Australian Ethical explores wholesale private markets option

Australian Ethical’s head of private markets has told Money Management the firm is exploring options in private markets for its wholesale investors.

In its financial results in February, the firm described how it is seeking to expand its usage of the assets including via an offering for wholesale investors.

Expanding on this to Money Management, Adam Roberts, said: "We are seeing a lot of interest and feedback about private markets, so we are thinking about how can we provide a solution for wholesale capital in that space? It’s not straightforward as it is very nuanced so we think our brand and our portfolio is appealing to people, so we are looking at what will work and how we can unlock that for them.”

However, he cautioned the firm is aware there are varying degrees of adviser literacy around the products. 

“We have noticed there are varying degrees of understanding, some have very fundamental questions and some have been using them for a long time in various ways. It’s more of a wholesale product than a retail one, at least in the first instance.”

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This ties into previous coverage by Money Management that advisers say they are dependent on business development managers (BDMs) to understand alternatives and private market funds and that asset managers in the space need to improve their investor education.

Australian Ethical has exposure to venture capital, growth equities, private equity, property and infrastructure, but Roberts said the most commonly used one is infrastructure.

“Infrastructure is more attractive to wholesale capital because they understand it and they use it. It has attractive characteristics where it is inflation-linked, regulated revenues, it has high barriers to entry, it is aligned with other thematics such as changing demographics, and is a sector that people can understand.”

Last February, the firm launched an Infrastructure Debt Fund, in association with infrastructure specialist Infradebt, which is open to external capital and has made 15 loans to renewable energy firms so far. Investors can come in and out of this fund on a quarterly basis, which Roberts said makes it attractive on a risk-return basis.

Detailing how the firm utilises private markets, Roberts said the firm uses them to access four key thematics of decarbonisation, urbanisation, the circular economy and changing demographics. He said it helps that private assets tend to take a long-term time horizon which ties into the firm’s ideology of investing for purpose.

“When you think about public markets, it’s the ASX 200, that’s largely what indices are based around. On the private side, we invest here and globally and get greater opportunities to access those thematics, and there are high-quality people we can work with in the US and Europe who can help attract deal flow for us to co-invest.

“Previously we would have invested in a managed fund that invests on our behalf, whereas today we want to be more thoughtful around our portfolio construction and have more control over where our capital is going.

“We try to stay close to our assets so we understand how they perform and can respond quickly if we see exciting opportunities where we think a business can grow, or choose to pivot out of it if something isn’t working the way we hoped.”