Debt Managers Are Swooping in on Your Pension

What kind of returns would you like to make? Preferably as much as possible. But the answer will likely differ among investors.

Some take on risk and aim for growth. They want to double their capital in months and quadruple it in the next two years. Others might want take a safer approach and think long-term instead. They don’t necessarily need home-run returns. Instead, they’re just looking for a decent return to sit on that will grow their wealth over time.

Pension funds like to follow the latter approach.

But what does the conservative investor do in a low-yielding environment? Even Aussie stocks aren’t providing great returns, with the market at a standstill for the last 10 years. Corporate bonds and government bond yields are still extremely low.

Can Pension Funds Grow Your Capital for Retirement?

One alternative is to invest in assets such as real estate, commodities or infrastructure.

As reported by The Australian Financial Review (AFR):

Australia’s $US1.3 trillion stock market is about the same size it was 10 years ago, yet pension assets have more than doubled in the same period. Around 41 per cent of new investment deals struck by Australian pensions this year have involved alternative money managers, rising from 31 per cent last year, according to Rainmaker Information Pty.

The nation’s top performing pension fund over the past five years, Host-Plus Pty, invests 40 per cent of its $26 billion portfolio in assets such as infrastructure, hedge funds and private equity. The superannuation fund is ready to pour more money into alternatives when the right opportunities arise, said chief investment officer Sam Sicilia.

Yet, investing in such alternatives like private equity and hedge funds is far riskier than buying bonds. That’s because, on average, most assets managers, especially hedge funds, seriously underperform the market.

The AFR continues:

Hedge funds struggled to outperform last year, with the average strategy delivering less than half the return of the S&P 500 Index of US stocks.

Global debt managers are now looking at Australian pension funds as a very attractive opportunity. What manager wouldn’t want to manage some of the $2.3 trillion Australian pension pie? They know we are currently living in a low-return environment. So all they have to do is promise average returns. The AFR continues:

More global fund managers are setting up shop in Australia, drawn to the nation’s $2.3 trillion pension savings pool and new local investment opportunities.

THL Credit Inc, an alternative credit manager based in Boston, said in September that it hired a director in Australia. New York-based credit hedge fund GoldenTree Asset Management opened an office in Sydney last month after appointing a local managing director. Oaktree Capital Management, which already manages Australian pension money, headed Down Under last year as it also sought local investments.

Worth the Risk?

But is pouring more money into alternatives really worth the risk? Not all pension managers are on board with the ‘returns at any cost’ approach. Yet the returns they currently make simply don’t cut the mustard.

It’s a tough situation to be in. To make sure you’re not caught flatfooted when the market corrects as asset managers mismanage your pension, find out how to protect yourself against a potential market crash here.


Härje Ronngard,

Junior Analyst, Markets & Money

Harje Ronngard is a Junior Analyst at Markets and Money. With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation. It’s not good enough to be right on average when it comes to investing. The market is volatile and it only takes one bad day to ruin your portfolio. You don’t want to end up like the six foot man that drowned in the river that was five foot deep on average. It’s why Harje is constantly reminding investors of their downside risk here at Markets and Money. He does so by simply asking just two questions.  What is it worth? And how much does it cost? These two questions alone open up a world of investment opportunities which Harje shares with Markets and Money readers. Right now Harje is focused on managing research and investments over at the Legacy Portfolio. An investment publication designed to significantly grow investor’s wealth over time with deeply undervalued businesses. Harje also contributes his insights in Total Income, headed by income specialist Matt Hibbard. Harje loves cash-rich businesses, so he feels right at home amongst Matt’s high yielding income plays.

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