Retirement
Should super funds invest in venture capital?
Superannuation funds that offer members exchange-traded funds could be harming small caps and early-stage growth companies, an industry expert has said.
Should super funds invest in venture capital?
Superannuation funds that offer members exchange-traded funds could be harming small caps and early-stage growth companies, an industry expert has said.
Stoic Venture Capital partner Dr Geoff Waring said Australian start-ups were being materially harmed by the new strategies of superannuation funds, such as the drive towards exchange-traded funds.
“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.
“This is having a negative impact on Australian small-cap shares not in the ETF indices due to their size, which means they 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,” he continued.
Dr Waring said the use of exchange-traded funds was undermining the establishment and growth of early-stage start-ups and would ultimately harm Australia’s economic future.
Superannuation funds should diversify more into small-cap fund managers and venture capital managers to finance 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.”
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