(Bloomberg) — Insignia Financial Ltd.'s pension business is in the final stages of appointing external managers to deploy billions of dollars in global private credit markets.
The unit, which oversees about A$180 billion ($121 billion) of retirement savings across a range of funds, will increase its global private credit allocation to 3% to 5% of its portfolio in the year future, from the current distribution of near zero. The fund is mainly looking for deals in the US and Europe, said MLC Asset Management chief investment officer Dan Farmer, who manages most of the money in Insignia's pensions business. MLC is part of Insignia Financial Group.
Private lending has surged in recent years, filling a gap after banks backed away from some risky lending because of tightening rules. Growth has been driven by strong demand from investors such as endowments, insurers and superannuation funds, including Australia's $3.9 trillion superannuation industry, which is increasingly looking overseas for investment opportunities.
“There's been a lot of capital in that space,” Farmer said. “We see an opportunity, but we think we have to be very selective and invest and choose our managers very, very carefully.” The fund has already had success in Australian private credit, where the allocation remains around 5% to 6%, he said.
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Some of Australia's biggest superannuation funds, including A$285bn Superannuation and A$150bn pension and wealth manager First Colonial, are among those doing similar goes to private loans. Rest, meanwhile, is more cautious and is seeking US$85 billion elsewhere for the possibilities due to the large flows in the area.
Rival wealth and pensions manager AMP Ltd. recently raised exposure to private credit, head of portfolio management Stuart Eliot said in an interview. It sits within AMP's diversified loan portfolio, which is around 6% to 7% of the total portfolio.
“Around March or April we did our first international allocation and that was a mix of credit risk allocation and a more opportunistic strategy,” Eliot said.
The farmer said he was aware of the competition.
“Yes, there is capital flowing, but there is also capital withdrawn,” said Farmer. “So that balance is not messed with.”
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