As investment strategists wrestle with volatility, superannuation executives have highlighted the appeal of private markets as a diversification tool, one that offers risk mitigation benefits alongside the ability to capture opportunities.
Aware of the likelihood of a market correction following the strong sharemarket performance in financial year 2024, MLC Super made a “significant deployment” into alternative and unlisted assets, according to Steven Gamerov, head of diversified portfolios at MLC Asset Management.
Speaking to InvestorDaily’s sister brand, Super Review, Gamerov explained that MLC MySuper portfolio’s involvement in this space – infrastructure, private equity, private credit, and other niche alternative assets – ensures that “our portfolios are not simply tethered to equity risk and are able to benefit from more sources of risk and return”.
Gamerov explained that the firm’s strategy is focused on both insulating the portfolio against the risks of a slowdown in economic growth or a derating of equity markets, while at the same time being alert to capitalising on opportunities that present in times of stress.
“We believe volatility is likely to continue to be elevated over the course of the next year, as economic growth decelerates and, as such, expect to be deploying actively into opportunities where risk is being well compensated,” he said.
Looking forward, Gamerov said MLC Asset Management continues to see attractive opportunities across credit markets, particularly where these offer attractive yields coupled with strong structural and contractual protections and are supported by strong collateral.
Kate Misc, head of alternative investments and real assets at TelstraSuper, also shared her insights with Super Review, acknowledging the increasingly challenging environment for private markets. In response, she noted that TelstraSuper has carefully curated its portfolio to thrive under these conditions.
“For instance, we’ve been underweight in office and retail property, but are planning to selectively increase our allocation to retail,” Misc said.
“In infrastructure, we’ve focused on core developed assets and are looking to boost our exposure to development assets with strong tailwinds, like data centres and renewable power.”
A key part of managing risk in unlisted asset classes is about “building resilience through market cycles”, she said.
“While a prudent amount of debt often makes sense in private markets, we prefer strategies that are not overly reliant on excessive leverage to deliver expected returns.”
Discussing the fund’s investment strategy for the coming year, she added that TelstraSuper is continuously fine-tuning its portfolio to align with areas offering the best risk-adjusted returns.
APRA to survey funds’ involvement in private markets
The prudential regulator recently announced it is preparing to launch a stress test to reveal potential “contagion sources”, having found that the interaction between super funds and private credit, in particular, is “opaque”.
In a statement sent to InvestorDaily after it was revealed that AustralianSuper had written off a $1.1 billion investment in US-based education software Pluralsight, Australian Prudential Regulation Authority’s (APRA) deputy chair, Margaret Cole, said the regulator plans to launch its first financial system stress test in 2025.
Cole said that funds, which are constrained in their ability to directly take on leverage because investment risk is passed through to their members, tend to veer away from niche areas of the private market.
“This means that while funds have some private credit investments, they are still seeking some level of safety rather than more speculative, niche areas of private finance; and the exposures they do have are low in terms of overall portfolio allocation,” she said.
“The interactions between all these participants, including banks, non-banks, and super funds, however, is opaque. This is a central driver for APRA moving towards cross-industry stress testing, to better explore any potential contagion sources and gaps in the regulatory framework.”
