High income: A worker near the Opera House in Sydney. According to some estimates, up to A$3.8bil flows into Australia’s pension system every week. — AFP
Sydney: On a Monday morning in February in Washington, more than a dozen Australian pension executives showed why everyone in the United States with a big project to fund wants to meet them.
“We have capital to invest in the United States – that was the purpose, that was the key message,” said Sam Sicilia, chief investment officer of the A$115bil or about US$73bil pension fund Hostplus, after returning from the Australian Super Summit. “We’ve exhausted our home country. We come to you wanting to invest money in the United States.”
The executives were joined at the Australian Embassy by US Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and Australian Treasurer Jim Chalmers.
Industry analysis released to coincide with their arrival for the roadshow showed that Australia’s A$4.2 trillion workplace-based pension system – known locally as superannuation or super funds – has about US$400bil invested in the United States.
By 2035 that number is projected to climb to US$1 trillion.
Australia is also on track to surpass Canada and Britain to become the world’s second-largest retirement system by 2031, said the report commissioned by IFM Investors Pty Ltd, a global asset manager owned by more than a dozen pension funds.
Big sums to invest
“The fact that Australia is coming out into the world with such a powerful amount of capital means you have to be taken seriously, and people are going to cultivate that,” said Henry Cornell, founder and senior partner of private investment firm Cornell Capital LLC. “And I think that creates a huge opportunity for Australia.”
The summit had been planned for months, but it came at a time of great political uncertainty.
“It is truly a question that is on every investor’s mind, right?” Sicilia said when asked, before the April tumble, how pension funds could increase US investments with confidence.
He focused on the long-term nature of the investments that funds like his are interested in.
“When we collectively buy an airport, it’s a 50-year concession. You operate the airport for 50 years. When you buy a seaport, it’s typically 99 years – you are taking that risk. If you were worried, truly worried about things on that time horizon, you can’t invest anywhere.”
The shock that some of Australia’s institutional investors are feeling is palpable.
“Like every other fund in Australia, we have quite a large exposure to US assets, and that’s been a very good place to be investing over the last couple of years, particularly given the US tech story,” said UniSuper chief investment officer John Pearce in an investment update podcast in April. “We’ll be questioning that commitment. Frankly, I think we’ve seen peak investments in US assets.”
Michael Winchester, head of investment strategy at Aware Super, one of Australia’s biggest pensions, says the fund is looking to make the most of the global market drop by finding cheap stocks to buy.
But the fund will be more discerning about buying private assets in the United States.
“I think we definitely need to have a think about whether the United States is the right destination on that unlisted asset side,” he said.
About A$3.8bil flows into the pension system every week, Bloomberg Intelligence estimates. It’s the kind of capital many companies covet.
At the Super Summit in Washington, Bessent said the appeal of Australian super money as a source of investment was that its growth didn’t depend on commodity prices, unlike with many sovereign wealth funds.
“Your regularity, sustainability and trajectory are really preferable,” he said.
Mark Delaney, chief investment officer of AustralianSuper, a pension fund of A$365bil and the country’s largest, told a panel discussion in New York that the system could offer institutional heft.
“Think about the size of the US pension market: Most of this is run through advisers and retail individual-style transactions,” he said. Australia has a “more institutionalised model with bigger pots of capital, far more concentrated compared to, say, the United States or Britain.”
Australian pensions typically have about a third of their portfolios invested in global equities, a sizeable chunk from US companies.
To big for home
US fixed income is also a mainstay of superannuation funds. Having outgrown their home country, the funds have been looking to deepen their exposure to private markets, which offer longer investment horizons.
“In the United States, we’ve always called your superannuation system the ‘wall of money’, ” says SS&C Technologies Inc chairman and CEO Bill Stone.
The Nasdaq-listed maker of financial-services software recently entered a partnership with Australian wealth manager Insignia Financial Ltd.
Australian investors were told during their visit that US infrastructure in particular is one area that needs money, according to people who attended the summit.
“If you look at the infrastructure deficit across the United States, just the quality of the roads and the bridges and all the rest of it, there’s an enormous amount of money that would be spent,” IFM Investors chair Cath Bowtell told a forum in Melbourne after returning from the United States.
Private capital from investors such as pensions, she said, “would improve the quality of the infrastructure in the United States”.
Ultimately, the depth of the US market makes it hard to ignore.
“There’s a government in there at the moment that appears to be more erratic than we’ve seen before,” said Hostplus’ Sicilia. “And yet capital still flows into the United States.” — Bloomberg
