Left Menu
Development News Edition

REFILE-Australian pension funds' $168bln 'wall of cash' may lead overseas

Reuters | Canberra | Updated: 11-09-2019 11:20 IST | Created: 11-09-2019 11:18 IST
REFILE-Australian pension funds' $168bln 'wall of cash' may lead overseas
Image Credit: Flickr

Australian pension funds are sitting on a A$245 billion ($167.38 billion) 'wall of money' that will probably flow overseas because of a lack of domestic options, asset managers say.

Thanks to Australian laws requiring employers to contribute at least 9% of a worker's salary to a pension, superannuation funds, as they are known locally, are the world's third-largest pool of pension assets, worth about $1.9 trillion. The Australian stock market is worth only $1 trillion. The nearly 2:1 ratio is the highest among major developed economies, according to Bank of America Merrill Lynch (BAML) , and the imbalance is growing - as is the range of overseas markets and assets attracting those funds.

"We have the world's tenth-biggest stock market but the third-biggest pension fund pool," said Mark Warburton, BAML head of Australian equity capital markets. "There is a wall of money waiting to be invested." The Australian Bureau of Statistics puts the number at about A$245 billion.

Some of that money has stayed in Australia, such as the A$2.1 billion purchase in March education group Navitas by AustralianSuper, the country's largest pension fund, and private equity group BGH Capital. But asset managers told Reuters the cash imbalance was putting pressure on Australian funds to find infrastructure, property, private equity and listed companies offshore. Last month, AustralianSuper agreed to put up to $1 billion into India's National Investment & Infrastructure Fund Ltd (NIIF), and has accumulated major stakes in listed companies such as drinks maker Diageo and consumer company Reckitt Benckiser. Superannuation fund-owned IFM Investors, one of the country's largest infrastructure investors, also told Reuters it was expanding its listed equities business outside Australia.

"The scale is just enormous," National Australia Bank head of markets Drew Bradford said of the potential overseas investments. According to NAB, about 41% of the biggest funds' assets are currently invested overseas. Nearly three quarters of those funds plan to increase such investments over the next two years, the bank found.

"You are going to have maybe the third-largest nominal pension pot money in the world with half or more of those investments held offshore," Bradford said. AustralianSuper this year announced plans to open an office in New York and expand its London operations.

In Britain, pension funds assets are worth 1.4 times more than the local equities market, while in Canada it is 1.2 times, BAML figures show. U.S. pension fund assets are almost equal to stock markets, at about $24.7 trillion apiece. Analysts said pension funds' available assets have been one reason for the Australian market's performance this year. The benchmark S&P/ASX200 has risen 17.5% this year, according to Refinitiv data.

The US S&P500 has increased 18.82% during the same period, according to Refinitiv data.

CONSOLIDATION AND FEE PRESSURE

The continued growth of Australia's biggest funds - with some adding internal management teams - is also adding pressure on domestic fund managers. This year, five pension funds have announced mergers, and industry experts expect more.

Ian Fryer, head of research at investment advisory firm Chant West, said fund managers were discounting their fees as their pool of customers grows smaller in number but heftier in size. "If you want to get mandates from Australian pensions you need to charge 5 to 10 basis points less than in overseas markets," Fryer said.

Ian Macoun, the managing director of Pinnacle Investment Management, which has A$54.3 billion of assets under management according to the company's website, said domestic managers were suffering as super funds expanded and did more allocations on their own. "There are definitely fee pressures from big super funds," he said. The only solution, he added, "is to keep performing well." ($1 = 1.4646 Australian dollars)


TRENDING

OPINION / BLOG / INTERVIEW

South Africa's COVID-19 response: Surprising outcomes or just poor data management?

South Africa has been committed to improving its health information system and shows that a robust digital has considerable scope to improve healthcare for the entire population. But the COVID-19 pandemic has highlighted that significant ga...

Post-COVID-19 Nigeria needs a robust Health Management Information System to handle high disease burden

Nigeria is among a few countries that conceptualised a health management information system HMIS in the early 90s but implementation has been a challenge till date. Besides COVID-19, the country has a huge burden of communicable and non-com...

Morocco COVID-19 response: A fragile health system and the deteriorating situation

Learning from its European neighbors, Morocco imposed drastic measures from the initial stages of the COVID-19 outbreak to try to contain its spread. The strategy worked for a few months but the cases have surged after mid-June. In this sit...

COVID-19: Argentina’s health system inefficiencies exaggerate flaws of health information system

You can recover from a drop in the GDP, but you cant recover from death, was the straightforward mindset of Argentinas President Alberto Fernndez and defined the countrys response to COVID-19. The South American nation imposed a strict...

Videos

Latest News

Judge rules against Trump, upholding Montana's vote by mail

A federal judge in Montana on Wednesday upheld a plan to allow voters to cast ballots by mail, dismissing President Donald Trumps allegations that the process would be marred by fraud.U.S. District Judge Dana Christensen found that Governor...

U.S. Senate passes bill funding government through Dec. 11, sends to Trump

The U.S. Senate approved on Wednesday a temporary funding bill to keep the government open through Dec. 11, sending the measure to President Donald Trump for signing into law.Government funding runs out at midnight Wednesday 0400 GMT on Thu...

Mnuchin reports movement on COVID-19 relief; House delays vote

U.S. Treasury Secretary Steven Mnuchin on Wednesday said talks with House Speaker Nancy Pelosi made progress on COVID-19 relief legislation, and the House of Representatives postponed a vote on a 2.2 trillion Democratic coronavirus plan to ...

Germany issues coronavirus warnings for Belgium, much of France

Germany declared regions in 11 European countries to be areas where there was an elevated risk of exposure to the novel coronavirus, while existing warnings about parts of Belgium were extended to cover the entire country. In its list publi...

Give Feedback