Last week, the local debate about private market assets reached a new level of intensity with the release of a landmark ASIC report into how superannuation funds are investing in the asset class, with the regulator warning that the rapid growth of private markets meant that transparency had been left by the wayside.
On Wednesday, Vanguard’s new global CEO Salim Ramji had his say. Questioned about the risks of increasingly shallow public markets and an upswing in private market interest from investors spanning the retail and institutional divide, Ramji said that regulators and investors are right to keep a watchful eye on the asset class.
“I think it’s right to be worried about all these things, and if you’re really worried about it as an individual investor then find a really good financial adviser who can help you work through these kinds of issues,” Ramji told an event held by the American Chamber of Commerce in Australia and attended by Professional Planner.
But investors also probably can’t afford to ignore private companies. According to data from Apollo Global Management, 90 per cent of companies generating more than $100 million in revenue are now private – and that number is set to grow as more and more businesses shy away from the ownership and governance structures required by a public market listing.
“What that says is to get access to a diversified portfolio there’s a role for private markets,” Ramji said.
What kind of role? There’s no doubt that private credit and equity can enhance the risk and return outcomes of a portfolio, Ramji said – but their price tag remains a sticking point.
“One of the really good things about Vanguard, from the very beginning, is that if we didn’t know how to do something we’d partner with other firms,” Ramji said.
“We partnered with Wellington Management and there’s still a big sub-advisory for active equities; we have 25 different active equity managers in Vanguard funds. We negotiated really low fees and passed that saving on to clients and there are probably opportunities over the next five years or so to do something like that in private markets.
“When private markets founders come and talk to us, we say ‘Great, give us the rate you give the biggest sovereign wealth funds and we’ll pass it on’. Many of them don’t come back for a second meeting. But can we bring that kind of low-cost, simplicity ethos to private markets? Hopefully. Maybe not today, but over the next five years, I think there are partnerships to be formed.”
Vanguard operates a circa $3 billion superannuation fund in Australia which has – so far – stuck with its parent company’s ethos of low-price passive equity management. But in an interview with Investment Magazine last year, local managing director Daniel Shrimski kept the door open for the fund to invest in private markets assets even as he remained confident about its ability to meet return expectations through listed equities alone.
“There are a few things about unlisted investment that we’re wary of,” Shrimski said at the time. “One is that it’s a more costly investment approach. The second is transparency in terms of valuation… and the third one is just liquidity. Being a new fund, we’re mindful of that.”
US bias
Australian superannuation funds are heavily invested in the United States across both public and private markets. That drove a delegation of fund executives to Washington D.C and New York last week to highlight the hundreds of billions of superannuation dollars pouring into the US economy, and to stay the imposition of damaging tariffs. But questioned as to whether Australia’s big bet on US exceptionalism would be rewarded, Ramji had a simple answer.
“Yes.”
Australians still demonstrate a very strong home country bias – and that’s true of the UK, the US and countless other countries. But the sheer size of the superannuation system means funds have to look offshore, and there are few markets, to Ramji’s mind, that demonstrate the “innovation and growth” that the US has.
“There’s a reason for the exceptionalism,” he said. “Look at a company like Microsoft, and the constant reinvention that company has done to remain a force in technology today – just as they were when I was first using that technology.
“There’s a vibrancy to [the US]; I’ve lived in lots of places and studied lots of markets and I haven’t seen anything like that. Sure, in the near term you can say equity markets are stretched, valuations are stretched. But if you get a 10-year, 20-year horizon, it’s not a high-risk market.”
