The UK has emerged as an opportunity for Australian superannuation funds to ease access to overseas markets.
Last week, IFM Investors revealed that Aware Super, CareSuper, Cbus Super, HESTA, Hostplus, and Rest have signed on to a blueprint with UK pension funds, aimed at helping the UK reach its clean power by 2030 mission.
Prior to this, seven institutional investors – HESTA, Australian Retirement Trust, Lendlease, IFM Investors, Macquarie Group, Aware Super, and AustralianSuper – attended a meeting with UK Foreign Secretary David Cameron during his recent visit to Australia in March to discuss future opportunities for trade and growth.
At the time, Louise Cantillon, British consul general for NSW and deputy trade commissioner, told Super Review it’s “encouraging” to hear funds recognise the UK “as the premier location for operations covering both Europe and the United States”.
Speaking to Super Review this week, SuperRatings insights manager Joshua Lowen said the UK has emerged as a “financial hub” within Europe, meaning that for mega funds this is a strategic location.
“The UK is a financial hub within Europe. Having an office there allows funds to access a significant number of developed markets, that is, not only the UK but also France, Germany,” he said.
Over the last few years, a number of funds have set up shop in the UK, with the country’s biggest fund AustralianSuper kicking off the trend in 2016.
In March this year, the fund flagged its intention to increase its investment portfolio in the UK to more than £18 billion in the next seven years.
Australia’s second-largest fund Australian Retirement Trust – which announced in April it had opened its first overseas office in London – also highlighted how its London office allows it to “be closer to the action”.
During a recent episode of Momentum Media’s Relative Return podcast, ART’s head of advice Anne Fuchs said that the move was driven by key investment opportunities, notably the fund’s significant stake in Heathrow Airport.
“But there’s also a lot of opportunities, I guess, overseas particularly in private markets where we wanted to be closer to the action,” she said.
A third mega fund, $180 billion fund Aware Super, has also made significant commitments to the region. Back in November last year, it announced a $10 billion investment commitment in the UK and Europe through its London office.
Last week, Michael Winchester, head of investment strategy at the fund, told Super Review that on-the-ground presence has already proven beneficial.
“From a sourcing perspective, the team have been very busy and we’ve executed on some large transactions already, including an investment in Octopus Energy, one of the UK’s leading green energy companies, and euNetworks, Europe’s bandwidth and data centre connectivity leader,” he said.
Winchester said that having experienced investors in this European hub has emerged as a key strength for the fund.
“This has allowed us to be really dynamic and forward-looking in the way we’ve managed portfolios and having people offshore now will provide even greater opportunities for diversification and new sources of growth,” he said.
Speaking to Super Review, SuperRating’s Lowen said that while outsourced investment models don’t require an offshore presence, insourced teams benefit from local expertise and proximity to international markets, especially for non-equity assets where relationships drive opportunities.
“For assets outside equities, relationships drive opportunities, so you need to be closer to the opportunities,” he said.
But, he said, the privilege of setting up shop in overseas markets like the UK, could be limited to the larger end of the superannuation sector.
“At this stage, we don’t see the trend expanding beyond a few very large funds who can afford to set up these offices,” Lowen said.
Recent research by Morningstar found that establishing an offshore office has become a trend among larger profit-to-member funds. However, the research said that while four large funds – AustralianSuper, ART, Aware, and Rest – have taken the plunge, only AustralianSuper has more than a handful of staff overseas.
