Asset owners are leaning toward towards unlisted assets — given the limited opportunity set for listed investments and the rich valuations.

During a discussion on opportunities in the public versus private markets at the recent Fiduciary Investors Symposium, the panellists said they are looking to increase their illiquid investments but were coming up against major hurdles.

Andrew Fisher, head of asset allocation at SunSuper, noted that alternative unlisted markets are expensive but less so than the listed markets.

“If you were thinking of swapping out a particular risk profile style investment for something else then, on a relative basis, alternatives are still quite attractive,” he said

Like many of his peers, the biggest challenge for SunSuper is growth.

“We have been growing incredibly quickly so finding opportunities to get to where we want to be with alternatives is a challenge,” Fisher added.

However, he did point out that having invested in this space for a while, the superannuation fund now has the relationships and capabilities in place to be able to reduce the cost of accessing these markets.

David Surridge, a senior consultant with Jana, noted the recent move by asset owners away from a purely Australian focus for unlisted assets. That said, he reminded panellists that while the unlisted Australian assets performed well – particularly property assets – Australian REITS have outperformed unlisted property.

According to the consultant, the hot button issue for clients is private debt.

Surridge said direct lending is growing significantly, adding that many asset owners are currently actively or investigating opportunities.

Kristofer Tremaine, the founder and chief executive of London-based Kimura Capital, told the panel his firm was taking advantage of credit options that generate higher returns.

Kimura funds trade finance in strategic commodities where cash flow predictability is “incredibly high”. “Lending into such a highly predictable market is a fantastic place to be,” Tremaine said.

However, he conceded the market is still quite nascent in terms of the number of asset managers operating in the space.

The Kimura head reminded panellists that the corporate bond market was worth US$ 1 trillion a year – whereas just the funding gap in trade finance is a whopping US1.5 trillion.

“This at a time when there is way too much cash chasing far too few deals in the private equity and infrastructure markets.”

From where he sits, in terms of potential opportunity, trade finance will be a formidable asset class once the market matures.

Surridge concluded the session by saying funds are looking to diversify away from standard asset classes and are trying to find an uncorrelated asset class.

 

Elizabeth Fry has been a financial journalist for more than 25 years and has written for a number of publications, including CFO, The Financial Times and The Australian Financial Review.
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