Australia’s Aware Super joins Europe’s megafund rush

Saturated local market drives Australian megafunds to Europe and North America in search of high-yield private market deals as Australian funds compete with other pension heavyweights on the scene international.

Aware Super, a AU$150bn (£83bn) fund, said it plans to open an investment office in Europe and invest up to AU$16bn in deals European and American infrastructure and real estate direct investments over the next three years.

Aware’s head of growth assets Robert Credaro said with the fund set to grow to A$250 billion over the next three years, it has outpaced the Australian market and plans to open an office of dedicated investment for Europe.

“Given our size and our exposure to Australian property and infrastructure, marginal capital will now start flowing into non-Australian exposures,” he said in an interview with the Financial Times.

The sector is experiencing rapid consolidation following a new law that has created a handful of mega-funds at scale to internalize asset management and seek ambitious deals in the private market.

Aware follows AustralianSuper, the AU$260bn fund which already has a London base, which revealed last month that it would invest an additional £23bn in the UK and European markets and double the staff of its London office from 50 to 100.

Australian employers are required by law to pay 10% of employees’ earnings into a pension scheme or “retirement fund”. Australia’s total retirement savings pool has grown to A$3.5 billion, the fifth-largest retirement pool in the world behind the United States, Japan, the United Kingdom and Canada, according to the Anglo-American investment advisory firm Willis Towers Watson.

Last year, Aware partnered with the asset management arm of Macquarie Group to acquire publicly listed Australian telecoms infrastructure company Vocus for A$3.5 billion and take it private.

Tim Joyce, co-manager of Macquarie Capital, said large funds have traditionally been invested in mature infrastructure assets such as toll roads, airports and roads. But as the pipeline for these assets dries up, super funds are bidding for riskier assets that have traditionally been targeted by private equity investors.

At the same time, according to Joyce, private equity firms, which have traditionally targeted high-risk acquisitions in private markets, are responding to increased demand from institutional clients for “medium-risk” assets.

“So this convergence is happening in the medium risk basket, which would be 12-17% overall [internal rates of return],” he said.

With the size of pension pools increasing, Joyce said “more and more we’re seeing our big domestic funds investing directly in big private deals and looking to deploy capital overseas.”

The international push of Australian super funds aligns with other global mega pension funds, notably in Canada and the United States, which are increasingly seeking returns in overseas private markets.

Last year, the Caisse de depot et placement du Quebec (CDPQ), the C$400 billion (£236 billion) global investment group based in Canada, unveiled plans for a spending spree of C$15 billion in private assets in the UK and Europe.

In 2021, the C$227 billion Ontario Teachers’ Pension Plan also unveiled a C$70 billion push into international private markets.

Alex Dunnin, head of research at Rainmaker Information, a Sydney-based financial services research firm, said Australian funds were making a rapid transition to unlisted infrastructure.

Seven years ago, he said only 18% of unlisted infrastructure investment was in foreign markets, but now it is 44%.

“Interestingly, the ratio of infrastructure funds under management held in unlisted vehicles has remained fairly constant at around 80%. [over the past five years]which means listed infrastructure hasn’t really made its mark, at least on super funds,” he said.

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Mary I. Bruner