Super funds see opportunities in crisis

The COVID-19 crisis will provide opportunities for super funds, according to the chief investment officer of the TelstraSuper.

The CIOs of some of Australia’s largest super funds hooked up in a video call on Monday

The COVID-19 crisis will provide opportunities for superannuation funds, according to the chief investment officer of the $27bn TelstraSuper, Graeme Miller.

“Super funds will exploit those opportunities,” he told an online conference of CIOs of major super funds hosted by the Queensland Investment Corporation on Monday.

“All of our members will be better off as a consequence of that.

“I look forward to the future with some optimism and … to exploiting those opportunities on behalf of our members.”

Mr Miller’s comments come as super funds are expecting an increasing number of private equity deals for investment as cash-strapped companies seek new investment capital.

Troy Rieck, CIO of Queensland-based LGIA Super, which has more than 80,000 members primarily in the local government sector, said the crisis of the past few months had created new investment opportunities for cashed-up super funds.

“The opportunity set has changed a lot in the last three months,” he said.

“We are still very interested in the aspects of infrastructure, private credit, distressed credit now for example — much more than we were three months ago.”

He said it was hard to make a case to invest in bonds with yields of only 80 basis points over the next 10 years. But he said investors who had cash were well placed to take advantage of investment opportunities.

“There are folks out there who are distressed sellers,” he said.

“We are positioned well to take advantage of that.

“One of the ways you generate a premium return is through illiquid assets — you buy them when others are selling.”

Charles Woodhouse, CIO of Qsuper, said it could be that more assets would become available for institutional investors as a result of the crisis next year or in 2022.

He said it was in 2010 and 2011, the years after the global financial crisis, when some important assets came into the market.

He said it could take “some time to organise” on the sellers’ side for unlisted assets to come to market and for buyers to be able to do their due diligence on potential investments.

“From our perspective, we are sticking with some of our investment markets and making sure they are alert to new opportunities that come to market. If they do, we will be in a position to assess and perhaps act on them.”

Short, sharp recession

AustralianSuper CIO Mark Delaney said the crisis would provide investment opportunities “over time” in the same way as happened in the wake of the financial crisis.

The deputy state investments officer of the Queensland Investment Corp, Allison Hill, told the seminar that Australia was facing a “short, sharp recession”.

“We will inevitably have a short recession — quite a sharp one,” Ms Hill said.

“We hope it is a V-shape but it could end up being a U-shape. We hope to get through this period and see what we hope is an economic rebound.”

But she said the COVID-19 crisis had meant there was “genuine hardship on large parts of the community”. “We are seeing a loss of income and jobs which will have quite a significant impact on consumer demand and consumer confidence,” she said.

But she said there had been “significant amounts” of stimulus spending by governments, including programs such as the JobKeeper, which would help reduce the impact of the downturn. She said it was a particularly good program that would allow for a rebound once the economy emerged from “isolation”.

She said voters would be asking governments around the world what they were doing to cope with the coronavirus crisis and if they had done enough to protect critical workers.

Damien Graham, CIO of First State Super, said investors were now looking at a “middle phase” where they had become more confident that government stimulus packages would help offset the worst of the potential outcomes from the crisis.

“Markets hate uncertainty and that’s what we saw in the initial phase,” he said.

“But now markets have become a little bit more comfortable that the stimulus might offset the really, really bad outcomes.”

He said investors were watching how governments now managed a return to “partial economic activity.”

Mr Graham said investors were trying to assess what the “middle phase” of partial recovery would look like and what it meant for interest rates and asset pricing.

The negative impact on the economy would be reduced the sooner business could get back to a “more normal” operating environment.

“But my guess is that is a fair way away and we will see a partial recovery in activity in the next 12 months or so,” Mr Graham said.

However, he added that he ­expected the federal government’s preparedness to stimulate the economy through fiscal spending would “start to run dry in the next six months”.