High fees and regulation are preventing super funds from allocating to private capital, according to the Australian Investment Council (AIC).
Earlier this week, it was reported super funds should look to allocate more to venture capital given the long-term time horizon of both areas.
Speaking to Money Management, Yasser El-Ansary, chief executive of the AIC, said private capital was a “compelling investment strategy” for super funds as they presented a good opportunity for diversification. However, regulatory issues and the high fees incurred prevented it being held in large weightings by them.
While he would like to see an allocation of between 10% to 12%, most super funds only held 4% to 7%.
“The number one challenge is the policy implementation of adopting these investment strategies and accessing it from a low-cost base,” El-Ansary said.
“Australia has a lot to learn from other developed markets such as Canada and we will benefit from those learnings in years to come.
“Canada has a very sophisticated pension system, they are five to 10 years ahead of us and a good model for Australia to aspire to be.
“I would love to see Australian allocations to private markets rise, that would be a huge step forward for super funds.”
To improve the figures, he said the super system needed better education on these types of assets, less regulation and for costs to be reduced.
“I would like us to be Team Australia to have the best chance possible to achieve returns for clients in this environment,” El-Ansary said.
“There is a clear win/win outcome. There needs to be a move away from incentive structures that are low cost and low fee to one that instead ensures super funds provide the best risk-adjusted returns for members.
“There has been some headway with Your Future, Your Super but we will need to wait six to 12 months to see what the impact is of that.”