Tim Sullivan, private wealth adviser with Integro Private Wealth, told SMSF Adviser that clients are seeking greater exposure to private markets in search of potentially higher returns and access to a broader investment universe.
Sullivan said the traditional portfolio of listed companies is changing and many industry funds have started to look into alternative assets, particularly private markets, which are also becoming increasingly accessible to the SMSF sector.
Sam Hallinan, partner at Spire Capital, added that the average allocation to private markets and alternatives across industry funds now sits at around 30 per cent and for retail superannuation funds about 15 per cent.
“That percentage has been progressively increasing over the past 10 years which is consistent with the growing investment opportunities, including the strong risk of return outcomes from private asset investments,” Hallinan said.
Hallinan said there has been a global shift from public markets to private markets best represented by the decreasing number of companies listed on different exchanges.
“If you look at the US stock exchange, the number of companies listed on that exchange has halved over the last 25 years and this is reflective of more companies who are both comfortable and/or prefer remaining unlisted,” he said.
“Our argument as a research and investment house is that if you want to expose yourself to the underlying earnings of companies, regardless of whether they’re public or private, you don’t want to limit yourself just to 30 per cent of all companies in the market by only investing on the stock exchange.”
However, Sullivan said liquidity can be an issue, especially regarding SMSFs, and it should be considered especially for funds with members moving to retirement phase where income is a requirement.
“Individuals running an SMSF can now access the public-private blend in their portfolios. Traditionally it might have been a 60/40 portfolio, but with this type of diversification you can see there are return benefits and risk reduction benefits to clients,” he said.
“However, advisers should still be mindful because of the liquidity issue. Advisers need to look at individual clients and how their funds are set up. There have to be different conversations with clients who may have 15-20 years before they retire as opposed to those in retirement phase.
“This is where it’s important to look at the bucketing concept and determine the income that needs to be drawn.”
