L-R: AustralianSuper chair Don Russell, Australia’s Consul-General to New York Heather Ridout, and New York City mayor Eric Adams

It is a sign of the times that Australia’s largest super fund, the $320 billion AustralianSuper, has already found the need to move its 40 New York-based staff into a bigger office on Madison Avenue in midtown Manhattan, just over two years after first opening in the city in late 2021. 

And the occasion was celebrated by some heavy hitters. 

New York City Mayor Eric Adams attended the ceremony, as did former AustralianSuper chair Heather Ridout, who presided over the opening in her new role as Australia’s Consul-General in America’s business capital. 

Her successor at AustralianSuper, Don Russell, was there, along with chief executive Paul Schroder and the fund’s long-time chief investment officer, Mark Delaney.

It was a particularly special moment for Ridout. The former chief executive of the Australian Industry Group was a director of the fund for 12 years, the last six as chair, and played an active role in its growth. She was appointed Australia’s Consul-General in New York by the Albanese government in April 2023. 

AustralianSuper’s new space accommodates its growing team and demonstrates the exciting expansion of an Australian business in the American market and is testament to the resilience and global ambition of Australian businesses,” Ridout tells Investment Magazine. 

Australia’s robust and thriving business sector has become a global force to be reckoned with. 

“As our economy continues to flourish, it has become increasingly vital for Australian businesses to broaden their horizons and embrace international markets.

“The establishment and growth of the AustralianSuper in New York City over the past two years exemplifies our nation’s commitment to fostering overseas expansion opportunities for our innovative and forward-thinking companies.” 

Opportunities in private markets

She said the event underlined “the strong bonds between our nations and showcases the thriving Australian investment landscape.” 

While domestic attention has been on AustralianSuper’s holdings of ASX-listed companies – given its high profile role in rejecting the offer by Canada’s Brookfield for ASX-listed Origin Energy in 2023, the country’s largest super fund is continuing its offshore expansion. 

AustralianSuper now has some $85 billion invested in the US, including $50 billion in listed shares, $18 billion in real assets such as infrastructure, property and private credit, $10 billion in private equity and $3 billion in fixed interest. 

AustralianSuper chief executive Paul Schroder says the expanding US office is focussing on opportunities in private markets.  

America is our private markets centre, so we’re looking for opportunities in infrastructure and those kinds of long-term investments need as much policy stability and clarity as possible,” he tells Investment Magazine. 

This is primarily about private markets, about making sure we’ve got access to the right people and the right assets in the right way.” 

New York is now home to its head of private equity, Terry Charalambous, who moved there from Melbourne in July 2022. 

The fund has plans to expand its New York staff to around 100 by 2027. 

The opening of the fund’s new office is another reflection of the increasing offshore footprint of Australia’s industry super funds with Aware super chief executive, Deanne Stewart, meeting King Charles at Buckingham Palace in November as part of events around the formal opening of its office in London. 

Of course, Aware’s declaration that it was planning to invest some $10 billion in the UK and Europe was an attraction for UK Inc to roll out the red carpet. 

AustralianSuper has had a research office in Beijing since 2012 and opened its London office in 2016. 

More in-housing

A significant part of initial offshore investments of industry super funds was done by industry super investment vehicle IFM Investors, which opened its office in New York in 2007. 

But many of the major funds are now moving to bring more of their investment in-house. 

The new office highlights the pressure on AustralianSuper to look for more investments offshore given its net $20 billion a year in fund inflows over the past year. 

While Federal Liberal Senator Andrew Bragg will call senior leaders from the super fund sector for questioning at his hearings in March, having already raised the issue of a potential cap of 10 per cent on super funds’ investment in listed companies, AustralianSuper’s big challenge is to look outside the limited world of Australian shares for its long term returns. 

AustralianSuper already has half of its $130 billion in shares offshore but the more challenging issue is big-ticket private investments. 

The strategy includes partnering with specialist investment funds. 

In January 2024, it announced a further investment in San Francisco-based sustainable infrastructure platform, Generate Capital, participating in a $US1.5 billion ($2.3 billion) capital raising along with QIC, health industry super fund HESTA as well as the California State Teachers’ Retirement System (CalSTRS). 

This brought the total amount raised by Generate, which has helped produce more than 320 GWh of sustainable power, to more than $US10 billion ($15 billion) since its inception in 2014. 

Announcing that deal, AustralianSuper’s global head of private assets, Nik Kemp, said Generate Capital had already “delivered strong returns for members.” 

“We look forward to Generate continuing to deliver good performance while also playing a pivotal role in the global clean infrastructure transition,” he said. 

Private equity boost

That deal followed the announcement in December of an expansion of AustralianSuper’s partnership with New York-based Churchill Asset Management, an investment specialist affiliate of Nuveen, to $US1.5 billion ($2.3 billion), in December 2023. 

Churchill is the $US47 billion ($71 billion) US private capital investment specialist of Nuveen, the asset manager of The Teachers Insurance and Annuity Association of America (TIAA). 

Ties between the two go back to their first partnership in 2015 to invest in middle market senior and unitranche debt financing to private equity-backed US middle market companies. 

This was followed by an announcement in December 2022 for AustralianSuper to give Churchill another $US250 million ($384 million). 

AustralianSuper said its latest deal with Churchill was part of its plans to triple its $US4.5 billion ($7 billion) exposure to private credit globally “through a mix of direct lending by its inhouse lending team and strategic partnerships with best-in-class specialist managers such as Churchill.” 

The fund’s head of private credit, Nick Ward, said the current environment was “especially appealing” to increase its investments in private credit. 

“Lending margins have increased due to heightened macroeconomic risks, with base rates having gone from zero to five per cent.” 

“You are now looking at yields of 10 to 12 per cent for senior lending to middle market companies.” 

“We believe Churchill is a best in class loans manager,” he said. 

“Together with their long track record and being able to underwrite loans with knowledge of the higher rates environment represents an attractive risk-adjusted proposition,” he said. 

Lessons learnt

Not all AustralianSuper’s US investments have been successful. 

In 2015, it made a series of major investments in US commercial property which have since proved costly given the fall in value of commercial office buildings and some retail centres. 

In March 2015, it invested $US1.1 billion ($1.6 billion) to buy a 25 per cent stake in the Ala Moana shopping centre in Honolulu, following up with a deal to take a 49 per cent stake in a $US605 million ($930 million) Boston office tower, along with Brookfield. 

In June that year, it bought a 49 per cent stake in a portfolio of eight buildings around the Washington DC area from Brookfield. 

AustralianSuper’s buy price valued the properties at $US1.32 billion ($2 billion) with Brookfield continuing to manage the portfolio. 

The deals provided an investment opportunity for the growing Australian fund. But with valuations on the properties now down significantly in the past year, they proved to be a lot more beneficial for Brookfield investors than Australian super members. 

The buildings have suffered as office workers stayed at home during Covid-19 and US federal government staffers have failed to return to the same extent as in other cities, such as New York. 

A Bloomberg story in October 2023 said the value of the Hawaiian shopping mall was estimated to have fallen by $US800 million ($1.2 billion) in the past two years. 

AustralianSuper’s head of mid-risk portfolios, Jason Peasley, has admitted that the value of the assets, including the eight office buildings in the US capital, is now much less than what AustralianSuper paid for them. 

“If you think about office buildings post Covid and retail assets over the last 10 years, we have had investments in those sectors- particularly in the US- which haven’t gone well,” he told Investment Magazine in a recent interview. 

“We did learn lessons- not quickly enough to get out of them, but in time to make sure we could make sure they stayed a very small proportion of our portfolio,” he says. 

Having more boots on the ground in the US will open up more opportunities and allow the fund to be closer to the local market. 

A recent survey by the National Australia Bank shows that Australian super funds have increased their offshore exposure from 41 per cent of assets in 2019 to 47.8 per cent in 2023. 

It notes that the larger super funds have a bigger proportion of funds invested offshore, closer to 50 per cent, with plans to increase this further. 

AustralianSuper’s new New York offices are just another step along the way. 

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