General partners must generate alpha for Aware Super, Sydney, invest in the super's areas of focus such as technology, new energy and financial services, and be aligned strategically with the fund, Chief Executive Officer Deanne Stewart said during a fireside chat on Sept. 24.
"The really important aspect of having a private equity portfolio is really around alpha generation, because one of the unique things about the Australian (super industry) is (that it is) defined contribution. What that does mean is that you have daily unit pricing. And so you, in a way, have to manage that liquidity budget very strongly,” she said at the annual private equity conference SuperReturn Asia, held in Singapore.
Private equity is not set up for daily unit pricing, which the fund needs because participants are switching between investment options and in and out of the fund every day, she said. Capital allocated by the fund to private equity “is there to work hard,” she added.
“So for us, when we think about private equity, we really do think about alpha seeking, which is different to some other sovereign funds or pension funds around the globe,” she added.
The fund has around 6% of its A$170 billion ($115.7 billion) portfolio allocated to private equity, including venture capital. The super fund works with 17 general partners for a variety of services. For instance, about 50% of the time, the super fund invests in the private equity funds, and the other 50% of the time, works with the GPs for co-underwriting and co-investment deals, she said.
“It’s very global, very diversified,” she said. Most of the exposure is to the U.S., followed by Asia and Australia, and a significant portion to Europe, she added.
“For us, we do look specifically when we're looking to partner with GPs on a couple of things. First of all, the sectors that we certainly believe in, whether that be areas like technology, new energy, healthcare, financial services — we do tend to advise them to (look at) those sectors,” she said.
Not only must GPs have deep technical expertise in the areas they invest, they must also be similarly aligned with the fund, which means that they are “willing to deliberately create strategic operational excellence and value, not just financial engineering, because once again, we are looking for that sort of ability to invest over the long term,” she said.
The super fund has been increasingly internalizing its management of investments — 36% of the portfolio is now internally managed, up from “five or six years ago that was in the teens”, she said.
“We would say we have a very hybrid model. We don't ever want to be fully internalized, because ultimately, we believe in where we can invest ourselves and we've got a competitive advantage, or where we see great partners because they're fantastic at generating alpha, or have much deeper competitive advantages in certain areas. That's our style,” she said.
Following the opening of its London office in 2023, the fund is exploring the opening of offices in the U.S. and Asia to manage direct investments and grow relationships. “Having feet on the ground, bringing in the deal flow, and building those relationships really is important. And we are at that size and scale now where that certainly is what we're looking to do. In years to come we're looking to do similar, I think, in both the U.S. and probably here in Asia, versus trying to do that out of Australia as well," she said.
