The missing link in retirement funding

The missing link in retirement funding
by admin-acuityfund
Written Articles by Ranjit (84)
Posted on February 12, 2020

Thinking outside the box when it comes to investing doesn’t necessarily mean taking on more risk.

There are those who believe that we live in increasingly uncertain times. That we’ve become plagued by geopolitical events, the rise of populism and record-low interest rates across the globe. Australia has now joined the low-rate party and we’re not quite sure what to make of it.

But times have never been certain; global political events have always been unfolding and interest rates were once upwards of 17 per cent in this country. Back then, as I recall, a good number of people got burnt when rates began to fall and they fixed their mortgages at 15 per cent. Meanwhile, rates continued to slide and the potential savings on their mortgage along with them.

As much as we like to believe that we can now predict the future, we can’t. All investments carry a degree of risk – that’s the nature of investing.

What has changed, however, is us; we’ve grown older since rates were at 17 per cent and most of us have benefited from the perfect combination of rising asset prices and falling interest rates. Asset-rich baby boomers are now questioning how they will generate an income for the next 30 years of their life and the prospects aren’t great.

Or so the critics say. Aussie investors have long held a home bias for real estate and domestic shares. The belief that these asset classes carry little risk is misguided, particularly for those searching for yield in a world of record-low rates.

As a commercial finance specialist, thinking outside the box and solving problems is the aim of the game. Acuity Funding has expanded outside of Australia in recent years and stumbled upon what could be the most promising retirement solution in a generation: commercial real estate and infrastructure assets across Asia.

These large-scale projects require billions of dollars in funding and can offer a similar yield that Australian retirees are now expecting from risk assets.

There is a significant opportunity for the right asset manager to package up these assets into an investment vehicle that both finances the asset and generates an income for investors.

The opportunity in Asia Pacific emerging market economies has until now been constrained to equities and government bonds. But the strong economic growth in nations like Vietnam, Cambodia and Indonesia is now creating a very compelling proposition for asset managers to consider real assets.

We first entered these markets after being referred by some of our larger commercial clients. Our objective was simple: to conduct due diligence on commercial real estate projects and major infrastructure assets across Asia and to secure funding for them.

What we found is a relatively low-risk solution to the retirement income dilemma facing a growing number of Australians.