Why are Australia’s super funds so allergic to agriculture? It’s not just caution about agricultural returns, it was explained to a session of the ABARES Outlook conference on Tuesday, but the nature of the superannuation business.
Barnaby Joyce’s assertion that only 0.3 per cent of Australian superannuation fund wealth is invested in the nation’s agriculture was probably the most tweeted factoid of the Outlook conference.
In the “Investing in Agriculture” session, Austrade’s David Watson suggested that some of the problem lies in the structure of super funds.
“With the shift to accumulation funds, where customers can move their money very quickly and it becomes like a bank account, and when managers are measured like stocks on the ASX, it drives a very short-term view of performance,” Mr Watson said.
Super funds also have tainted memories of past investments in primary production, especially around the pile-up that was Managed Investment Schemes.
“There is not just some lack of understanding of the sector, but fear, given that some funds been burnt by investing in the sector in the past.”
First State Super’s Damien Webb confirmed that the fund had to make investments with the knowledge that its 750,000 investors could pick up their super and move elsewhere if they were unhappy.
That’s unlikely to happen - it didn’t in the Global Financial Crisis, for instance - but it shapes how the fund thinks about investments that can be easily liquidated, and those that can’t. Agricultural investments tend to fit into the latter “illiquid” category: private assets that would be difficult to liberate within a year or so.
First State thinks having about 20-30 per cent of its funds in illiquid assets “is probably about right”. Some of its competitors have 30-40 per cent in illiquid assets.
First State’s investments are partly guided by the idea of “universal ownership” - how the fund’s money can be spent in ways that will have the biggest beneficial effect on its members when they retire in 15-20 years time.
That means investments that boost the productivity of the Australian economic environment. “We like to invest in things…that lead to productivity that multiply gains across the whole economy.”
Asset classes like real estate and infrastructure have a track record; “agriculture is starting to come into its own”, Mr Webb said optimistically.
It was pointed out that foreign super funds have been investing in Australian agriculture for decades. Mr Webb responded they had more funds earlier, and with different investment mandates had not made some of the disastrous MIS plays that continue to influence how local funds view agriculture.
Should the domestic funds ever relax their attitude towards agriculture, the hoards of capital that could be unlocked are immenses.
The GDP of the Australian economy is about $1.5 trillion; the Australian super industry manages about $2 trillion. In another 10 years, Mr Webb said, the funds held in super are expected to be five times the size of the nation’s GDP.
