Australia’s largest pension fund eyes India, Japan for private equity

Australia’s largest pension fund, AustralianSuper, plans to ramp up private equity investments in India and Japan as it expands across Asia, betting on an improving dealmaking environment and favorable demographic trends.

Asia currently accounts for about 10% of the fund’s total private equity portfolio. The size of its investment will likely double over the next three to five years, Lilian Fang, head of private equity for Asia-Pacific, said in an interview. Private equity penetration remains much lower in Asia, she said, presenting “more and more opportunities” for the 430 billion-Australian-dollar ($300 billion) fund.

AustralianSuper has about AU$22 billion invested in private equity globally, equivalent to roughly 5% of total assets. That’s up from 4% in February, when the fund said the portfolio could more than double in size.

The deeper push into Asia underscores Australian pension funds’ growing appetite for private markets even as the regulator steps up scrutiny of unlisted asset valuations. The region is increasingly being viewed as an important growth market for the AU$4.8 trillion pension industry — known locally as superannuation — as funds seek to expand their investment footprint while receiving billions of dollars of inflows every week.

Fang said corporate reforms in Japan were presenting opportunities for her 11-member team based at the firm’s Melbourne headquarters. “The buyout market and the supply of the type of companies, whether it is public to private, all the carve up deals happening in Japan, we are starting to really see the traction,” she said.

Fang said private equity managers are also finding opportunities among companies with aging founders and no obvious successors. AustralianSuper is interested in areas including healthcare, consumer education and artificial intelligence, though it prioritizes the type of investment opportunity rather than specific sectors.

Healthcare is emerging as a major investment theme in places such as India and Southeast Asia, driven by an expanding middle class, Fang said, adding that artificial intelligence continued to be a theme as data center development grows across the region.

AustralianSuper invested more than AU$3 billion across 26 private equity transactions in the financial year ended June 30 and has added more than 15 new managers across North America, Europe and Asia over the past two years. This number will grow as the allocation to the industry increases, Fang said.