Aussie Pension Fund Steps Onto Banks’ Turf for Company Lending

  • Host-Plus says funding good entities an avenue for return
  • Low global rates have prompted pension funds to diversify
Photographer: Brendon Thorne/Bloomberg

One of Australia’s top-performing pension funds is scouring for ways to ramp up lending to companies, stepping into a realm traditionally dominated by banks.

Host-Plus Pty Ltd., which manages A$21 billion ($16 billion) in retirement assets on behalf of around one million Australians, considers funding “good, creditworthy entities” an avenue for strong returns as banks tighten their lending criteria, according to Chief Investment Officer Sam Sicilia.

The fund will search for companies that are “distressed not because they themselves were distressed, but because their bankers were,” he said in a telephone interview from Melbourne. “These are perfectly well-operating companies, so the question is how can other pools of capital outside the banking system help."

While the recent bond selloff sparked by Donald Trump’s election has sent market interest rates surging across the globe, around 40 percent of securities in the $45 trillion Bloomberg Barclays Global Aggregate Index still yield less than 1 percent. That’s driving adaptation in Australia’s A$2.1 trillion pension pool, the world’s fifth-largest. The nation’s biggest retirement scheme AustralianSuper has also been expanding loan investments.

Host-Plus, which primarily serves workers in Australia’s hospitality industry, dumped all of its sovereign bond investments six years ago when it opted to pump more money into illiquid assets such as infrastructure and private equity.

The pension manager’s “MySuper” strategy, its default retirement savings option for members, has returned 9.4 percent during the 12 months to August, ahead of an industry average of 7.1 percent. The firm has the second best performance in that category, according to Morningstar Inc. data.

Sicilia said he has no plans to re-enter the sovereign bond market any time soon as the majority of Host-Plus’s members are young Australians who don’t need to make frequent redemptions.

“Bonds provide downside protection from equity markets, but we get our downside protection from unlisted assets," he said.

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