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Real opportunity for super funds in private assets: Schroders

While COVID-19 may have changed the shape of Australian investing, Schroders alternatives director Claire Smith believes there is plenty of opportunity in the private asset market.

Smith, speaking at the Australian Institute of Superannuation Trustees (AIST) conference, said the fact that COVID-19 has impacted markets so greatly has also caused it to reveal opportunities for super funds to investing in asset classes they didn't previously think to access.

"When we look at what has happened to the local market during COVID-19, the cyclical sectors have been the ones hardest hit," she said.

"The big beneficiaries have been things like the supermarkets and it comes as no surprise that with the increase in the risk has come a reduction in bank capital and therefore, an increase in the spreads."

Smith said there was an increase in spreads across all levels of the Australian private debt market when COVID-19 hit Australian shores.

"Superannuation funds have a big benefit versus banks and insurance companies in that they don't have to worry about regulatory capital," Smith said.

"The banks have this sweet spot where they can earn a return on regulatory capital that satisfies their balance sheet and insurance companies can struggle with private debt because it's often an unrated asset class."

"So, we think that there's a real opportunity for superannuation funds here in Australia to access well-structured private debt that can offer great returns."

Smith said one of the key things to focus on is ensuring that the borrower has credit worthiness to make sure there will be a return of the principle and interest.

"The security is there as a backstop in case anything goes wrong but you've always got to think about the downside," Smith said.

In addition, Smith said, it's important to focus on the company's experience and how they have dealt with things like the global financial crisis and the dot com bust.

"It's also important to focus on all these sort of issues from the past few years, thinking about them learning for them and making sure that they factor into decision making in the future," she said.

Read more: SchrodersClaire SmithAISTAustralian Institute of Superannuation Trustees
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