Graeme Miller

Chief investment officer of $26 billion TelstraSuper, Graeme Miller, says that the recent downswing in real estate returns was “inevitable” due to the cyclical nature of the asset class, but for the same reason, a property rebound will almost certainly occur at some point in the future too. 

This vote of confidence came as many funds posted negative returns in property portfolios in their financial year performance, including AustralianSuper which saw an 8 per cent loss in that part of the portfolio, somewhat cancelling out the stellar run in the global equity markets. 

But Miller highlights that stress in the property market in the last few years has followed a period of “very strong” returns in the sector, and the industry “shouldn’t at all be surprised” by this development.  

“We’ve seen this before, and will no doubt see it again,” he tells Investment Magazine 

“In the same way as it was inevitable that we would have seen a downturn, it’s inevitable that we will see an upswing at some point in the future. 

“Now, whether that is six months away, whether that’s a year away, or whether that’s two or three years away, it’s very difficult to call. 

“The thing that I’d be waiting to see as the catalyst for a turnaround probably would be lowering interest rates more than anything else.” 

Telstra Super FY24 investment returns 
Strategy  Return 
Growth  9.63% 
Balanced  7.98% 
Moderate  7.04% 
Conservative  4.88% 
International Shares  15.18% 
Australian Shares  12.44% 
Property  -6.60% 
Diversified Bonds and Credit  4.72% 
Cash  4.09% 
Source: TelstraSuper 

The decline in underlying land and property values also came alongside surging construction costs due to material and labour shortages, which Miller says is only going to make good buildings worth even more. 

“I think eventually, what we’ll see is that high quality buildings will actually be re-rated off the back of the simple mathematics of the cost of having to replace those buildings,” he says. 

“The same is probably not true for second- and third-grade properties where there is far less intrinsic value in the underlying buildings themselves, and really to enhance value you’d need to do something to them, and that incurs a higher cost.” 

With that said, Miller says TelstraSuper is certainly not looking to increase allocation to property. In fact, the fund, alongside Charter Hall, divested from regional New South Wales shopping mall Rutherford Marketplace in May. The total sale price was $49.8 million, a small premium to the asset’s December 2023 book value.  

MySuper Growth option long-term strategic investment mix. Source: TelstraSuper

But Miller says the sale is more to do with liquidity needs than anything else. With TelstraSuper’s size, its investment team needs to think hard about capital allocation.  

“In recent years, it’s been much more about patiently and thoughtfully seeking to reorient the portfolio towards a configuration that we think makes sense over the medium and longer term,” he says. 

“Our cash flow profile has also been advantageous to us in that because we’ve been fairly neutral. We haven’t had this continuous need to invest all the time at all stages in the market. 

“In order to put something new in the portfolio, we’ve needed to think very carefully about what we’re going to sell in order to fund that. And I think that discipline can be a source of competitive advantage as well.” 

Telstra Super announced in May its intention to merge with another fund but Miller declined to comment on progress to date, for regulatory reasons.

TelstraSuper is among the arguably dying breed of corporate funds, with some peers such as Qantas Super also looking to merge, and others such as Woolworths, Endeavour Group and Commonwealth Bank super already folded into bigger players such as Australian Retirement Trust.  

But with many corporate funds now being public offer, Miller says regardless of their different legacies they are all on a level playing field. 

“My prediction is that more and more of those distinctions will blur,” he says.  

“I think if we wind the clock forward five or 10 years, people will just be talking about ‘super funds’, they won’t be labelling funds as ‘industry funds’ or ‘retail’ or ‘corporate’ or ‘master trusts’ or anything else. 

“What I’m sure we’ll see going forward is that there are many different models under which super funds can be successful. And those that harness their competitive advantages best and neutralise any competitive disadvantages they have best will ultimately be the ones that prevail.” 

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