Super funds need to look offshore to survive

With superannuation assets set to surpass $3 trillion, funds should be preparing to increase their offshore investments drastically if they want to continue to find opportunities for growing members funds as the domestic market proves too small for the gigantic super sector.

That was the message at the Bloomberg BuySide Forum heard today, with Cbus’ chief investment officer, Kristian Fok, predicting that funds would hit at least a 50/50 split between domestic and offshore investments within five years.

He believed that was the “natural trajectory” for Cbus, but would be even faster for bigger funds: “If you’re larger, you’re likely to be further along that path. Partly because they have people on the ground already [in offshore markets], but partly because they have to with their size”.

On top of the domestic market simply becoming too small to cater to the super industry’s needs, Fok noted that it also provided access to industries and thematics that you “just can’t get” in Australia.

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“So you will see that trend to offshore investing change, but it won’t be a fast one … it will be an incremental one,” he said.

A focus on thematics rather than specific countries seemed to be the way for funds looking to invest offshore to go, according to speakers at the forum, with both Cbus and QIC focusing on listed assets themselves rather than their geographies.

“For us it’s really about the asset class, so [where you invest] depends on what you’re trying to do,” Fok said.

For infrastructure assets, the fund preferred countries with well-established rule of law and privatisation of assets, which tended toward Europe. For equities, in contrast, one of Cbus’ planned next steps was looking at Asia.

QIC director of investments, Allison Hill, said that the investment company similarly took a broad brush to countries when it came to listed assets, wanting exposure across the board. When it came to private assets however, it focused more on country.

More than looking at specific countries, Fidelity International managing director – Australia, Alva Devoy, recommended focusing on demographics.

“Demographics is highly forecastable, [as] it’s slow trends emerging over time,” she said, pointing to ageing populations and the gender breakdown of countries. “Thinking of where those [demographic thematics] are in emerging markets and Asia might mean you can get two bangs for your buck.”