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AustralianSuper supercharges private credit allocation in the hunt for income

The $300 billion super fund has taken its mandate with Churchill Asset Management to the next level in a sign that the voracious appetite for private debt from pension funds around the world remains unsated.

AustralianSuper’s initial $250 million mandate to Nuveen affiliate Churchill, made in December 2022, has been upped to a staggering US$1.5 billion as it looks for investments with the potential to “provide attractive income, returns and stability during uncertain economic times”.

“We believe the current environment is especially appealing to increase our investments in private credit,” said AustralianSuper head of private credit Nick Ward. “Lending margins have increased due to heightened macroeconomic risks, base rates have gone from zero to five per cent so you are now looking at yields of 10-12% for senior lending to middle market companies.

Churchill manages around US$47 billion on behalf of global pension funds, while AustralianSuper has previously signalled that it intends to triple its current A$7 billion exposure to private credit through a mixture of in-house investing and strategic partnerships with “best-in-class” managers like Churchill.

  • “We are excited to grow our partnership with AustralianSuper, Australia’s largest superannuation fund, and increasingly an investment leader on the global stage,” said Ken Kencel, president and CEO of Churchill.

    “AustralianSuper’s latest instalment reinforces the strength of our strategic partnership and their confidence in both our strategy and the private credit market. We believe we are currently in one of the most attractive investment environments in recent history, and we are pleased to provide AustralianSuper differentiated access to our directly originated, proprietary senior loan assets.”

    The hunt for yield has driven a rethink of traditional fixed income allocations globally, while the rise of the megafunds and the growing number of members moving into retirement locally is creating increased demand “for consistent income opportunities”.

    “From an Australian perspective we’re seeing people be a little bit more cognisant of that transition into post-retirement and a lot of focus on the provision of structures and products more akin to the developed annuity market,” Andrew Kleinig, Nuveen managing director for Australia, told ISN in May.

    “And on the back of that at least an understanding that something with the provision of consistent income is playing an important role rather than purely looking at asset classes with provision of total real return. Stability of income is playing a bit more of a role… That’s a different mindset from three years ago.”

    While AustralianSuper is perhaps the most obvious local example of the surging interest in private credit, its benefits have been evident to a number of institutional investors for some time. Nuveen parent company TIAA’s initial investment in Churchill in 2015 was made to hedge against rising interest rates relative to its hefty pre-existing fixed income book.

    “(TIAA’s) CIO was very prescient about interest rates going up but we had to wait seven years for it to happen,” Randy Schwimmer, Churchill senior managing director, told ISN. “But when it did and started to everybody else started to wake up to the asset class.

    “I think Australia is now realising that it is performing as expected and the yield premium that we are getting, which is currently a 12 per cent all-in yield for senior debt, is waking people up to the fact that this is an asset class that’s very attractive… On the other hand we’re being very cautious to say that this current vintage – which we see as the best in a generation – won’t last, because we don’t believe the conditions that created it will last.”

    Lachlan Maddock

    Lachlan is editor of Investor Strategy News and has extensive experience covering institutional investment.

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