Superannuation sector ready to push for more private plays

The increasing inflow of funds into the $3.5 trillion superannuation sector will see more bids by funds to take listed companies private.

Superannuation fund HESTA confirmed in April that it was part of a consortium led by KKR which made an indicative bid for Ramsay, the largest private hospital operator in Australia.

The increasing inflow of funds into the $3.5 trillion superannuation sector will see more bids by funds to take listed companies private, according to ratings agency Moody’s Investors Services.

In a new report, Moody’s says the local super sector is playing an increasing role in providing capital for banks, companies, governments and infrastructure groups.

“Super funds are providing private sector equity and credit,” the report reads. “Sydney Airport was taken private by a consortium which included super funds earlier this year … the role of HESTA super in potentially taking Ramsay Health Care private is another high profile example,” it reads.

“We may see more examples as private sector investors see opportunities to increase leverage to invest for long term growth without the pressures of having to deliver near-term dividends.”

HESTA confirmed in April that it was part of a consortium led by KKR which made an indicative bid for Ramsay, the largest private hospital operator in Australia.

But Moody’s said bids by super fund-backed groups could be bad for creditors. The report notes that super funds in Australia are increasingly taking on the role of traditional lenders but with a longer-term time frame.

Moody’s added that the availability of super fund money was also providing a source of funding for states as they recycle assets by selling them to investors which have a strong interest in investing in infrastructure. “The superannuation sector supports regional and local governments as they pursue asset recycling as part of their fiscal consolidation programs,” the Moody’s report, released this week, reads.

The report cites last year’s $11bn sale by the NSW government of its remaining 49.9 per cent stake in toll road operator, WestConnex to a consortium which included AustralianSuper.

The money from the sale will be used to pay off debt.

Moody’s says it expects the NSW government to look for more assets to sell as part of its asset recycling program. It notes that the prospect of the government being able to sell assets to super funds is behind Moody’s decision to keep the state government’s Triple A credit rating.

“The successful execution of asset sales is considered key to managing the state’s rising debt within rating tolerances,” the report reads. “We expect the superannuation sector to pursue some of the state’s assets.”

The report comes as the sector marks the three decade anniversary of the start of the superannuation guarantee legislation.

The report says that long term investment horizon of super funds has encouraged them to invest in real estate and infrastructure as well as defensive assets such as health care and retirement living.

The report notes that the super funds are also becoming more active shareholders of companies with a strong focus on environmental, social and governance issues. It says the role of the superannuation sector in the Australian capital markets is set to increase, with the rise in the superannuation guarantee from the current 10 per cent of salary to 12 per cent by 2025 as well as an increase in Australia’s population as the country reopens its borders to overseas workers.

The report notes that the increasing numbers of Australians moving into retirement age will see an increased “leakage” of cash from the system.

It notes that Australians’ median age of 37 is still much younger than the retirement age of 65. But it says the ageing of the population will still see some outflow of funds from the system. It also notes that the proportion of Australians over 65 rose from 12.3 per cent in 1999 to 15.9 per cent in 2019. “This group will increase more rapidly over the next decade as more Baby Boomers turn 65 and are able to access their superannuation, even if they have not retired,” the report reads.