It is “vitally important” that Australian superannuation funds allocate more investment to the domestic private equity and venture capital industry, to help drive productivity and innovation, according to the Australian Private Equity and Venture Capital Association Limited (AVCAL).
AVCAL released its second round submission to the Financial System Inquiry on Tuesday.
In the submission, AVCAL points out that the amount of money Australian superannuation funds invest in domestic private equity and venture capital is just 1% of the total superannuation savings pool of $1.8 trillion.
That’s quite a small figure when compared to a market like the United States where the average allocation is close to 10%.
“One of the most significant challenges faced by the industry, however, is the decline in the supply of capital flowing to private equity and venture capital funds to be invested locally,” the submission says.
AVCAL chief executive Yasser El-Ansary says Australian businesses need access to venture capital and private equity as a source of growth funding.
“Australia is transitioning from its reliance on the resources and commodities sectors and into new high growth industry sectors where we can effectively compete in the globalised marketplace,” he says.
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“But to achieve that, we have to unlock more access to private long term capital. This is the reason why it’s critical for this inquiry to make a series of recommendations which improve the capacity of the financial system to back new investment into Australian businesses.”
In the submission AVCAL called on the inquiry to examine how policy settings can be tweaked to ensure “a more appropriate balance is struck between short and long-term investment strategies for superannuation funds”.
“Superannuation reporting and disclosure frameworks need to be designed to encourage a focus on members’ ultimate retirement income adequacy, rather than short-term returns or static fee metrics that are at best imperfect measures of the true cost of investment,” the submission says.
“Adopting such an approach will help to ensure that fund members frame their decisions on the metrics that are geared towards delivering the best outcomes for them in retirement, while driving economic activity that leads to increases in the standard of living and employment opportunities for future generations of Australians.
“This will not only help create a sustainable retirement income for all Australians, but by extension, provide a major economic pay-off to the nation as a whole through the efficient and effective distribution of capital to private businesses and growing sectors that would otherwise struggle to find funding.”