Pearce believes the recommitment by Western governments to infrastructure projects is one of the benefits of the recent crisis, and with less capital chasing potentially more deals, investing in developed economies’ infrastructure looks quite attractive. While the fund is committed to investing in illiquid assets, and has more than 10 per cent of the fund currently committed to alternatives, Pearce is mindful of the risks associated with these investments. “My biggest issue at the moment is the risk that comes with investing in illiquid assets. As an industry I don’t think we have come to grips with that. My intuition is that for the last couple of years, maybe forever, the market hasn’t properly priced the risk of illiquidity.” Within its alternatives bucket, UniSuper has more than 48 separate international private equity investments, including its largest commitment of $30 million in the NGP M&R Offshore Fund, a US-based private equity fund investing in selected areas of the energy infrastructure and natural resources sectors.
It has a further 32 domestic private equity commitments, including $32 million in CHAMP Buyout Fund 2, with its largest alternative commitments being $110 million in Leichhardt Coal (Blair Athol), and a $120 million allocation to Anglican Water Group. But Pearce says, just because you can invest in illiquid securities, doesn’t mean you should. He joined the fund in July, after spending the last few years as head of global asset management for China’s second largest insurance company, Ping An based in Hong Kong, and was also formerly chief executive of Colonial First State, the asset management division of Commonwealth Bank and Australia’s largest funds manager. Pearce is a big believer in the inefficiencies of markets, and so in active management.
“The active/passive debate is something that will never go away, but I hope the debate over inefficient and efficient markets goes away. I don’t believe any market is efficient, I don’t even believe the US Treasury market is efficient, [it] just means it is tough to exploit. If you believe in market inefficiency then you set up an argument for active management, it is just a question of how much and who,” he says. “We are very supportive of taking an active approach, how we exactly do that is something we are constantly looking at.” UniSuper has about 15 Australian equities managers, and the same amount of international equities managers, and the fund is grappling with that mix.