How superannuation-powered venture capital should drive a post-COVID-19 recovery

| July 27, 2021

Superannuation funds could achieve higher returns and more responsible investments for their members by investing more in venture capital,  according to Stoic Venture Capital.

Stoic Venture Capital partner Dr Geoff Waring said that with long term liabilities, super funds have a competitive advantage over other investors in longer-term venture capital investments. In short-term oriented public equity markets where they currently invest most of their funds they don’t have such an advantage.

“Investing together could make these two complementary organisations the driving force behind Australia’s growing start-ups and contribute significantly to the recovery of the economy,” Dr Waring said.

It is a perfect match in an environment in which superannuation managers are under pressure to deliver members higher yields as the rigour around comparisons and rankings intensifies.

“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,” Dr 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.”

Better outcomes naturally evolve when the motivations of partners are in sync, Dr Waring said.

“Industry superannuation funds often have members from specific industries or locations (for example Energy Super) while venture capital funds similarly specialise in investing in the same or related industries or regions (for example a clean energy venture fund),” he said.

“Both are committed to the same vision – investing in the future of their industry and the community.”

Their shared, long-term objectives are another important reason for bringing more superannuation and venture capital funds together. Most superannuation fund members will not retire for decades.

“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,” Dr 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.”

Venture capital not only provides stronger returns for members, it also plays a greater role in improving our society. It is an impact investment.

“Start-ups which end up creating the most jobs, spring from corporations or universities that are focused on solving society’s biggest dilemmas in health, economic development and the environment.

“It’s a box that superannuation funds should offer to members to tick who are taking such factors more into account when selecting their investment allocations.”