Super funds still cautious on emerging markets

Damian Hill

Australian superannuation funds appear to be talking the talk rather than walking the walk when it comes to investing in emerging markets (EM).

A number of major superannuation funds have confirmed to Super Review that they would not be increasing allocations to emerging markets beyond their current comparatively modest positions.

The $17 billion industry fund REST Super recently awarded a $25 million specialist Asian equities mandate to Cooper Investors, an amount “that was so small that it doesn’t really move the asset allocation needle”, according to the fund’s chief executive, Damian Hill.

Hill does not expect REST will move to increase that mandate significantly anytime soon, adding that much of REST’s EM exposure comes through global equities mandates that allow managers to allocate to EM at their discretion.

Hill felt that in many cases the potential growth in EM had already been priced into valuations.

Legalsuper chief executive Andrew Proebstl said concerns over political instability could be keeping some funds from allocating more towards EM. Legalsuper has been building its EM exposure, which is currently at around 5 per cent of funds under management (FUM), Proebstl said.

Prime Super has recently completed an overhaul of its equities mandates, but the fund’s chief executive, Lachlan Baird, said that despite the manager changes, there had been little shift in the strategic asset allocation, with 3 per cent of FUM allocated to EM.

AUSCOAL is one fund that has increased its EM exposure in 2010. Around 20 per cent of the fund’s $5.4 billion is allocated to international equities and the awarding of an Asia Pacific mandate in July saw the fund increase the proportion of international equities allocated to EM from 10 per cent to 18 per cent, pushing the fund’s overall EM exposure to around 3.6 per cent.

NGS Super has also been increasing its EM exposure in a measured way. Fund chief executive Anthony Rodwell-Ball and investment manager Ben Squires said that while the fund was very much open to the growth story in emerging markets, it was important for the sake of the fund’s members that thorough due diligence was performed on any new investment strategies.

The fund has dedicated EM allocation through Charlemagne Capital and Colonial First State, with direct China allocations through HSBC and Alliance Bernstein, and recently allocated $30 million of the fund’s total $3.4 billion FUM into a direct China mandate.