Determining the current optimal allocation to property: A survey of Australian fund managers

While there are several studies on the level of property allocation in multi-asset portfolio, research on actual property asset allocation decision-making process is limited in Australia. This research paper examines the property asset allocation strategies for the A$1.7 trillion Australian managed funds industry and identifies the important steps and considerations that influence their optimal property allocation view and decision making process. Based on in-depth semi-structured survey, the research identifies and documents the factors that aid property asset allocation decisions for Australian fund managers. It investigates the use and relevancy of Strategic Asset Allocation, Dynamic Strategic Asset Allocation and Tactical Asset Allocation strategies for property asset allocation decisions. The results indicate that the allocation of resources to property assets is a complex system of interdependent decisions given its distinctive investment characteristics when compared to alternative asset classes. Apart from definitive/ quantitative inputs in property asset allocation models, Australian fund managers are influenced by many other non-financial considerations. In addition, there are notable differences in techniques for direct property, unlisted property and securitised property asset allocation. The current level of allocation to property assets remain low (8% to 12% of portfolio) for institutions surveyed. Property nevertheless, is expected to continue to increasingly attract investor attention due to its relatively low volatility when compared to equities, its inflation-hedging qualities and its ability to provide stable income