The drive by superannuation funds to invest in exchange traded funds (ETFs) is harming those smaller companies which sat outside of the indices.
According to Stoic Venture Capital, there had been a drive recently towards ETFs by superannuation funds which were looking for easier and cheaper ways to invest.
Given the broad reach of ETFs, this was giving super fund members exposure to areas such as US technology and other high-growth opportunities. However, it was also having the effect of withdrawing potential investment capital away from smaller Australian companies.
Stoic partner, Geoff Waring, said the trend for ETF usage was “undermining the establishment and growth of early-stage start-ups” which would harm Australia’s economic outlook.
“Less investment into smaller, younger Australian companies will have the corollary effect of harming the future development of our economy and the provision of new employment opportunities,” Dr Waring said.
“It ignores the higher returns selected venture capital managers could bring to the superannuation industry.
“Superannuation funds could be earning more through longer-term venture capital investment than compared with today’s short-term public equity markets.
“This is particularly the case for industry-focused superannuation and specialised venture capital funds which are committed to the same vision – creating a better future for their industries and their members.”
He suggested more investment into small-cap funds and venture capital would finance growth industries as well as increase benefits for super members.