A 15 per cent allocation in an SMSF investment portfolio to diversified unlisted infrastructure can increase its average annual performance by 45 basis points a year over a 20-year time frame, according to research conducted by an investment manager.
Infrastructure Partners Investment Fund (IPIF) head of research and portfolio construction Kurt Lemke said the manager had run 100 20-year Monte Carlo simulations using historical variance and the returns of IPIF’s underlying investments and major listed equity and bond indices.
The simulations evaluate the risks that affect outcomes of different investment options and Lemke said that compared with a portfolio with a zero allocation to unlisted infrastructure, an SMSF portfolio with a 15 per cent allocation outperformed by 0.45 per cent a year for 20 years in average cases and by 2.6 per cent a year in best cases.
Lemke added the addition of unlisted infrastructure also reduced risk compared to the zero allocation base case, in terms of lower standard deviation of annual returns, by 1.4 per cent a year for the average case.
He said IPIF carried out the research after the Productivity Commission (PC) review into superannuation found unlisted infrastructure was one of the best-performing assets classes over a number of years and played a key part in generating returns for the not-for-profit superannuation fund sector.
The weighting to unlisted infrastructure from not-for-profit funds ranged from 5 per cent to 15 per cent, and averaged 7 per cent, but SMSFs to date had very little access to the sector, he said.
“There has been a structural story in infrastructure in Australia that has kept it unavailable to the average person in a direct way,” he said.
“The PC did an analysis of different asset classes and they found unlisted infrastructure clearly outperforms every asset class available.
“This struck us in the report and in the report they reference this difference in the return behaviour of retail and SMSF compared with industry funds, which they attributed largely to asset allocation and fees.
“Yet, retail funds and SMSFs have had no access to this asset class, whereas not-for-profit funds had varying exposure … and that must have had some sort of impact on the return differences of SMSFs, retail funds and not-for-profit funds.”
IPIF chief investment officer Jonathan van Rooyen said the firm and the research aimed to take institutional-grade thinking to SMSF trustees and “to democratise an asset class that has been limited and exclusive for industry funds and institutional investors”.
Currently, a minimum investment into IPIF is $50,000, which requires SMSF investors to be considered as ‘sophisticated investors’, but IPIF chief executive Nicole Connolly said the manager was looking to lower that amount.
“When IPIF started we were focused on bridging the gap into unlisted infrastructure. The decision was made to restrict it to sophisticated investors as a first step, but we are looking at how to actively tap into retail and are some way down the track to doing so,” Connolly said.
