Super funds should look at venture capital

Australian superannuation funds should look to invest in venture capital (VC), as technological companies go from strength-to-strength and increasing longevity makes having an allocation to new companies a worthwhile risk, according to VC selling and scaling firm Right Click Capital.

While Australia had a very positive approach to private equity investment in the last 20 years, it had been slower to invest in venture capital.

Right Click Capital partner, Ben Chong, was hopeful this would change, particularly as the trillions of dollars under superannuation grew.

In the late 90s and early 2000s, Australian super funds had some exposure to VC, when the internet was at its peak. As that fell in the mid 2000s though, so did funds’ interest in investing in VC.

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Chong said that this was changing though. While in 2005 there were only one or two technology companies in the top ten companies in the world by market cap, that list now currently contained Apple, Microsoft, Google, Facebook, Amazon and Alibaba.

As such, Chong felt that “this idea that we can put our head in the sand and desist from technology is really anathema”.

“For an Australian superannuation fund, if the desire is to have exposure … to an asset class that is less correlated to the stock exchange, then having some allocation to VC does make sense,” Chong said.

He also thought that Australian super funds should look to Australian VC options for such investment.

“Given the love affair of Australians wanting to invest in the ASX, it makes sense for them to also back Australian technology companies.”

Chong pointed to the Future Fund’s investment in VC as proof that it was a strong place to put money for future growth.

“It’s interesting that Australia’s $40-something billion capital sovereign fund has a significant allocation to venture capital, because they recognise that as part of the alternatives umbrella, VC, particularly technology VC, is going to have an impact on the economy.”

Chong also looked to pension funds in newer economies, which he said were “dipping their toes or legs or lower body in VC”, to show the sensibility of VC as an investment for those seeking retirement income.

“Those pension funds have recognised that they have a long-term liability. People are living for longer … you might not reach this drawdown phase for 20, 30 plus years,” he said.

“So therefore it’s okay, in fact it’s good, to have an allocation to what should be a higher-performing asset, even though you might not get the ability to value it every single day like you do for equities or the bond market, [because] you have this long-term liability so why not have exposure to these businesses that will hopefully be the GEs of tomorrow?”