Superannuation funds should use some of their Australian equities allocation to venture capital instead, to back companies that have the greatest chance of success, Right Click Capital believes.
Right Click Capital partner, Benjamin Chong, said super fund allocation to venture capital was at its lowest last year at 0.43 per cent, and this number had been halved since 2009.
“As Australia moves from being a land based economy whether it is agriculture or minerals to a services, innovation, and knowledge economy it is critical that we back people and companies that are going to have a greatest chance of success there,” Chong said.
“Economic success is a cycle and part of the broader economic cycle and it is important for super funds that they think about that next generation of meeting retirement income that they seriously consider having an allocation.
“I’m not talking about government support or mandates, that’s problematic I’m talking about being a real positive business reason, long-term return reason for funds to get involved in venture capital.”
Chong noted that super funds were concerned that they did not have enough expertise in the area and were not sure if it would have a meaningful impact on their assets.
“I do wonder if there needs to be some glide path to a higher level of allocation,” he said.
“I’m not suggesting straight away to double, triple, or quadruple allocation, but if we have a look at long-term averages the 10 year period to 31 Dec, 2015, the Australian private equity and venture funds outperformed the ASX index by 10 per cent and if you’re comparing them against the small caps ASX All Ords they outperformed them by nice per cent.”
Chong noted that First State Super had announced they were going to allocated $200 million into venture capital, and Hostplus were also interested.
“Some super funds have pushed back because of fees and are concerned that it may not move the dial,” he said.
“Some of the potential reforms spoken by the government could be problematic. There has been a focus on fees and the fact is that venture capital and private equity tends to have a slightly higher management cost than risk equity index funds.”
