Global debt funds set up Aussie shops as S$2.5t calls

SYDNEY (BLOOMBERG) - More global fund managers are setting up shop in Australia, drawn to the nation's A$2.3 trillion (S$2.45 trillion) pension savings pool and new local investment opportunities.

THL Credit, an alternative credit manager based in Boston, said in September that it hired a director in Australia. New York-based credit hedge fund GoldenTree Asset Management opened an office in Sydney last month after appointing a local managing director. Oaktree Capital Management, which already manages Australian pension money, headed Down Under last year as it also sought local investments.

The developments are part of a broader global trend as low interest rates in North America, Europe and Asia prompt money managers to increasingly seek assets they had previously seen as too risky. There are also uniquely Australian factors. The world's fourth-largest pension pool is swelling due to mandatory retirement saving rules. Many Aussie funds have little choice but to seek overseas investments as well as alternative assets as they outgrow local equity and corporate bond markets.

THL sees the Australian pension market as an opportunity, according to Michael Backwell, director of THL Credit in Australia.

"Capital markets in Australia are also relatively small compared to a country like the US," he said. "And that naturally means funds should potentially be invested offshore."

Australia's US$1.3 trillion stock market is about the same size it was 10 years ago, yet pension assets have more than doubled in the same period. Around 41 per cent of new investment deals struck by Australian pensions this year have involved alternative money managers, rising from 31 per cent last year, according to Rainmaker Information Pty.

The nation's top performing pension fund over the past five years, Host-Plus Pty, invests 40 per cent of its A$26 billion portfolio in assets such as infrastructure, hedge funds and private equity. The superannuation fund is ready to pour more money into alternatives when the right opportunities arise, said chief investment officer Sam Sicilia.

"When super funds are small they invest locally but as they grow in size, it's natural that they go global and diversify their assets," he said.

Near-zero interest rates at central banks from Tokyo to Frankfurt have pushed more pension funds to seek alternative investments. Japanese retirement savings managers have become eager buyers of private real estate trusts. Europe's leveraged-loan market has been fueled in part by pension and insurance firms. Canada's public pension funds, among the world's biggest, are piling on risk with leveraged bets, according to Moody's Investors Service.

Many funds are now setting up to be closer to where the assets are, said Michael Gallagher, Australia general manager at the Alternative Investment Management Association (Aima).

Aima, which represents local and global alternative money managers in Australia, has seen its ranks double to 120 members in the past three years, Mr Gallagher said.