Funds have been reticent to take the plunge because they fear a lack of liquidity in longer-term investments or were still stung by the crash and burn of the dotcom era around the year 2000.
Australian Investment Council chief executive Yasser El-Ansary told the Financial Review government regulations had dampened the incentive for super funds to invest in venture capital.
The private capital investment asset class has delivered investors an average net return after fees of 15.2 and 13.3 per cent per annum, over the past 10 and 20 years, respectively, according to the AIC.
Mr El-Ansary said the government’s Your Future, Your Super reforms passed last year meant funds were more focused on lowering fees rather than boosting returns.
“What is often missing from the discussion around super is the equal importance … for super funds to deliver outperformance to their investors.
“That sometimes feels as though it comes a very distant second in the conversation [to reducing costs],” Mr El-Ansary said.
The government’s reforms introduced an annual super fund performance test. The easiest way for funds to boost their test score is to cut fees, since the full impact of the cut is reflected in the year the reduction is made.
UniSuper’s Mr Pearce agreed that fees for venture capital had historically been “steep”, which had contributed to the fund’s earlier reluctance to invest in the sector.
He also said that the venture capital return profile was not always consistent with inclusion in a balanced investment option, which is where many super fund members park their money.
Uniseed’s chief executive officer Peter Devine said the partnership with UniSuper would help facilitate Australian research.
“Today’s emergent start-ups are tomorrow’s tech and health giants, and with funding from UniSuper, we are able to get in at the very early stages of these journeys,” he said.
Despite the regulatory hurdles to investing in venture capital, UniSuper’s Mr Pearce said he did not think policymakers should intervene to boost investment in the sector.
“I think it’s important that the government should stay out of directing super funds invest in specific sectors or companies,” he said.
Mr Pearce said the investments will be allocated to UniSuper’s sustainable options.
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