IOOF’s Internally Operated Office Fund

I won’t rehash too much more about the storm clouds on the horizon for commercial property, you can read that here. Put simply, when you can get a comparable yield from an ultra-low risk government bond, big money managers are much less keen on buying office buildings.

Here’s a joke, a bat and a pangolin walk into a bar and now we work from home more and go to the office less. The punch line is the imminent downward pointing, red line through the value of office properties.

What I’d like to discuss, is one fund that holds a fairly enormous weighting to property, it’s not an Industry Fund, it’s the nation’s biggest financial adviser, IOOF, now called Insignia Financial.

Insignia Financial is a massive company, with battalions of financial advisers, fighting under flags like Shadforth, Bridges Financial. IOOF has grown sizeably whilst it’s rival AMP has shrunk, they bought the disgraced wealth management and superannuation business of NAB (MLC) and ANZ (OnePath) post the royal commission.

The market hasn’t been loving it.

This is a nice segue, as there’s potential red ink headed for a good chunk of their MySuper fund, the $3.4 billion “IOOF Balanced Investor Trust”.

IOOF love property for this fund.

Listed Property makes up 1.01% of the fund, with $34 million, another 2.72% or $93 million in international listed property, but the key item I think worth discussing, is the 7.18% weighting, $246,890,911 of direct property managed by 100% owned subsidiary IOOF Investment Services Ltd.

IOOF aren’t the deepest in property, but, looking at the universe of 117 MySuper funds via Superratings research, the IOOF MySuper - IOOF Balanced Investor Trust is tied as the 13th biggest with 10%.

Crucially, these unlisted assets are done internally.

Here’s the property portfolio:

Source: IOOF

It’s heavy on commercial property (office), 65.4% of the portfolio.

Thus, it would appear that the IOOF Balanced Investor Trust has 4.7% of total members’ money in direct, unlisted commercial property. That’s per the 30 June Portfolio Holdings Disclosure.

Source: IOOF

Note, the $246,890,911 is just for the IOOF Balanced Investor Trust, but the entire $759,900,000 is spread across the following funds.

Source: IOOF

Tiers or Tears?

Glancing through the list of assets, which you can do here, I don’t see a lot of prestige addresses nor CBD postcodes.

But, I’m not a property expert.

Less members

Broadly speaking retail funds are struggling due to their high fees, low returns and documented bad behaviour.

Because of this, they are generally losing members. IOOF is no exception, according to the most recent MySuper Heatmap, I.O.O.F. Investment Management Limited as an RSE (Responsible Service Entity) have an RSE Adjusted Total Accounts Growth Rate (3 year average) of -8.85%.

In English this means that Insignia Financial (IOOF) is shrinking, specifically, their member loss rate is the 12th worst of the 69 funds included. It’s the 7th worst if you include the multiple BT and AMP funds as singular.

This matters, because, the major issue with direct property investments is their illiquidity. Granted there are plenty of other funds that have larger than-ideal exposures to commercial properties, but I would suspect many of these other funds might have superior cash flow, by virtue of increasing not decreasing member numbers and the contributions that come with them.

Secondly, generally speaking, financial advisers tend to have clients that are in retirement, because their balances are higher so they can charge more fees, and given this fund is operated by the nation’s biggest financial adviser, there would be some logic in suggesting that it could be the case that you tend to find that there might a higher proportion of retirees invested in this portfolio, who aren’t contributing money, but rather drawing it down.

But, maybe Insignia Financial (IOOF) funds have superior cashflow, maybe the average balance size is higher, and they’re all financial planning clients who undertake massive contributions.

I think this office discussion is a topic worth discussing, so I’ll be doing two further posts on other funds, looking at one of the biggest funds in the country and then all funds generally, showing who’s most exposed in property and importantly, what the valuations of those funds look like…

Then I’ll be back to writing what I think is most important, fees.

Thanks,

Andy

Some important disclaimers: This blog and its posts are written to educate Australians on their financials, anything in this post is solely general information and commentary. All of the information referenced and provided has been sourced from publicly available information and all attempts have been made to ensure everything is accurate. All information is current as of the publishing date of 2nd April 2023, and may change in the future, it is important readers conduct their own research and ensure that any figures below remain current at the time they read. There is every chance the fees displayed and discussed may change in the future.