April 2019 investment update
16 May 2019
Local Government Super (LGS) manages over $11 billion in retirement savings and invests this money in a wide range of different assets.
Below are just some of the recent developments across our investment portfolio.
LGS Fixed Income (Bonds)
LGS currently invests AUD $1.8 billion in the bond market which is also known as the fixed-income market.
Fixed-income markets represent the largest market sector in the world valued at approximately USD $100 trillion, even larger than global equity markets which are roughly worth USD $70 trillion.
LGS recently engaged a new global fixed income manager, PIMCO to manage an environmental, social and governance (ESG) portfolio of bonds. PIMCO focuses on a number of key things including exclusion of bond issuers misaligned to sustainability principles, emphasis on ’best in class’ or highly rated ESG companies, and engagement with bond issuers to meet United Nations Sustainable Development Goals (UNSDG).
UNSDG are a set of 17 aspirational goals developed by the United Nations to end poverty, protect the planet, and ensure all people enjoy peace and prosperity. The goals tackle issues including climate change, economic inequality, innovation and sustainable consumption. LGS’s portfolio investments directly meet these goals and contribute to our impact footprint.
Contained within this PIMCO mandate worth AUD $460 million, is an allocation of AUD $70 million to green bonds. Green bonds are those earmarked for climate and environmental projects, and are also sometimes referred to as climate bonds. These may relate to solar projects, low carbon transport, green buildings, sustainable water management or other renewable energy projects.
LGS Property
LGPF delivered a return of 12.18% over the year to March 2019. The portfolio outperformed the benchmark by 3.04 % over this period.
| As at 31 March 2019 | 1 Month | 3 Months | 1 Year | 2 Years | 3 Years | 5 Years |
|---|---|---|---|---|---|---|
| LGPF | 2.93% | 3.87% | 12.18% | 17.02% | 19.62% | 18.00% |
| Benchmark * | 0.60% | 1.34% | 9.14% | 10.90% | 11.31% | 11.57% |
| Excess return | 2.33% | 2.53% | 3.04% | 6.12% | 8.31% | 6.43% |
Source: JP Morgan Custody Report / * Mercer/IPD Australian Property Pooled Fund Index / 4.8 Property
An all new Aldi shopping experience has arrived at Marketplace Leichhardt, NSW
LGS’s flagship retail asset, MarketPlace Leichhardt, is performing well with ALDI recently expanding to a full line store with more fresh food and more space for its ever popular ‘super saver’ catalogue items.
Aldi has signed up for a new 15 year lease which is great for the long term income profile for the Centre. Panetta Mercato has also signed up for a 7 year lease for their brand new fruit and vegetable and international grocery and deli offering. Panetta’s is an established operator and is featured at a number of key Sydney shopping centres including Macquarie Centre and Marrickville Metro.
As part of the Centre’s sustainability program, management has introduced the new Pulpmaster System which is designed to enable the efficient and sustainable disposal of tenant’s organic food waste. Pulpmaster operates by reducing organic bi-products into liquid form, which is then used to create organic fertilizer and green energy. We anticipate that we will see an initial 20% reduction in this type of waste going to landfill which is great news for the environment!
The Pulp Master 6000
LGS Alternatives
| Overall Portfolio Performance As at 31st March 2019 | 1 Year | 2 Years | 3 Years | 5 Years |
|---|---|---|---|---|
| Private Equity | 8.76% | 13.78% | 13.97% | 12.91% |
| Opportunistic Alternatives | 3.82% | 6.58% | 9.23% | 5.19% |
| Defensive Alternatives | 7.33% | 7.70% | 10.27% | 10.38% |
Source: JP Morgan Custody Report
LGS invests in ‘Alternatives’ which include private equity, debt and infrastructure. These investments earn long term stable returns which are more insulated from market volatility.
Private Equity
One of our Australian private equity managers Quadrant, has added Barry’s fitness gyms to their current stable of investments. Characterised by signature red lights, music and unique classes this is expected to further contribute to Quadrant’s excellent fund performance.
Opportunistic Alternatives
LGS invests with Centaur, a manager which has funded the creation of 3,995 dwellings over a period of five and a half years of which 2,699 are in NSW. Dwellings comprise 125 townhouses/apartments and 2,699 land lots. The fund manager estimates that funded projects have generated approximately AUD $93 million in council contributions which are used by councils to provide better local infrastructure and amenities for their communities.
| Location by State | # Apartments | # Lots | # Total |
|---|---|---|---|
| NSW | 125 | 2,574 | 2,699 |
| VIC | 330 | 343 | 673 |
| QLD | 123 | - | 123 |
| WA | 433 | 67 | 500 |
| Total | 1,011 | 2,984 | 3,995 |
| Average Section 94 NSW | 20,000 | 35,000 | |
| NSW council contributions | $2,500,000 | $90,090,000 | $92,590,000 |
Defensive Alternatives
LGS invests in the AMP Community Infrastructure Fund (AMPCIF). One of the assets contained within AMPCIF is the Victorian Comprehensive Cancer Centre in Melbourne which aims to save lives through the integration of cancer research, education and patient care.
