Top Manager in $1.6 Trillion Pension Pool Eyes Asian Credit

  • Australia’s UniSuper weighing emerging-market debt investments
  • Manager’s balanced option returned 11.4% per year on average

Australia’s best-performing pension fund over the past five years wants to buy corporate bonds in emerging-market Asia for the first time ever.

UniSuper Management Pty Ltd., which was established in 2000 to oversee the retirement savings of university employees, is currently talking to money management firms with emerging-market expertise in Asia as it works to diversify its fixed-income portfolio away from Australian and U.S. debt, Chief Investment Officer John Pearce said in a telephone interview from Melbourne.

“We’re just starting to look at emerging-market debt,” said Pearce. “I think we have a better affinity with Asia. We’re more comfortable with governance frameworks in Asia than say Latin America or Europe.”

Australia’s superannuation funds -- which manage a combined pension pot of A$2.1 trillion ($1.6 trillion) -- are aiming to invest more of their money abroad as they outgrow the domestic equity market, and also to reduce their bias toward stocks. UniSuper’s balanced investment option has generated an average annual gain of 11.4 percent over the past half decade, the strongest result among comparable funds, according to data from research company SuperRatings as of Sept. 30.

UniSuper’s global fixed-income holdings are “heavily skewed” toward U.S. companies that carry at least an investment-grade credit rating. The pension fund, which had assets of about A$55 billion as of July, counts Morgan Stanley Investment Management, Prudential Investment Management Inc. and Oak Hill Advisors LP among its external fixed-income managers.

A Bloomberg AusBond index of Australian corporate notes has delivered a gain of 91 percent over the past decade, while a similar Bloomberg Barclays gauge of investment-grade U.S. credit has risen 75 percent over the same horizon. A JPMorgan Chase & Co. index of Asian credit has climbed 96 percent.

Pearce said he’s become “more comfortable” with emerging-market currencies and that national balance sheets in Asia are in “reasonable” shape, barring some highly-indebted countries such as Indonesia.

He’s nonetheless skeptical about global sovereign debt, which he thinks is in a bubble. Yields have been driven down by unprecedented amounts of monetary easing from Europe to Japan and Pearce reckons that “powerful” deflationary forces will keep a lid on them. UniSuper holds sovereign bonds only for duration and liquidity.

UniSuper is the product of a merger between the Superannuation Scheme for Australian Universities and the Tertiary Education Superannuation Scheme. Just 15 percent of its assets were in fixed income as of June 2015, while 12 percent of their portfolio was in cash and 46 percent in equities, according to the Australian Prudential Regulation Authority data. The nation’s pension managers collectively allocated just 14 percent of their assets to fixed income in 2015, compared with 23 percent in the U.S. and 57 percent in Japan, according to the Willis Towers Watson Global Pension Assets Survey.

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