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Super funds need to get real about asset allocation

Ranjit Thambyrajah
— 1 minute read

Australian superannuation funds are overexposed to equities and underinvested in sustainable, long-term income-generating assets that preserve capital.

Ranjit Thambyrajah

The recent volatility in share markets across the globe has given many investors pause for thought. 

Aussies are becoming increasingly aware of their super accounts and are now demanding greater transparency on fees, performance and where 9.5 per cent of their salaries is actually going. 

A recent Deloitte report found the total investment by superannuation funds in Australian shares comprises around 35 per cent of the total market capitalisation of the ASX. The same report warned that super funds would dominate the ASX within 20 years, with total assets predicted to hit $10.2 trillion in 2038. 

That’s 60 per cent of the Australian share market. 

If coronavirus fears can wipe hundreds of billions of dollars off the ASX in a matter of weeks, then I think it’s time to reconsider how we’re saving for retirement. Most of the $2.9 trillion pool of superannuation money is exposed to stock markets. That’s a huge risk.

We need a major rethink when it comes to funding our retirement. Thankfully, the government’s Retirement Income Review is underway and has already attracted numerous submissions outlining potential solutions. Hopefully that will produce some much-needed innovation in the sector. Infrastructure and other real assets should be playing a much bigger part in the asset allocation of super funds than they currently are.   

Over the last few years I’ve spent much of my time conducting due sustainable, low-risk assets across Southeast Asia. I’m regularly contracted to secure funding for major assets at home and abroad. These include railways, bridges, roads, ports, energy projects, and commercial and residential real estate developments in some of the fastest growing economies on the planet. Emerging markets like Vietnam and Indonesia, which are significant growth corridors and a convincing story for any money manager with a long-term mandate. 

Combine the stability of an infrastructure investment with the positive growth of these emerging market economies and you get a compelling investment proposition for superannuation funds. 

Acuity Funding currently has more than US$100 billion worth of assets looking for institutional investors. Australian retirement savings would be the most logical funding source for these projects, which will pay out returns over a decades-long timeline. The problem, however, is convincing super funds to look beyond the ASX, US equities or government bonds. 

If we’re not careful, we risk mishandling the retirement savings of our citizens and missing what could be one of the greatest investment opportunities in the next 30 years. 

But it’s an opportunity overseas fund managers are already excited about. In the past 12 months we secured $20 billion worth of institutional investment from European hedge funds hungry for a slice of real assets in emerging markets. 

Australian superannuation, like other pension funds across the globe, has an ever-growing pot of cash to put to work. Whether or not we have the level of insight required to deploy those funds to more suitable investments remains to be seen. 

Ranjit Thambyrajah, director, Acuity Funding

 

Super funds need to get real about asset allocation
Ranjit Thambyrajah
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