AustralianSuper: Consolidation likely to benefit PE

The on-going consolidation of Australia’s LPs could result in increased allocations to alternative assets, according to AustralianSuper's GM of investments.

The growing trend of Australian superannuation funds consolidating their assets and customer bases will benefit alternative asset classes, Paul Schroder, general manager of growth and opportunities at AustralianSuper told Private Equity International.

His comments come as AustralianSuper completes its latest merger with AUST(Q), a Queensland-based superannuation fund. Since 2006, AustralianSuper has carried out over 10 mergers and corporate-takeovers, bringing its total assets under management to A$62 billion (€44 billion; $58 billion). 

The country's pension funds are being  forced to consolidate because compliance and reporting costs continue to rise as regulators ramp up their scrutiny over domestic institutional investors, he explained. 

Schroder explained that as a result of the mergers, superannuations take on the assets in each others’ portfolios, which creates a stronger net cash flow and allows the funds to more easily shift allocations between asset classes without having to sell-down some assets. 

For alternative investments, Schroder noted that there are benefits of consolidation for private equity, real estate and infrastructure. 

One definite thing that comes from consolidation is much more deeply resourced investment teams and a stronger capability and inclination to manage assets within an organisation, so the more likely it is they would consider private equity.

Paul Schroder, general manager of investments, AustralianSuper

“One definite thing that comes from consolidation is much more deeply resourced investment teams and a stronger capability and inclination to manage assets within an organisation, so the more likely it is they would consider private equity in their allocations,” Schroder explained. 

He added that with scale, superannuations produce better returns and experience less volatility in investments, including private equity.

“We have categorically drawn the conclusion that larger funds are consistently outperforming the medium and smaller funds.”

Moreover, the consolidation of Australia’s LPs will likely benefit infrastructure and real estate private equity funds.

“With a stronger cash flow comes the opportunity to invest in longer-term horizon investments, particularly infrastructure and property, where holding those assets for a longer period of time can be to the advantage of [our] members.”

“One of the core capabilities of size and scale is it allows you to increase your exposure to assets like infrastructure because you know the cash flow is coming in and you can keep your asset allocation in-line with your targets and you can make sure you have a portfolio that is more broadly exposed.”