Australian pension fund chief bullish on private equity, debt deals

By Lewis Jackson and Scott Murdoch

SYDNEY (Reuters) – The next 18 months is an ideal time for unlisted asset deals, said the head of one of Australia’s largest pension funds, as meaty returns for once-low yielding investments like bonds or cash force private dealmakers to offer buyers better terms.

Dealmakers had bargaining power during years of low interest rates when investors would bid aggressively for any chance at yield, according to John Pearce, chief investment officer of UniSuper, which manages more than A$120 billion ($77 billion).

But when UniSuper can get a return of almost 7% from relatively safe subordinated major Australian bank debt, groups pitching for investment are now forced to offer buyers better prices, lower fees and more governance rights, he said.

“At times we’re the only one across the table … you’re agreeing a price without having to get into a bidding war,” Pearce told Reuters in an interview.

“If you’re got cash to deploy in debt markets or private equity, you should be able to do some smart deals.”

UniSuper in May paid A$1 billion for a 5% sta,2023:newsml_RC2Z33A2TTPQ:1352322215/,2023:binary_RC2Z33A2TTPQ-BASEIMAGE?action=download&mediatype=picture&mex_media_type=picture&token=cRg9QbLhX5c43iwxbqrxejbUkt2u1lTnImvrSv5CoSE%3Dke in newly privatised European telecom masts business Vantage Towers, a deal Peace said would not have happened even two years ago.

The fund, set up in 1982 for university workers, will focus its direct equity investments in Australia but is in talks to team up with a partner for overseas private debt deals, said Pearce.

UniSuper returned 10.3% in its primary investment vehicle in the financial year ended June 30.

Australia’s A$2.4 trillion pension sector is outgrowing its home and many of the largest funds are adding staff in London or New York to get closer to overseas dealmakers and the funds’ growing portfolio of direct investments in Europe or North America.

UniSuper, the country’s fourth-largest fund, has no plans for an overseas office, Pearce said, in part because of the difficulty recruiting top talent. The fund will instead focus on listed investments overseas or work with partners.

“Are we going to compete with KKR and Blackstone and Macquarie and Goldman Sachs in New York and London and win the war for talent there? I don’t think so,” he said.

($1 = 1.5538 Australian dollars)

(Reporting by Lewis Jackson and Scott Murdoch; Editing by Jamie Freed)