Superannuation funds will be forced to branch out into listed investment vehicles because of a dwindling supply of sufficient quality investments in traditional asset classes, according to the former managing director of LUCRF, Paula Allen.
She said the rapidly growing sums of money held in Australian superannuation funds, which are collectively valued at around $915 billion according to the latest figures from the Australian Prudential Regulation Authority, will “force the hand of superannuation funds”.
“With the example of infrastructure investments, there’s an obvious concern that there’s not enough good quality stock left to invest in.
“But once these assets are in a listed vehicle, there can be few enough in the vehicle such that they can be accessed by an external party,” Allen said.
According to Allen, the traditional view of superannuation as a stable yet peripheral investment rarely providing exciting returns is changing.
“I think Australia still views super as this quiet little investment that sits off to the side, and … I think those days have gone.
“You’re talking about a country with 0.90 per cent of the population, but it is ranked number four for fund inflows. That is a massive disconnect.
“That will force the funds’ hand — if they don’t perform, then what happens to them? They go the way of the Dodo.”
She said that while superannuation funds would initially move into listed property trusts (LPTs) and other listed investments through friendly takeovers, hostile takeovers may begin occurring as the pool of suitable listed vehicles tightens.
“Ultimately, I wouldn’t rule out hostile takeovers … It’s already started in the USA and has a natural attraction in this market when you consider the net tangible assets of some of these vehicles versus the share price.”
She said that one thing that may stand as a barrier to superannuation funds investing in LPTs and other listed assets could be the difficulty of gaining adequate understanding of underlying assets.
She said that gaining greater exposure to overseas investments could also pose problems in terms of adviser access and knowledge.
“It’s really hard to get advisers across all the investments and to have the local knowledge.
“They have to know who the players are and they have to know the local investments. It’s really hard to get advisers that have that knowledge.”
