ESSSuper has rebooted the private equity program it wound up over a decade ago as it looks to match the performance of peers with growing allocations to the asset class.  

The Victorian state super fund, which has $12 billion in accumulation assets and whose members are mainly emergency services and state government employees, is an exempt public sector superannuation scheme and thus not regulated by APRA.

But it still competes within the same retirement system and conforms to the Commonwealth retirement income policy objectives as public offer funds, many of which allocate up to 3-5 per cent of their portfolios to private equity, an asset class that often delivers strong returns.

Daniel Selioutine, chief investment officer of ESSSuper says the fund’s lack of private equity allocation is becoming a “strategic gap”.

“It’s something that we’re going to have to lean into dealing with in creative ways,” Selioutine tells Investment Magazine in an interview.

“One of the challenges of kickstarting a PE program from scratch is you’re generally not making money for the first five years, so we’ve tried to partner with a group where we’re investing in secondaries that don’t have dual layers of fees.”

The approach helps ESSSuper deploy into mature private equity deals, receiving returns earlier.

“If you’re starting from zero, we’d need $300-500 million deployed into private equity to be meaningful as a proportion of the total fund. If you’re putting $500 million away and it’s not making any money for 3-5 years, that’s very costly from a peer-relative [performance] standpoint,” he says.

The accumulation plan’s private equity program was terminated in 2015 as it was hard for a fund of around $4 billion at the time to take on the level of cost and complexity that come with private equity investments.

Selioutine says the fund’s approach in the years after he joined ESSSuper in 2018 was more closely aligned with the research and insights provided by its asset consultant. In practice, this meant investment opportunities in areas such as private equity were more likely to be pursued when supported by the consultant’s research coverage.

“If your asset consultant’s not researching that space… but also if your ticket sizes are too small and your contributions are not frequent enough, then you don’t have a huge economic alignment, because how are you going to keep the fund manager honest if you’re not regularly doing business and repeat activity with them?”

The rebuild is at its initial phase and Selioutine is targeting a baseline allocation of 2 per cent of the fund within the next three years. It is holding out on allocating to a specific strategy and prioritising private equity investments where it can find fee efficiencies.

“[We want] a shorter maturity profile, which also matches the cash flow profile of our fund a little bit better, and then we’ll see how that goes and see how we can complement it,” he says.

Selioutine observes that exit pressures in private equity are working in the fund’s favour as it hunts for bargains. While ESSSuper doesn’t have any investments in continuation funds, it does have some PE exposures via listed vehicles.

“They were at a deep discount when we bought in… that dynamic where it’s taking longer for some of these groups to exit has created a natural opportunity set and more activity in that secondary space,” he says.

“It’s become more liquid [as an asset class] than it was certainly a couple of years ago.

“We’ve seen that the fund managers are willing to talk to us about [the fact that] commercials have come down quite a bit in terms of the fee load, and that just talks to there being more competition for capital and more demand to do deals in that space.”

The fund won’t shy away from backing new private market managers that may have no or little presence in Australia, Selioutine says, as long as it can get the fee and commercial alignment right and the manager passes due diligence process.

“[If] they’re looking to do something slightly adjacent to a flagship strategy, we’re happy to go up the complexity curve where you know we’ll give them a shot at something,” he says.

“Generally, in those circumstances, we try to always align ourselves to other investors that are carry-paying investors, particularly in private markets.

“That gives us an alignment that speaks to a bigger materiality for the fund manager than just our small fee – we just don’t pay enough in fees, given the fee environment in Australia, to achieve that alignment through more traditional ways.

“If it’s a new venture, we will deliberately go into a pooled vehicle, because the track record is what’s valuable for the fund managers, so we try to find creative ways to get alignment in that manner.”

ESSSuper has over 121,000 members holding over $39.5 billion in net defined benefit and accumulation assets as of 30 June 2025.