Aug 09 2018Add to Favorites
Our primary and immediate Investor-focus at MP Funds Management is centered on a few different segments; domestic and offshore institutional investors, ultra-high net worth investors and family offices as well as the c.$700 billion Australian Self-Managed Superannuation Fund (SMSF) investor -base. According to a recent study, Australian SMSFs have only 19% of their wealth invested in the Aussie $7.6 trillion residential real estate market. Overall managed Australian Superannuation together with SMSF in aggregate has only a 10% exposure to real estate.
Given that banks like Westpac have announced that they will no longer provide finance to SMSF’s to buy real estate, the real estate investment space is going to evolve significantly.
For the next 5 years and onwards MP Funds Management’s Focus, via our investment platform Golden Goose Capital, will be more focused towards not only SMSF investors but Millennials, here is why:
1.The rise and rise of Millennials
According to Forbes; Millennials are fast becoming the largest generation in America. Millennials have the power to reshape the economy as we know it. Paying witness to the economic crash, they’ve set their sights on real estate as a viable, sustainable investment choice more than any other generation. Research by RealtyShares found that millennials are the only demographic to prefer real estate over stocks and other investment options. The Responsible Investment Association released a study showing millennials are twice as likely as baby boomers to be interested in investments that provide a solution to social or economic problems.
In America, Millennials are on the cusp of surpassing Baby Boomers as the nation’s largest living adult generation, according to population projections from the U.S. Census Bureau. As of July 1, 2016 (the latest date for which population estimates are available), Millennials, who are defined in this study as ages 20 to 35 in 2016, numbered 71 million, and Boomers (ages 52 to 70) numbered 74 million. Millennials are expected to overtake Boomers in population in 2019 as their numbers swell to 73 million and Boomer's decline to 72 million. Generation X (ages 36 to 51 in 2016) is projected to pass the Boomers in population by 2028.
In Australia, NSW specifically, Millennials make up over 25% of the population. Chart 1.8 shows that in New South Wales the millennials (this chart defines millennials as born between c.1982 and 2000) are now the largest generational group, having overtaken the baby boomers in 2016. Millennials will remain a major force throughout the next 40 years, making up the largest proportion of the population into the 2030s. This is partly an ‘echo’ effect — they are the children of the baby boomers — but also reflects migration.
Generation X sits between the baby boomers and the millennials. As the children of the smaller population of Depression and war babies, Generation X will potentially be the only generation that will never take up the largest share of the population in Australia. The effect of this will flow through to the size of their children’s generation, the digital natives (2001-2020) although the size of this last group will be significantly bolstered by migration.
The aging of the population will be dramatic as the baby boomers retire. Over the next 15 years, as the boomers all reach traditional retirement age, the proportion of the population aged over 65 to those of the working age in NSW is expected to increase by around 0.5 percentage points a year from 24 percent currently to over 33 percent in 2030.
2. Why we believe real estate investment is always a safe bet.
Recent studies suggest that moving into the future most companies will have an anticipated lifespan of fewer than 20 years before technology renders an industry, product or service obsolete. As time goes on, its anticipated that this time frame will compress.
At MP Funds Management, we love real estate as an investment asset class because it’s one industry that will evolve but there will always be a requirement for shelter, roofs over heads, places to eat, drink, interact, be entertained and places to work.
We see real estate as an asset class as a safe bet for the long term based on this fundamental human requirement.
To recap on crude numbers; in Australia, according to core-logic, we have 10 million residential houses to accommodate a population of 25m that is growing at half a million people a year. Although pre-2019 election there is noise about slowing immigration levels, the diminishing taxpayer base created by our top-heavy aging population means there are not enough young, working taxpayers to support the older population that is coming through.
The Aussie housing market is worth approximately $7.6 trillion and according to Core Logic, there is a fairly low ratio of debt on the $7.6 trillion total value at about 23% or $1.76 trillion. It's our view that these numbers do not support any signs of a bubble.
The fact is that NSW has a difficult planning system that makes new supply quite slow. We have a demand driven by immigration and restriction on supply. Whilst the APRA cooling measures and Royal Commission initiatives create a softening of the market which is a good thing, the restriction on credit doesn’t help affordability.
Essentially and in a nutshell, unless there are significant inflows of skilled, tax-paying migrants, the Australian Government will not have the ability to provide the financial support required to look after our elderly. This is both a Labor and a Liberal issue, regardless of who gets into power after the election in 2019 this issue will need to be addressed.
NSW government has committed c.$85b to new infrastructure to support population growth which is forecast to grow from 7.7m in 2018 to over 10m in 3036 to over 12 million in 2050 (according to NSW Government treasury reports and NSW Government infrastructure reports).
All of the fundamental indicators support real estate as an investment asset class in NSW and especially in Sydney.
3. The rise and rise of the “Insta-vidual” & Millennials; What does this mean for wealth and real estate investment??
Sitting in an investment meeting in late 2014 with an unlisted Australian Real Estate Investment manager, who we had just invested in and was set to list on the ASX, the CEO of the company at the time, coined the term to refer to one of our MP Funds Management investors; “Insta- vidual”. His meaning was that one individual investor had institutional gravitas and institutional investment horse-power.
This particular investor is one of our larger long-term MP Funds Management investors, a Baby Boomer and self-made, he made his vast wealth in logistics and would be a stand out in terms of personal net wealth of over $500m.
Although the term “Insta-vidual” term was a tongue-in-cheek description, the word has in fact taken on a new meaning and is becoming more relevant to the evolution of self-made Millennial wealth.
4. Intergenerational transfer of wealth
Technology and Social media specifically are giving Millennials access to an economy that never used to be present for Baby Boomers.
Aside from the intergenerational shift in the control of wealth, driven by not only aging Baby Boomers handing the reins of family fortunes to their Millennial next of kin, the evolution is also driven by the astounding number of young tech and social media entrepreneurs leveraging technology and communication to make themselves young millionaires, even billionaires.
An extreme example is 21-year old Kardashian clan Kylie Jenner who is listed on the Forbes rich list, with a net worth of USD $900b ($800m from her “Kylie Cosmetics” company, and $100m from TV and other endorsements). Jenner started Kylie Cosmetics two years ago, it runs with virtually no employees or capital. According to Forbes, the company is worth $800 million and has sold $630m worth of makeup since launch, Jenner owns 100% of the company.
Jenner has leveraged her mammoth social media following including her 113 million Instagram followers to build a giant business. She credits her success to her vast Instagram and social media following for her success because she has such immediate easy access to fans and customers.
This new model of extreme Insta-fame leverage is radically reshaping business, culture, and politics. These new digital and social communication channels are enabling vast sums of extreme wealth to be built on a scale like ever before.
At 21, Jenner is set to surpass Facebook CEO Mark Zuckerberg, who set the record for the youngest to become a billionaire at age 23.
At 28 years old Taylor Swift, with 111 million Instagram followers is estimated by Forbes to be worth $320 million and her new album sold 2 million copies worldwide in its opening week. Now she’s embarking on a stadium tour that is estimated to gross a quarter of a billion dollars, the most lucrative of her career. Kim Kardashian West, with 115 million Instagram followers and founder of KKW Beauty, is estimated by Forbes to have a net worth of $350 million.
27-year-old Aussie personal trainer, Kayla Itsines charges up to $150,000 per sponsored Instagram post to her 10.1 million followers, with her fitness app, “Sweat” which netted her $17m in 2016 and gives her a net worth according to the young BRW rich list of c.$46 million.
Founders of Instagram, 34-year-old software programmer Kevin Systrom USD $1.5 billion and 32-year-old Mike Krieger who has an estimated net worth of USD $500m.
Essentially social media, Instagram especially, is giving these individuals the power to speak directly with a global fan-base and customer-base daily. The total number of followers amounts to reach of influence and dollars charged for endorsements or daily, even hourly.
Personalities like Central Coast born and bred Nicole Warne, who’s Garry Pepper Girl Instagram has 1.8 million followers and receives between 20,000 to 60,000 “likes” of daily content posted, with regular sponsored posts from luxury brands like Cartier, Armani, and Tiffanies, have vast daily influence over the people who follow them. Elle Fergason, Cosmo Businesswoman of the Year, has 600k followers and can receive 10,000 likes per individual post, she posts multiple times per day.
Sports star Cristiano Ronaldo has 124 million followers on Instagram and according to Forbes has personal revenue of close to $1 billion as a result of the income from just his social media following.
Another example, Jay Alvarez is a self-made Instagram star, with a following of more than 5.9 million Instagram followers, which he has gained from documenting his adventures in extreme sports, such as sky-diving.
Social media is enabling a global and 24/7 marketing and distribution of a product or service like never before, which is creating growth faster than previous generations have had experience with or access to.
The investment and finance industries have yet to successfully tap into social media and this could be for a combination of reasons. The question is will digital influencers impact the investment decisions of their generation? What are the investment behaviours and habits of Millennials? As this generational shift in the control of wealth occurs, how will the investment landscape change over time under the influence of social media and technology?
5. Empowering the individual rather than the institution; SMSF Royal Commission
I always talk about my self-managed superannuation fund and how I invest my SMSF in syndicated institutional - grade real estate via MP Funds Management. Technology and social media are enabling a more transparent economy, it’s also empowering the individual rather than the institution. Its enabling institutional strength to the individual and taking power away from the institutions, where that power has been abused.
Technology and social media are demanding higher levels of transparency and authenticity, the ongoing Royal Commission into Australian Superannuation has been revealing some opaque conduct and to me, that is more of a reason than ever to commit time and effort to empower myself to manage my own financial future.
Over the last several years we have invested c. $287m across c. 21 transactions with a gross annual return of 21%, which we are incredibly proud of. Our fees at MP Funds Management are largely performance-based and back-ended to be aligned with investors, and we make the process simple and easy to understand. We believe in the Long Game and we believe in creating straightforward ways to prosper over the long term.
MP Funds Management update 1st Oct 2019 and investment pipeline: MP Funds Management has completed its co-investment into the acquisition of a 52,000sqm office asset in Brisbane CBD, right opposite the railway and with 98% of rental income underpinned by government tenants.
MP Funds Management has provided investment funding for approximately $1.3b in unlisted real estate since 2013 and has provided an investment return of approximately 21% annually. Whilst MP Funds Management focuses on unlisted real estate, I am always fascinated by innovation and I personally will sometimes invest in other areas. Recently I caught up with the founder of a very clever new Australian – based app called Stake https://stake.com.auwhich is a Business-to-Consumer based platform that enables Aussies to get direct exposure to the USA equities market.
United States of America
In November 2014 we co-invested with another Manager into the acquisition of a 13-level North Sydney CBD office tower for a purchase price of $36.75m or $4,665 per sqm. A total of $19.5m equity was invested with a gearing ratio of 65%, debt was locked in at a rate of c.4% for the intended five-year investment period.
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