Aussie supers eye up Asia
04 February 2013
News, Asia, Australia
By James Dunn
Slowly, the Australian superannuation system is beginning to look to Asia, as it seeks to diversify its investments away from local and global shares – that is, away from a MSCI World Index-oriented approach.
“We’re definitely looking beyond Australia, and looking beyond the traditional asset classes, and that means yes, we’re looking to the Asian markets, whether in equities or infrastructure or property. Our funds can see that there is a whole range of opportunities in that part of the world,” says David Knox, senior partner in Mercer’s retirement, risk and finance consulting business.
Where an element of complacency might arguably have crept into funds’ thinking – a feeling that holding BHP and Rio Tinto is enough to pick up on the Asian growth theme – Mr. Knox says the larger Australian super funds are “going a bit beyond that at the moment.”
He continues: “I think the larger funds are increasingly willing and able to look at their own opportunities. They’re definitely not just relying on BHP and Rio. It’s horses for courses. If I am a A$1 billion (US$1.05 billion) or $2 billion fund, I am not big enough to do that. But if I am a $20 billion – $30 billion fund, yes I can look at those opportunities.”
Certainly the largest industry super fund – the $50 billion AustralianSuper – is leading the way into Asia. In August 2012 the fund established a high-calibre Asian Advisory Committee to help it boost its exposure across the region, and appointed a Beijing-based, Mandarin-speaking former federal treasury adviser to oversee its strategy for increasing investments in the region.
AustralianSuper already has significant exposure to Asia, with 6% of the fund’s balanced investment option’s assets – about $3 billion – invested there. Chief Investment Officer Mark Delaney expects this to grow to about $7 billion by 2016.
“AustralianSuper is a bit of a pioneer in that space. Whether other funds will follow, we’ll have to wait and see,” says Mr. Knox.
Kim Bowater, senior consultant at asset consultant Frontier Advisors, says the approach to investing in Asia has evolved. “Five-to-ten years ago, there was a small amount of the overseas shares allocation placed outside the MSCI World index. But now if you look at the All Countries Index the emerging markets segment is reasonably large compared to what it was.
“We recommend tilts to emerging markets, which some funds have implemented through global emerging markets, and others through regional or Asian-specific mandates. I think funds are thinking about where the growth coming from, as well as where the opportunity set is that offers good stock selection. But I don’t think there will be a trend toward explicit Asian allocation targets for individual funds,” says Ms. Bowater.
Alex Dunnin, director of research at financial services research firm Rainmaker, says funds are well aware of the potential disconnect between GDP growth and investment returns. “I don’t think you can mandate a certain level of asset allocation to a region as diverse as Asia; that becomes problematic. But I also think the super funds are really mindful that that’s where the economic activity is – north by northwest of Australia – and that we should put our capital where the opportunities are.
“As I said, they’re going to be big exporters of capital, so they will be, for example, owners of infrastructure in Asia. If you start to think about the volumes of money, there are certainly going to be big opportunities in Asia. Is it easy to invest; is the tax structure easy for them; is the currency risk manageable? If so, yes, they’ll buy Asian assets,” says Mr. Dunnin.
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