Warnings mount about the financial risks posed by the industry’s already huge private portfolios. — Bloomberg
SYDNEY: Australia’s two largest pension funds plan to add billions of dollars worth of unlisted assets as warnings mount about the financial risks posed by the industry’s already huge private portfolios.
AustralianSuper, which oversees A$34bil (US$226 bil), plans to boost its private holdings to more than 30% of overall assets in the next three-to-five years, from around 23% currently, according to Asset Allocation head Alistair Barker.
He added that was a “fairly large programme” for a fund of its size.
Australian Retirement Trust (ART), with more than A$300bil, wants to lift the allocation to unlisted property and infrastructure assets in its main investment option by about 1.5 percentage points over the next two years, Investment Strategy head Andrew Fisher said in an interview.
Those holdings currently make up a combined 19% of that option’s assets.
The International Monetary Fund (IMF) this week warned that the rapid growth of unlisted investments throughout Australia’s pensions industry – known as superannuation – was a potential threat to the country’s financial stability.
It cited members’ ability to easily switch funds as a liquidity risk, especially as private assets comprise more than 20% of holdings on average.
Australia’s A$3.9 trillion pensions sector has plowed into private holdings as it seeks to diversify returns amid record inflows.
More than half of funds’ assets are in local and offshore equities, which helped them return an average 13% in the year through September, said research house SuperRatings.
With the likes of Goldman Sachs Group Inc warning that US stocks probably won’t sustain their above-average gains, funds are searching elsewhere for out-performance.
“Global equities, and in particular US equities, are trading on the expensive side of long-term valuations,” said Barker.
“At some point over the next five or 10 years, you may see weaker than average returns from equity markets.”
AustralianSuper is seeking deals globally, focusing on infrastructure, real estate credit and private equity.
In a sign of the fund’s growing clout, it’s seeking “significant stakes” in real asset investments with some degree of shareholder and board rights, Barker said.
It recently spent US$1.5bil on a stake in data center developer DataBank and boosted its holding in Perth Airport.
While ART had been prioritising equities over unlisted assets, private investments now held more long-term appeal, Fisher said.
“Rates have sort of normalised, markets have normalised, it’s once again starting to look quite compelling,” he said.
The fund is looking locally and offshore for opportunities across a variety of regions and sectors.
“If a distressed real estate opportunity came today, we’d be ready to execute on it,” said Fisher.
ART joins A$87bil rival HESTA, which this month said it was pivoting back to property after scaling back its exposure, and was looking at distressed assets. — Bloomberg
