Australia’s superannuation funds look to Asia Pacific

The region is one of few slated for increased private equity investment as the pension programmes look to cut down on allocations at home and in the US, a study finds.

Australia’s superannuation funds will increase their private equity investments in the Asia Pacific region in the future but will continue decreasing allocations to Australia, according to John Evans, an associate professor at the University of New South Wales.

The university-sponsored study headed by Evans found the country’s superannuation funds, or company pension plans, will increase their private equity investments in the Asia Pacific region from 12 percent from 3 percent.

That contrasts with a decline in Australian allocations to about 34 percent of funds’ private equity investments in the future, down from the current 46 percent, and significantly lower than the 74 percent in 2005. US allocations are also expected to decline to 46 percent from 50 percent.

The UNSW study, which surveyed some 60 major superannuation funds with cumulative assets of about A$250 billion ($236 billion; €148 billion), also found that Australia’s superannuation funds have increased their overall private equity allocation to 6 percent, up from the 4.5 percent in 2005.

Evans primarily attributes the increase to volatile equity markets producing lackluster returns, thus causing the pension funds to shift capital.

The study also found that the return expectation for private equity has been reduced to 11.6 percent in 2008 from 16.5 percent in 2005, because “the nominal return in 2005, I think was an unreasonable number,” said Evans.

Superannuation funds also have a bias to invest in distressed assets in the next two to five years.

“The funds have significant unspent allocations to private equity and are taking the opportunity to acquire assets with higher than average returns if they become available,” Evans said.