Jan 18, 2024 - Business

Australian pension giant to surge investment in U.S. private equity

Illustration of the stripes of an American flag, with the Southern Cross from the Australian flag in place of the 50 stars. A spotlight is on the Southern Cross.

Illustration: Aïda Amer/Axios

U.S. private equity is about to get a big boost from Australia's largest pension fund.

Driving the news: AustralianSuper, which manages nearly US$200 billion, tells Axios that it plans to double its global private equity exposure over the next five years, with between 70-80% of those new dollars heading to the U.S.

  • It's also planning to double the size of its U.S. investment team, which this month began operating out of larger digs at 1251 6th Avenue in New York City.
  • The firm's global private equity head also works out of that office.

Drill down: AustralianSuper wants around one-third of its U.S. private equity investments to be in funds, another third in syndicated co-investments, and the remainder in underwriting deals alongside GP partners.

  • "If you can get 4-6% above equities but have to pay 6% in fees — under the 2/20 model — that's too difficult for us, and Australian regulators are very fee sensitive," explains AustralianSuper chief executive Paul Schroder. "But if we split it across three buckets, maybe we can get it closer to 2% in aggregate, which becomes a vastly more attractive proposition."
  • Schroder adds that he's not interested in the direct origination model that became popular among large Canadian pensions, saying he believes they "underestimated the power of intergenerational relationships and the skills required ... we will never be too big for our boots."

Look ahead: AustralianSuper doesn't plan to add another U.S. office, but may eventually open a satellite in India.

The bottom line: Some are questioning the viability of U.S. private equity in a higher rate environment, but the industry still has good friends with deep wallets.

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