SYDNEY: AustralianSuper, the country’s largest pension fund, plans to almost double its private equity assets over the next four years, as deals pick up following a lull spurred by higher borrowing costs.

The fund, which oversees A$330bil of assets, is seeking to boost its private equity allocation to as much as 9% of its portfolio from 5% currently, chief investment officer Mark Delaney said in an interview.

That will eventually lift total volumes to around A$35bil, he said.

The goal compares with a previously announced 7% target two years ago that AustralianSuper hoped to achieve by 2024.

The shortfall in reaching that underscores the pressure facing institutional investors in securing attractive deals as higher interest rates weighed on transactions.

Now, Delaney expects activity to increase, while valuations will also begin to climb after a shallow pullback. “We’ve seen the lows in private equity prices,” he said.

“Prices haven’t gotten as cheap as in previous downturns.”

Most of the new deals are expected to originate in the United States via AustralianSuper’s New York office, which it opened in 2021 and that now employs about 40 people, according to Delaney.

The fund works with around 12 to 15 external private equity firms.

The value of private equity deals globally in the first quarter hit US$232bil, some 9% higher than a year earlier, according to data compiled by Bloomberg.

That remains far from the peak touched in the second quarter of 2021, of more than US$600bil. Deals have struggled as sellers demanded valuations similar to those before interest rate hikes, Delaney said.

AustralianSuper is ramping up private assets, along with much of the country’s A$3.7 trillion pension industry, as record inflows spur greater demand for offshore investments.

The fund relocated its global head of private equity to New York and earlier this year said it planned to double its existing team of nine private equity experts as part of a broader plan to access unlisted markets.

AustralianSuper also plans to triple its private credit allocation to A$15bil by 2030.

The fund recently increased an investment mandate with private credit specialist Churchill Asset Management to US$1.5bil from an initial US$250mil investment announced in 2022.

One structural shift may help the pension’s chances of sourcing favourable deals.

Many US pensions serve older retirees, requiring them to hold more liquid assets.

This, in turn, reduces their demand for private investments that can lock up capital for long periods.

“US pension plans are more mature and they can’t put as much money in private equity,” said Delaney. “They can’t recycle capital as there’s no exit. That’s an opportunity.”

Despite this, competition for unlisted assets has broadly increased over the years. One measure of its appeal is the so-called dry powder - money pledged to private equity funds but not yet deployed - which sits at a record US$2.1 trillion, according to December data from Preqin.

“We see more than 100 deals per year,” Delaney said. “Private equity has always been very competitive.”

 - Bloomberg