Chant West highlights benefits of private equity to superfunds
1st Feb 12
The Chant West superannuation fund performance report for calendar year 2011, just released on its website, shows that super funds with greater investment exposure to alternative assets such as private equity have been performing best.
In its statement, Director Warren Chant says:" In the face of falling share values, growth funds actually did quite well to restrict their losses to the level they did. That’s largely because, over the years, they have diversified into other growth assets beyond listed shares. In 2011, unlisted property, unlisted infrastructure and private (ie unlisted) equity all produced quite strong positive returns which helped to counteract the negative returns from listed markets."
The table of asset class performance shows PE was the best performer over a one-year period at 12.1%.
Chant continues: "The strong performance of unlisted assets has had a stabilising effect on fund returns in 2011. These are assets that are revalued regularly but not frequently, and those valuations tend to lag what’s happening in listed markets. Where unlisted assets go from here will be affected by whether listed markets recover – and if so how fast – from their current troughs. If they recover quickly, then we may not see too much marking down of unlisted asset values."
The statement says "although both Australian shares and international shares fell, by 11% and 5.3% respectively, by being well diversified across a wide range of growth and defensive asset sectors, the loss for the median growth fund was limited to 2%. The same comment applies when we look back over the past five years. This period, which includes both the GFC and the more recent sovereign debt-driven crisis, has been highly unusual in that both Australian and international shares have gone backwards. Yet, by finding alternative sources of return, including unlisted growth assets such as infrastructure, property and private equity, even some growth funds have produced a small positive return."
Chant says: "Industry funds as a group finished slightly ahead of master trusts because they tend to have lower allocations to listed shares and listed property. The corollary is that they also have higher allocations to unlisted assets such as private equity, unlisted property and unlisted infrastructure (20% versus 3%), which performed well for them.
"Over the longer term, the strategic allocation policies of industry funds have served them very well. In particular, those allocations to unlisted assets have added to performance and reduced volatility, or risk. They do mean slightly higher investment costs, but those extra costs have been more than justified by the added benefits."
The statement says this is evident in Chart 6 which shows the top 10 performing growth funds over seven years, a list dominated by industry funds.
Author: Adrian O’Shannessy, Director, Greenwoods & Herbert Smith Freehills