Media Super expects a return of more than 6.8 per cent a year from a newly launched $30 million revolving fund for research and development.
The revolving fund provides short-term cash flow to qualifying small Australian companies engaged in R&D. The loans are between $750,000 and $3 million, secured against a company’s entitlement to refundable tax offset credits under the Commonwealth’s R&D tax incentive.
The term of the loan is typically less than 18 months. Once it’s repaid, the money is re-invested into another qualifying project, giving the fund its revolving nature.
Media Super based the model on its $60 million film-financing fund, which has returned 6.8 per cent a year since its inception in 2011. That revolving fund has invested in more than 70 films and television programs, and every loan has been repaid with interest.
“It’s applying the experience of the film-finance fund – which has worked very well for us – to another area where there is a government tax incentive and a refund but the companies need the money to spend on doing the research now,” Media Super chief executive Graeme Russell said.
He added that, conceptually, it’s a straightforward proposition, but the legal contracts and structure underneath it are quite complex. As such, the $5 billion super fund for Australia’s print, media, entertainment and arts workers has outsourced the management of the revolving fund to a newly created private company. The company was set up by the same people involved in running the film fund – Fulcrum Media Finance.
“We were able to leverage the experience of having the film fund to tackle the legal complexity and give us the protection and security we needed,” Russell said. “It’s a good thing to support R&D in the country, but we are in it to make money – as we have to be – and we expect to get a higher return than for the film fund.”
Because of the need for diversification, as well as the revolving nature of the fund, the loans will be spread over 15 to 25 projects. Russell expects all of the $30 million to be invested by the end of the calendar year.
He added that in an environment of “low interest rates, potentially sideways equity markets and un-investable bond markets”, Media Super was looking for other ways to try to generate good returns for members.
“We can’t really put any more money into infrastructure and property because there is a limit to how much we put in illiquid unlisted assets,” Russell explained. “So we certainly spend some of our time looking for other ways we can get better-than-cash returns in the short term.”
Russell has been Media Super’s chief executive since March 2013, and also served as its de facto chief investment officer after the fund went through a restructure in 2014. Since he has taken the helm, the super fund’s balanced option has moved from fourth-quartile to first-quartile returns.
