Australian superannuation funds expect to boost their investments in direct loans, hedge funds and infrastructure as part of a forecast dramatic increase in exposure to alternatives by pension funds over the next three years, according to a new global report from State Street Corporation (see attached media release and Australian snapshot).
The report, titled “Pensions Funds DIY: A Hands-On Future for Asset Owners” and conducted with the Economist Intelligence Unit, concludes that 86 percent of Australian super funds surveyed expect their appetite for investment risk to grow between now and 2017, compared to a global figure of 77 percent.
Its findings also highlight the cost pressures funds are facing and the likelihood they will bring a higher proportion of their investment portfolios in-house, particularly in asset classes with which they are most comfortable.
The report surveyed senior executives at 134 funds globally including 26 large Australian super funds and a small number of Asian based funds.
According to the report, a new area of activity for funds is emerging in direct loans to third parties, with 69 percent of Australian respondents saying they expect to increase their activity in the next three years.
Greater allocations to single manager hedge funds are planned by 65 percent of the Australian funds surveyed while 60 percent said they would increase their exposure to infrastructure. Some 58 percent said they would put more money into real estate and 52 percent said they would allocate more to private equity.
Daniel Cheever, head of superannuation sector for State Street in Australia, said: “Australia’s $1.8 trillion super industry is generally viewed by pension funds globally as a model for efficiency. But like funds everywhere, super funds are under pressure to deliver returns to meet members’ retirement income expectations in a low interest rate environment.
“To achieve this, they will need to balance the risk reward profile of their growing investments with improvements in data mining, management and reporting.”
