Superannuation funds that invest in venture capital could have a greater advantage in achieving higher returns for their members as opposed to investments with a short-term focus on equity markets, according to an investment company.
Stoic Venture Capital partner Geoff Waring noted superannuation funds that have long-term investment goals were a good match for venture capital investments operating within similar time frames.
“The longer-term nature of super funds’ liabilities and investment strategies means they don’t mind the short-term illiquidity of venture capital and have the patience required to capture the high returns of new technology from research and development,” Waring said.
“The short-term-oriented public equity markets punish the valuations of companies investing in technology innovations with long timelines, so superannuation-backed venture capital funds are better owners of these companies.”
The early-stage investment company pointed out that given a majority of members within a superannuation fund do not plan to retire until decades into the future, long-term objectives are a more suitable and reliable option.
In addition, the economic instability that occurred due to coronavirus has placed many superannuation managers under pressure as the need to deliver high yields to members has increased.
“What many super funds don’t understand is that the highest-performing venture capital funds typically far outdo the high performers in other asset classes, including the better stock market and property fund managers,” Waring said.
“Selecting the best venture capital manager will put super funds ahead of their competitors much more effectively than less differentiated assets, such as bonds or property, that have a smaller variance in performance,” he said.
He also said incorporating venture capital and liabilities into a member’s investment portfolio could contribute to the economy’s recovery and support Australian start-up companies focusing on social issues, including health, the economy and the environment, and also creating more employment opportunities.
