“Superannuation funds will be investing heavily into Asia,” says John Donovan, founder of AFM Investment Partners in Melbourne. “I predict that will be the next major wave of investment.”
To that end, he is looking to add indigenous Asian fund managers to AFM’s platform in order to market them to Australian pension funds.
He set up AFM in 2001 as an independent platform representing foreign managers to Aussie investors across several asset classes, as well as marketing, distribution, regulatory and compliance advice, and trustee services. The firm also runs an Australian equity fund.
The typical superannuation fund will have 20-30% of its portfolio allocated to domestic equities, even though the Australian stock market accounts for under 3% of global market capitalisation.
That fact, combined with the rising inflows as mandatory contribution rates among all employees in Australia rises from 9% to 12% over the next few years, means institutional investors have to diversify more overseas.
For now, global mandates go to international brand-name managers based in the US and Europe, as well as those Aussie firms with international capabilities. Donovan thinks superannuation funds are keen to diversify more directly to “our backyard”.
Last year, AFM added Jakarta-based Mandiri Investasi to its platform, the first Asia-based manager it represents. Donovan says trade ties between the neighbouring countries are strong, as both are resource-driven economies, but investment flows have been scant.
“There is interest in Indonesia, in equities, in bonds, in infrastructure,” Donovan asserts. “I'm putting that interest into practice.”
Mandiri, keen to expand its client footprint across the region, uses AFM as an Australian front office.
Donovan says it will take time for this to translate into tickets, and describes the relationship as long term. This involves putting Mandiri visitors in front of Aussie consultants and investors, but also helping Australian institutions to arrange visits to Jakarta, to kick tyres and meet Indonesian regulators.
Is the effort worth it to superannuation funds? Indonesia is a pretty niche investment. Donovan admits Indonesian securities are far from mainstream, but says superannuation funds do have asset buckets dedicated to ‘excellence’ or ‘alpha’ that could find their way to such plays.
He would like to add one or two more Asia managers, be it local country managers or specialists in particular asset classes at a pan-Asia level.