It’s been an exciting few months putting the Unlisted Gems project together and now it’s time to wrap it all up. I also had the chance to interview Victor Yeung, Chief Investment Officer at Admiral Investments. Victor is an international expert on both REITs and infrastructure so it was the perfect opportunity to share with you some of his insights given that we spent a lot of time on both asset classes during this project.


We focussed on two categories of investment in Unlisted Gems: income-bearing investments and those that produced both capital growth and income. We had planned for a third, growth-focussed investments, but quality unlisted opportunities in that category were thin on the ground. Never, fear, however- we’ve got plans for what we learned. There are lots of great opportunities for investors in the Venture Capital space and that’s going to be our next big project.

Income Investments


Among income-only investments we had two broad categories: peer-to-peer platforms and bonds and bond funds. Peer to peer investment is brand new, but bonds have been around almost as long as capitalism. They offer two fundamentally different opportunities and two very different risk profiles.


We tried to give you a broad over view of the many different offerings available in the peer to peer or marketplace lending. We introduced the concept and gave you some suggestions for how to start your research into this new product class. The industry is booming with advances in fintech making use of data and connectivity in ways that simply haven’t been possible previously. We looked at:

  • SocietyOne’s agricultural loans. These are a really interesting offering on the market because they target a niche for short-term capital demand that is going to be less correlated with the market than general personal lending.
  • LaTrobe Financial’s credit fund. This fund isn’t solely a peer-to-peer platform, but it does have a peer to peer option which offers a level of flexibility. As a peer to peer mortgage offering, it has two options: loans secured on a first or second charge mortgage, with rates to match.
  • Investors Central. This offering is different to other marketplace lenders. Rather than asking investors to put their money into a loan or a parcel of loans, investors buy preference shares which act very much like an unsecured bond. The company has a new prospectus available and is offering rates between 8.00-14.35%.
  • Ratesetter was established in the UK in 2009 and has been in Australia since 2014. The platform offers a chance to dip your toe in the peer to peer ocean without having to commit large amounts of capital with very low minimum investment criteria. Currently, they are offering rates of up to 9.3% on a five year investment.


We also profiled three bond funds and three corporate bonds. Bonds are a subject of a lot of discussion in the investment world at the moment and this week we’ll be discussing the technical aspects of bond yields so that you can make sense of it all. A Morningstar article on investing in bonds in the current climate is here, we also discussed bonds generally here. The bonds and funds we profiled include:

  • Qube. Qube issued the bond in October and we updated you on the company last week. Since we did that, the company chairman Chris Corrigan has announced his retirement sometime next year and will be handing over to Allan Davies to oversee the implementation of the strategy that includes delivering the Moorebank freight terminal in Sydney.
  • McPherson’s. McPherson’s have listed their AGM results and their annual report since we updated you last on the company. The company had a 35% reduction in net debt over the financial year and double digit growth in underlying earnings. Sales revenue was down by around 10%, but EBIT was up 14%. Earnings per share increased nearly 10%.
  • Adani Abbot Point Terminal. We updated you on Adani last week, and since then the challenge to the Carmichael Mine has been dismissed, which is a ray of sunshine for Adani, though we shouldn’t expect that to have a short-term impact on the terminal’s revenue.
  • Pimco Australian Bond Fund. Morningstar reports that the PIMCO fund’s returns are 4.1% at 1 year, 5.77% at 3 years and 6.04% at 5 years at 31 October this year.
  • Henderson Australian Fixed Interest Bond Fund. We updated you on Henderson’s changes last week.
  • Supervised Global Income Fund. I checked in with Phil Carden and Matt Aspinall at Supervised. The fund is a bond fund, but as it has an international focus, I was interest to hear what they thought of market conditions. With interest rates looking set to rise, the Supervised team feel confident that their strategy of investing in floating rate securities is an advantage in the current investing environment. The fund’s October report shows a return of 4.56% at 1 year, 5.62% at 3 years and 7.49% at 5 years.


Growth and Income Investments


We had two main categories in this group: infrastructure and REITs. We introduced unlisted infrastructure here and we discussed REITs here.

The infrastructure funds we profiled were:

  • The 4D infrastructure fund. We only profiled the 4D fund a couple of weeks ago, so there’s no update to give there, just yet.
  • The Rare infrastructure value fund. Rare’s October update indicates the fund is returning -5.1% at 1 year, 9.3% at 3 Years and 10.8% at inception.
  • The Magellan Infrastructure fund. The October update indicated that the fund is returning -1.2% at 1 year, 14.2% at 3 years and 15.5% since inception.
  • The Infrastructure Partners Investment fund. I spoke to Nicole Connolly, the Executive Director of the IPIF fund. She mentioned that the managers in the IPIF fund core (Global Diversified Infrastructure Fund and Hastings and Utilities Trust Australia) are looking at opportunities for early next year and a call for investors’ capital is expected by the end of March. So if the IPIF is something you’re considering researching, it may be a good time to check them out.
  • The Blue Sky Water Fund. Strong rainfall and political uncertainty may be working against water funds at the moment, but summer is approaching and with it an expectation of higher water allocation prices. You can read more about the background to the water market here. (Alternative link to a related article here.)


The REITs and property funds we profiled were:


As luck would have it, I had the opportunity to talk to Victor Yeung, Chief Investment Officer at Admiral Investments and David Quirk, who handles investor relations for Admiral in Australia this week. Our profiles in Unlisted Gems have been Australia-focused, so a chance to pick the brains of two people who have worked in Asia-Pacific REITs for decades was a great opportunity to diversify the viewpoint we’ve had so far.


Victor is the author of the Admiral Field Notes Series: REITs and Rental Real Estate and in the book he made the point that he feels that comparisons between bonds and REITs are missing an essential nuance: the REIT is an equity instrument with an increasing rental income, a bond is debt and with a fixed-coupon income streams do not grow.


I asked Victor whether REITs look great in a low-yield environment and if that’s going to change in light of the expectation of increasing interest rates. Victor had a pretty good answer for that one: those increasing rental income streams. If rising interest rates are a sign of a healthy economy, then rents are probably rising. He quoted the US-REIT history: in a 40 year of US REITs, 22 of them have had rising interest rates and REITs performed well in 18 of those.


David and Victor have been watching the Asia-Pacific REIT sector grow over the last decade to over $220 billion in 2014, so I asked them how Australian REITs compared to the rest of the Asia-Pacific (in which Australia is usually included). There were a couple of points they mentioned that I thought were worth sharing:

  • The Australian REIT industry is more concentrated than the rest of Asia-Pacific, with a few main players making up most of the index. The Asia-Pacific REIT index is more diverse and is made up of three main markets: around 1/3 Australian REITs, 1/3 Japanese and 1/3 in Hong Kong and Singapore, with a few other minor contributors.
  • Rental contracts in Asia are typically shorter than Australian commercial real estate, which makes for a slightly different dynamic.
  • Commercial property rent in Asia tends to be correlated with market rent movements more so than in other parts of the world.
  • Coupled with rapid growth in Asian economy, this has resulted in higher overall rental growth over time.
  • Asia-Pacific REITs are currently returning around 12% on average with dividend yields of 4.5-6% or so.
  • There is also a proportion of around 10-15% of serviced residences in the index- this is not typical in Australia.


Victor noted that in the medium term, Asia-Pacific REITs have a tendency to have a medium correlation with equities and bonds in a growing economy, due to those increasing rental incomes.


The most obvious advantage to an Australian investor of investing in Asia-Pacific more generally is diversification and Victor and David provided me with an interesting chart that argues that return can be elevated and risk reduced from just that (see below). Now this is an interesting take on modern portfolio theory and the basics of diversification apply here: if you’re invested in Hong Kong, Singapore and Tokyo as well as Australian property; then the vagaries of the Sydney property market matter less than if you’re only invested in Sydney in Melbourne.


One thing to bear in mind from this chart: I suspect that the curve will move depending on the time horizon you’re looking at – it’s also looking at indices rather than individual investment returns, so it’s probably somewhat smoother than we’d see in a real portfolio. It still provides a pretty good visual of what diversification can do for a portfolio, however.


Chart: Admiral Investment.


One of the most interesting things that Victor had to say was on the subject of data centres being developed as a REIT vehicle. This may be one development to watch: it has a lot of similarities to something like the healthcare REIT sector. Long term leases, a few, select high-end clients with consistent, steady and growing demand for the service that may not be very correlated with economic cycles. I asked Victor and David about some of the peculiarities of this asset class and they thought there were a few things to be aware of:

  • Access to infrastructure is critical. Many data centres are being located in Singapore or Hong Kong. Both cities have access to quality undersea cable and in the case of Hong Kong there is an extensive fibre-optic network that can support large data centres.
  • A data centre-focused REIT was listed in Singapore this year and there’s good potential for growth in the industry at large.
  • Longer term, Victor emphasized it’s not just about connectivity: electricity usage is a huge factor in this type of development and pricing impacts profitability- this is a factor when locating the centres.
  • Another critical issue is data security.
  • In Hong Kong currently there are about 500 000 square meters of data centre already available and the pipeline will bring that to around a million square meters in the next five years.

It’s too early to say, but this may be a very low-correlated industry and one to watch.


Admiral Investments is an advisor for Royston’s Australian Real Estate and Infrastructure Fund, which is focused on what it says: Australian REITs and infrastructure. Admiral has an Asia-Pacific REIT which invests in around 1/3 Australian, 1/3 Japanese and 1/3 Hong Kong and Singapore-listed REITs. The fund has been running for about 2.5 years and has had a return since inception of 11.5%.