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Superannuation funds' shift to low-cost exchange-traded products is potentially at the detriment of startups and the potential upside for the local economy.
This is according to Stoic Venture Capital partner Geoff Waring, who said local startups are being "held back" by super funds increasingly allocating to exchange-traded funds and other indexed products.
"This has facilitated greater diversification including towards overseas technology indexes and higher-growth investment opportunities en masse which has benefited members," Waring said.
"However, this is having a negative impact on Australian small-cap shares not in the ETF indices, which are losing billions of dollars of potential investment to large cap and overseas companies."
What super funds should do, he said, is diversify more into small-cap fund managers and venture capital managers to finance growth industries as well as increase benefits to their members.
Preqin and the Australian Investment Council estimate the local venture capital and private equity have a combined market of $33 billion, delivering net annual returns of 12.49%.
Two years ago, Financial Standard reported that Hostplus was tipped to become the largest investor in venture capital in Australia, with assets estimated to reach $1 billion. Hostplus chief investment officer Sam Sicilia at the time highlighted the super fund's appetite for venture capital opportunities and remains evident in the fund's current asset allocation.
Some of the venture capital firms Hostplus invests in include Carthona, Blackbird Ventures and Artesian.
Warning pointed out that superannuation funds could be earning more through longer-term venture capital investment than compared with today's short-term public equity markets.
"Less investment into smaller, younger Australian companies will have the corollary effect of harming the future development of our economy and the provision of new employment opportunities," he said.
AboutStoic Venture Capital
StoicVenture Capital provides financing for early-stage companies, particularlythose arising from university research. Stoic is unconditionally registered asan Early Stage Venture Capital Limited Partnership (ESVCLP) and takes acollaborative approach to investing in the highest potential companies. Atlas Advisors Australia AFOF is the majorlimited partner for the Fund. www.stoicvc.com.au
https://www.financialstandard.com.au/news/super-funds-overlook-vc-potential-176393473
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