Australian Super loses a billion on a dud investment but is that a problem?

Peter Switzer
27 August 2024

It doesn’t sound great when it’s reported that Australian Super has lost $1 billion on an investment! And to the untrained, hearing the industry super fund’s chief investment officer say he will triple down on the kind of investment that went wrong, would have to be a worry.

However, the worry would be largely misplaced.

Sure, it would be better if the fund that has the money of 3 million members invested for their retirement didn’t have too many dud investments like this one, but losing a billion when you manage $341 billion is an occupational hazard when you become as big as Australian Super.

To put a $1 billion loss into perspective, if you had a million in your self-managed super fund and you invested the equivalent amount as Australian Super did in a mining company that’s share price fell and then it closed, you might have lost $3,000. Meanwhile your other investments might have made you 8%, which industry super funds can average (see chart above), meaning all up you made $80,000 in total.

This is what you’d call an objective assessment of this billion dollar loss but subjectively, if you’re a member of Australian Super, knowing that its chief investment officer, Mark Delaney, told the AFR that he intends to triple the fund’s investment in what is called private equity could be a worry.

You see, this fund is so big it can’t just invest in local stocks. It has to invest overseas in stocks, bonds, property, businesses and private equity. And it would invest in local property and businesses.

Cbus, a rival industry super fund is often seen as a big funder of massive building projects in our capital cities and the profits of these developments are meant to roll into its members returns. The members of the CFMEU have their super in Cbus.

So, what is private equity? Here’s a neat explanation from Businessinsider.com:

  1. Private equity involves investing in businesses or funds not listed on public stock exchanges.
  2. Private equity investments offer high returns but are illiquid and have high minimums.
  3. Traditional private equity is only open to the wealthy, but newer forms are available to smaller investors.

In Australian Super’s case, the AFR’s Paul Smith explained that the fund wore “…a loss of $US757 million on Pluralsight, a Utah-based video training firm once valued at more than US$5 billion. Australian Super is an investor in Vista Equity Partners and was co-underwriter alongside the Texan private equity firm in a $US3.5 billion take-private deal for Pluralsight at the end of 2020.

“At the weekend, Vista and Australian Super walked away from Pluralsight as its debts spiralled, leaving the company in the hands of lenders led by Blue Owl Capital and Ares Management.”

However, despite this billion dollar dud investment, Delaney says his fund will triple its commitment to these sorts of investments because of the high returns on offer. In fact, it’s involved in 43 private equity plays. In many ways, private equity backs potentially great businesses. And because industry super funds can’t just buy or sell $10 billion worth of CBA shares without shocking the stock market, private equity and industry super funds need each other.

All that Australian Super fund members can hope for is that Delaney doesn’t have too many Pluralsight dud investments.

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