Superannuation funds are increasingly offering members exchange traded funds to diversify their portfolios at low cost and enter into overseas markets. Overseas equities now have the highest allocation at about 25%. But this is harming the sector charged with incubating our companies of the future.
Stoic Venture Capital Partner Dr Geoff Waring said Australian startups were being held back by the new strategies of superannuation funds, such as the drive towards exchange traded funds and overseas equities.
“Superannuation funds have been increasing their allocation to exchange-traded funds as they are easy to invest in,” Dr Waring said.
“This has facilitated greater diversification including towards overseas technology indexes and higher-growth investment opportunities en masse which has benefited members.
“However this is having a negative impact on Australian small cap shares not in the ETF indices, which are losing billions of dollars of potential investment to large cap and overseas companies. The trend of mergers between more superannuation funds will deepen this impact.”
Dr Waring said the use of exchange traded funds was undermining the establishment and growth of early-stage startups and would ultimately harm Australia’s economic future.
Superannuation funds should diversify more into small cap fund managers and venture capital managers to finance domestic growth industries as well as increase benefits to their members.
“Less investment into smaller, younger Australian companies will have the corollary effect of harming the future development of our economy and the provision of new employment opportunities,” Dr Waring said.
“It ignores the higher returns selected venture capital managers could bring to the superannuation industry.
“Superannuation funds could be earning more through longer-term venture capital investment than compared with today’s short term public equity markets.
“This is particularly the case for industry-focused superannuation and specialised venture capital funds which are committed to the same vision – creating a better future for their industries and their members.”
