With the superannuation pool tipped to reach $5.4 trillion by 2029, asset owners are getting ready to lift their investment in offshore assets as the growth in super contributions is fast outpacing the opportunities in Australia.
Speaking at a Bloomberg Forum on Thursday, Cbus Super CIO, Kristian Fok, said offshore markets also provided access to industries and thematics that are not available locally.
Fok predicts that Cbus Super will progressively move to 50/50 split between local and offshore investments within five years. The proportion of overseas assets held by the super fund is currently 42 per cent.
The CIO said this was a natural trajectory for many funds although he does not envisage a “very fast step change, but rather, an ongoing incremental one.”
He told the forum that the larger funds will likely “go further along that path”. According to Fok, this partly because they already have people on the ground and partly because they “have to, from a portfolio perspective”.
For infrastructure assets, Fok said he prefers to invest in markets that are “fairly well established in terms of the rule of law and privatising of assets which tends to be the US and Europe.
The CIO raised the question of liquidity risk when buying unlisted assets offshore. “As investors we have certain amount of foreign exchange exposure and we tend to hedge that exposure particularly for the unlisted assets,” he said.
“But the hedging of currency exposure creates illiquidity so we’re trading price volatility for liquidity volatility.”
Fok warned that liquidity is one of the reasons why a fund might want to stay investing locally.
“So, that means if the supply of opportunities in Australia is limited, or not diverse enough, and you go overseas, you have to compensate for extra complexity around liquidity and information challenges.”
In equities, Cbus Super is looking at Asia although he said “for us it’s really about the asset class – where you invest depends on what you’re trying to do.”
Drawn into a discussion about buying opportunities, QIC’s director of investments, Allison Hill, said the Queensland-based superannuation fund takes a country-neutral approach to buying equities. “We are not taking specific bets particularly on any country but try to make sure we get a broad brush of exposures to listed assets, she said.
In the private market however, Hill said QIC has “significant interests” in Asia and China in particular.
Hill said compared to a few years back QIC has taken “a material tilt towards China” and has extracted some very strong returns through partnering with local firms.
The investment specialist is also looking at Chinese corporate bonds and again, plans to look for an onshore partner given the nuances of the legal system and the need for transparent credit analysis. “We do see corporate bonds as an area of interest – a way to further diversify our portfolio exposure.”
