Super funds look to alternative investments

New research performed by chartered accounting firm Deloitte regarding the asset allocations of balanced options being employed by superannuation funds has revealed their increasing appetite for placing funds in new asset classes.

The study compared the balanced allocations of those funds that employ implemented consultants against for-profit funds and industry funds and how they had changed over the past five years.

Deloitte found all three categories of super funds had increased their allocation to new asset classes, in this case alternative assets, unlisted investments, private equity, infrastructure and hedge funds, mainly at the expense of existing allocations to fixed interest.

Of the three categories of super funds, industry funds were found to have the greatest propensity to invest in the new asset classes, with allocations jumping from 7 to 15.1 per cent of the balanced portfolio over the past half decade. This represented a jump of 8.1 per cent and was almost symmetrical to the drop in their fixed interest allocations of 7.9 per cent over the period.

Deloitte superannuation partner Wayne Walker expressed no surprise at this result.

“The nature of the major industry funds is such that they have a mass membership and a direct relationship with their individual members. Cash inflows have been substantial and fast-growing, and this is likely to continue into the foreseeable future,” he said.

“Industry funds’ need for liquidity is quite low, and much of the investments that are classified as ‘other’ are much more illiquid than shares and bonds, which means they have a greater capacity to invest in these assets,” Walker added.

Funds using implemented consultants increased their allocation to new asset classes by 2.5 per cent, leaving a current allocation of 5.3 per cent, and for-profit funds exhibited the smallest appetite for these assets with a current allocation of 3.1 per cent, which represented a 2.6 per cent rise for the period tested.

“We know that the grouping for for-profit funds is diverse and includes both the mass retail market where the need for liquidity is lower and those corporate master trusts where money can move quickly in large amounts,” Walker explained.