Senator Concerned Australian Pension Funds Could Seek Out China Market

An investor looks at an electronic board showing stock information at a brokerage house in Beijing, China, on Aug. 25, 2015. (Kim Kyung-Hoon/Reuters)

Sen. James Paterson says he is concerned Australian pension funds (superannuation) could seek out investment opportunities in countries run by authoritarian regimes like China.

“We’re not as big a global investor as the United States is, but our superannuation industry—our pensions funds—are increasingly large and are really outgrowing the Australian economy and need to invest abroad,” the centre-right Liberal Party senator told the American Enterprise Institute in Washington on Sept. 13.

“I am concerned they put themselves at risk if they start investing in authoritarian regimes, and so we do have to think about what sort of advice, guidance, and even controls might be necessary.”

Currently, Australia’s pension funds are worth over $3.5 trillion, the fifth-largest in the world.

Funds Split on China Approach

So far, few pension funds are directly exposed to China, and some with investments have indicated a willingness to pull back.

For example, UniSuper, the pension fund for the tertiary sector, has limited exposure to mainland China via Hong Kong fund managers. But recent moves to crack down on corporates—the “common prosperity” policy—have heightened concerns.

“We just felt that [with] the reforms that have taken place, it’s just become too risky as a direct play,” John Pearce, chief investment officer, told the Financial Times.

While Aware Super, one of Australia’s largest super funds, over several years had gradually increased its exposure to the market, but last year decided to pull the plug.

“Three or four years ago, I thought that they were becoming more Westernised in their capital markets, but I don’t think that is the journey they are on,” CIO Damian Graham told a Bloomberg Inside Track webinar.

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“The government has been fairly overt about that to say, ‘We’ve got our way of doing things’ and that’s their right, but it means as a minority investor, you need to pause a little bit at the moment.”

However, at the same time, other funds have expressed optimism about the market.

CIO of AustralianSuper, the country’s largest fund controlling $244.9 billion in assets, Mark Delaney said China was still a desirable market despite ongoing tensions with Australia.

“When we consider China, it’s an enormous market, and there are some fantastic companies there which we would like to invest in,” he said. “It’s still a destination point for us for making capital returns for members.”

AustralianSuper has steadily ramped up its exposure to China from $1.4 billion to $4.6 billion in five years, with over $1 billion invested in tech giant Alibaba and $750 million in Tencent, the owner of WeChat. The fund is also growing its exposure to the Indian market.