable insight into the types of assets your fund holds, and the investment style of the managers behind it. However, it’s important to note that even with these resources, it can still be difficult to determine the exact assets your super fund owns. For example, you might get a list of the top 10 stocks the fund holds, but beyond that, information about commercial properties can be vague.
Understanding Your Risk Profile
One of the key things that determines how your super is invested is your risk profile. Super funds often ask members to complete a risk assessment, which helps determine which investment category is most suitable for them. This could be a growth-focused category, a conservative one, or something in between.
Marco advises that when selecting an investment option, it’s important to understand your personal risk tolerance. Your risk profile should reflect your investment objectives, your level of financial knowledge, and your ability to withstand market fluctuations. This process takes time and requires you to understand your financial goals, the rate of return you need, and the types of assets you are comfortable investing in, such as equities and commercial property.
Choosing the right risk profile is not a decision to take lightly, as it can significantly affect the performance of your super over time.
Conclusion
In conclusion, the question of whether your super fund owns commercial property is one that every investor should be asking. Understanding where your super is invested, particularly in relation to commercial real estate, can help you make more informed decisions about your financial future. While it’s not always easy to access detailed information about your super’s investments, taking the time to educate yourself on your fund’s holdings and risk profile is essential in ensuring that your super balance reflects your financial goals and risk tolerance.
