Carlyle Group, the private equity firm, has staked its first claim in the Australian property market. The property in question is a 3,700+ square meter site in Brisbane’s Fortitude Valley. The $AU150 million dollar purchase was a joint venture between the Carlyle Group and Leighton Properties for Mosaic, their residential and commercial project.
Mosaic will comprise of a 212 apartments, 18 floors and 3,500 square meters of commercial space, which includes a 48-room luxury hotel. The project is set for completion by the beginning of 2014.
This joint venture represents a marriage of titans in the property development and real estate industry. Leighton Properties has $5 billion Australian dollars in property development projects, while the Carlyle Group has $148 billion of assets spread out over a web of funds throughout the world.
Unlike historical real estate powerhouses such as the United States and the UK, the residential and commercial real estate sector is growing from strength to strength and was barely touched by the “Great Recession” of 2008-2011. The Mosaic project we discussed above is a clear example of the strength of the Australian real estate market. According to Mark Gray, the managing director of Leighton Properties, the majority of the residential and commercial space has already been sold.
Private equity firms, such as the Carlyle Group, provide a role model for efficient Self-Managed Super Funds by working with a highly diversified investment portfolio. For instance, the Carlyle Group invests its $148 billion in assets into 89 active funds that invest solely in in hedge and private equity funds. Although most Self-Managed Super Funds will not have enough assets to invest in large private equity funds, SMSF managers will benefit by creating a well-diversified portfolio.
Portfolio diversification is a key investment tool fund managers use to reduce investment risk. The premise is simple. Eliminate risk, or at least reduce risk, by investing in assets with different expected returns. The total return on a diversified portfolio will always be less than the asset with the highest expected return but also higher than that of the asset with the lowest expected return. In other words, a diversified portfolio evens out the highs and lows of your portfolio and helps you earn a more level average rate of return.
