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.