Debby Blakey (left), Jeff Brunton and Sandra Lee

Australian superannuation funds have increase alternative investments such as private equity, unlisted property and infrastructure to take advantage of strong returns.

According to APRA, 25 per cent of super funds’ investments are held in unlisted assets, worth about $650 billion.

These holdings, which have come under greater APRA scrutiny for how they are evaluated, have provided good earnings for funds in contrast with share markets buffeted by rising interest rates and falling asset prices.

According to researcher Chant West, Australian funds have lifted alternatives exposure in various sectors by between 1 to 5 per cent in the past 22 years to 2022 with larger funds more equipped for direct investments.

This compared with 25 per cent in Australian equities, 30 per cent in international shares and 3 per cent in listed property and infrastructure.

HESTA head of portfolio management Jeff Brunton said the $72 billion fund’s alternative investments have consistently provided strong performance over many decades.

“We’ve had a long-standing, material allocation to unlisted assets including infrastructure, property, private equity and private credit,’’ Brunton said.

He adds the fund also has idiosyncratic investments such as structured royalties and insurance linked securities.

“In addition to a variable ‘illiquidity premium’ generally gained from unlisted assets, investment into unlisted asset classes can provide additional inflation protection, diversification, and asymmetrical return outcomes,” Brunton said.

He said each asset class had a position within HESTA’s portfolio for different reasons and these were adjusted over short, medium and long-term time frames depending on how it viewed their relative contributions.

HESTA, which has one million members mainly from health and community services sectors, announced a $240 million investment with affordable housing fund manager SHP in November for construction of built-to-rent homes.

At the time, chief executive Debby Blakey said the move would generate stable, long-term returns for members, catalyse an emerging investment sector and improve housing supply.

Industry super fund Hostplus is one of the largest investors in alternatives with 50 per cent of its default Balanced option invested in unlisted property infrastructure, private equity and venture capital.