The credit downturn and prospects of assets being sold on the cheap has spurred the Australian Reward Investment Alliance (ARIA) to review overseas distressed debt funds.
Steve Gibbs, ARIA chief executive officer, said the $18 billion government superannuation fund was considering allocations to various modes of private equity. “We’re looking at distressed debt at the moment. We want to have exposure to all private equity operations,” Gibbs said. Indicating that such investments might not be placed with domestic managers, Alison Tarditi, ARIA chief investment officer, said there were limited opportunities for distressed debt investing in the Australian market. “The opportunity set for bringing liquidity [to distressed assets] is more acute in the US.” She said the fund would make some changes to its portfolio before the end of the year and was “looking at how [private equity] managers are doing now and whether they’re delivering like they have said they would”. ARIA employs two specialist advisers for private equity: Macquarie Bank for the domestic market and Altius for international private equity. Gibbs also said that ARIA would be “staffing up” and looking to hire at least two investment analysts before the end of the year. It currently employs nine people in its investment team. According to research firm Private Equity Intelligence, the Australia Post Superannuation Scheme has invested in a distressed debt fund run by US manager Oaktree Capital Management, the OCM Principal Opportunities Fund IV. Last month, the researcher published performance data from 124 distressed debt and ‘special situation’, or vulture, funds to create a benchmark for this sub-asset class. It compared this measure against a benchmark for all private equity investments between 1999 and 2004. The distressed benchmark outperformed the all private equity score, particularly following the tech-wreck, notching a median 35 per cent net internal rate of return (IRR) against all private equity’s 15 per cent, in 2002. In 2004, the distressed debt benchmark, at 16 per cent, also outperformed the all private equity measure, which stood at 12 per cent.
Since taking over the top job at the $44 billion Funds SA more than a year ago, chief executive John Piteo has ushered in an investment function overhaul and wrapped up an important stage of the fund’s five-year data transformation program. It pledges to recentre around investment performance and more efficient processes, as the “missing piece” has been found in incoming CIO Con Michalakis.
Darcy SongJanuary 10, 2025
