First State Super is in an enviable position: while some institutions are fretting about liquidity issues, the Australian superannuation fund is on the hunt for opportunities linked to market dislocation.
Private Equity International caught up with chief investment officer Damian Graham to discuss why the A$96 billion ($60.4 billion; €55.8 billion) fund may be well-placed to capitalise on attractively priced assets.
How concerned are you about liquidity?
We’ve got a high level of liquid assets [and have] tended to hold highly liquid-liquids; cash and fixed income are predominantly our defensive assets. We have about 30 percent in alternatives with most of that illiquids – more than 20 percent. This has increased modestly with the correction in equities.
Like all funds in Australia we’ve got a regime of liquidity testing [and] we’ve stepped it up to a daily review. That just ensures we’re well aware of where our liquidity sits, what avenues we’ve got and what potential draws we’ve got on liquidity over the medium-term. That’s all in good shape and we feel like we’ve got a liquidity buffer that will potentially allow us to be a little bit opportunistic if we do start to see some dislocation in markets.
Where does PE sit within your portfolio?
Our PE allocation is probably around 7 percent. We’ve been modestly overweight private equity because of a couple of factors: we’ve got a lot of private equity in the US, for instance, and the US dollar has been stronger than the Australian dollar so that certainly pushes up our allocation. We have a more neutral level that’s around 5 or 6 percent, but it needs to be driven by opportunities and there’s no dilemma being overweight an asset class for a period of time if it’s an appropriate position.
How are you approaching PE during the pandemic?
We know that vintage diversification is important, so even if we’re modestly overweight we want to make sure we’re supporting the programme to keep that diversification. Clearly, there may be a very attractive vintage coming up if we do start to see some more depressed pricing. The listed markets have sold off quite a lot, which tends to indicate within the next year or two we may see some attractively priced unlisted assets as well.
Damian Graham is chief investment officer at First State Super. He joined in 2016 following the superannuation fund’s acquisition of financial planning company StatePlus, where he’d also served as chief investment officer. Graham previously led private portfolio management for the Macquarie Group.