Investment Magazine recently reported that super funds are starting to allocate capital to private debt. Whilst the last decade has been fruitful in regards to equities, the next decade will likely not experience the same success, meaning a more prominent role for debt relative to equity. This is reflected in the market with a recent McKinsey & Co report showing private market assets under management growing 10 per cent last year.
Vision Super’s market strategist Stephen Nash noted that the process of diversification is gradual, but steady. Nash commented that “If we were in the wrong part of the cycle and we did get a large recession then there will probably be a lot of spread to be had.” he said, “We will take advantage of that at that point, but I don’t think it’s appropriate to get super aggressive at this point.”
Similarly, Mercer’s Sue Wang convinced the board last year to increase its strategic asset allocation to 5 per cent from around 1.7 per cent. She notes that “If you have chosen the loans correctly, if they are non-cyclical type loans, they are actually going to be benefiting in some cases from a downturn. If anything, this is the ‘more sleep at night’ portion of the portfolio.”
Nash concluded his interview with Investment Magazine by saying, “it’s quite a big change that is occurring with the banks backing off. It’s quite an interesting time to be looking.”