Australia's largest pension fund eyes more direct investments

[MELBOURNE] AustralianSuper Pty wants to lend to companies and invest directly in their shares before initial public offerings as it seeks to deploy the growing reserves of the country's largest pension fund.

The fund, which manages A$91 billion (US$70 billion), was a cornerstone investor in the IPO of Healthscope Ltd., Australia's second-largest private-hospital operator. It sees the potential for more such transactions as it expands its in-house investment team, head of equities Innes McKeand said in an interview Wednesday.

"Australian corporates should pick up the phone to us," Mr McKeand said. "We see a lot more potential for that sort of investment and we believe we can push that area a lot further," he said, referring to pre-placement share acquisitions.

Direct transactions, such as buying shares before a firm goes public, will allow the pension fund to pick up sizable stakes without inflating the target's stock price, he said. AustralianSuper, which has almost doubled its funds under management in three years, also wants to lend to companies, pitting it directly with banks.

The pension fund bought a A$200 million allocation in Healthscope's A$2.25 billion IPO last year, according to McKeand.

It bought A$200 million of shares issued by Transurban Group, when Australia's biggest operator of toll roads led a consortium to purchase Queensland Motorways Ltd. for A$7.1 billion in 2014. AustralianSuper, which holds 25 percent of the consortium, also partially underwrote the capital raising Transurban conducted to help finance its share of the deal.

Boston, London Healthscope, part-owned by private-equity firms TPG Capital and Carlyle Group LP, has risen by a third since selling shares at A$2.10 apiece. Transurban shares have gained more than 50 percent since it raised A$2.34 billion in a rights offer at A$6.75 a share AustralianSuper has also invested directly in infrastructure assets, including the A$5.1 billion purchase in 2013 of two Australian ports, and property including stakes in a shopping center in Hawaii, an office tower in Boston and the redevelopment of Kings Cross in London, Mr McKeand said.

The pension fund is hiring staff to double the funds managed in-house to as much as 40 percent by 2018. It already has in-house teams overseeing some of its Australian equities, infrastructure, property and cash holdings and is setting up a global equities team in Melbourne, where it is based.

"We are in the early stages of direct investment, writing big checks in the equity space, and we have had great results early on with some relatively low-risk transactions," Mr McKeand said.

BLOOMBERG