Super funds could, in the right circumstances, provide capital for growth to small to medium-sized enterprises (SMEs) and business more generally, complementing more traditional capital sources such as banks, according to a new discussion paper.
The paper, “Should superannuation funds do more direct lending to business?” by Industry Super Australia chief economist Stephen Anthony, argued that funds’ traditionally low asset allocation towards credit to non-financial corporations could be improved via an upgrading of funds internal assessment capacities or via partnerships with banks.
Currently, Australian banks and overseas investors – including pension funds – are the dominant players in lending to domestic non-financial corporations.
Dr Anthony said there was significant untapped potential for super funds in this asset class.
“Expanding superannuation funds’ presence in direct lending will help local business grow and deliver economic benefits. We are in a better position to commit to long-term loans in Australian dollars – one important factor as businesses doesn’t need to worry about currency risks,” he said.
“SMEs need better access to both debt and equity capital and super funds can help. But any arrangements need to offer attractive returns to funds.”
Dr Anthony said the recent spate of corporate leaders calling for super funds to participate more in this space needed to package propositions with more of an eye to returns for super fund members and how the superannuation system works.
“Businesses calling for more super fund participation in direct lending should recognise that funds’ capacity in this area relies on steady and growing inflows from workers’ contributions – facilitated by the existing default superannuation system. Business needs to be aware of this and continue to support and enhance the default system that may ultimately deliver the funding they need one day,” he said.