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The Impact of Alternative Assets on the Role of Direct Property in Australian Mixed-Asset Portfolios

Author/s: Graeme Newell, Chyi Lin Lee

Date Published: 1/01/2011

Published in: Volume 17 - 2011 Issue 4 (pages 531 - 559)

Abstract

Australian superannuation funds have increased their allocations to the alternative assets in recent years; this includes private equity, infrastructure, hedge funds and commodities. This raises the issue of whether this increased allocation to these alternative assets impacts on the strategic role and allocation of direct property in the Australian mixed-asset portfolio, due to the potential increased competition between these assets. This paper assesses the risk-adjusted performance and portfolio diversification benefits of direct property and various alternative assets over 1995–2009 and their role in optimal mixed-asset portfolios. While direct property is still seen to play a key role in the portfolio, direct property plays a less significant role in the portfolio when the alternative assets are included. In particular, Australian unlisted infrastructure and listed infrastructure are seen as key alternative assets across a significant portion of the portfolio risk spectrum. This is seen as validating the investment strategy of Australian superannuation funds who have significant exposure to the infrastructure sector.

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Keywords

Alternative Assets - Direct Property - Portfolio Diversification - Portfolio Impact - Risk-Adjusted Returns - Superannuation Funds

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