Global view

Australian share investors will soon be forced to look harder in overseas markets for value in equities. In today's video interview David Deverall, the managing director of Perpetual Investments explains how his group is preparing for the change.

The interview

David Deverall: Australian super at the moment is around about a pool of $1 trillion, which is a thousand billion dollars and we expect that to grow to roughly $2.5 trillion over about the next 10 years.

Robert Gottliebsen: Will we invest differently to today?

Yeah, our investments are always evolving and the change that’s occurring at the moment is increasing propensity to invest in global asset classes and also an increase in propensity to invest in what we call alternative investments, be it private equity, infrastructure, direct property. So a combination of more offshore and more into alternative investments will be the trend over the next 10 years.

David, Perpetual is known for its Australian share strategy. Will this change affect you adversely?

Perpetual has been a very, very successful part of our story for the past 10 years and we expect that to continue but we are moving into other asset classes, be it global equities, be it into some of the illiquid or alternative investments that will position us for this future growth in superannuation.

Among the alternate investments where does private equity stand?

Well private equity is one of a range of alternative assets. It tends to be a riskier form of investment. In other words, you could make good returns but you could also make poor returns and also it’s an illiquid investment. So you put your money in but you don’t necessarily get your money out straight away, unlike a normal share security. So we think private equity will play a role in most Australian’s financial requirements going forward, but a relatively minor role given the fact that it is a bit riskier and also illiquid.

David, are you concerned that private equity takeovers will mop up 25 to 50 of our best companies?

Well, it depends exactly how that’s going to play out, Robert, but the trend will be under that type of scenario, that with more money going offshore, then an organisation such as Perpetual wants to be positioning itself that as the market becomes increasingly globalised we’re part of that trend.

Is there a large amount available for infrastructure investment, and what’s holding it back?

The amount of money that we’re talking about in superannuation going forward is going to be upwards of around about $2–2.5 trillion over the next 10 years. That’s a massive amount of money and that money is looking for a good home to go to. So if an infrastructure investment opportunity comes along where the returns look sound, that the regulatory environment under which the asset that’s going to be managed looks sound, then the money will find a home in that infrastructure investment for sure.

Have we been getting it wrong in infrastructure?

I think some parts we’ve been getting absolutely right. I think we’ve done it very well in toll roads. I think in some other parts of the infrastructure asset classes, there’s some room for improvement. Some rail links haven’t quite been appropriate. Some electricity assets as well have been '¦ it’s been a little bit unclear as to the exact nature of the regulatory environment, and I think they’re the things that we can improve on.

David, you rely on financial planners who are often associated with rivals like the AMP or AXA or Colonial? Is this a bit risky?

Well AMP, AXA, Colonial First State – they’re all our best clients, and so what we do is we work very closely with the financial planners in those organisations. We don’t think it’s risky. We think it’s good business.

David do you see big changes in financial planning?

I think financial planning will really professionalise in a significant way over the next 10 years. I think as part of that fee disclosure, transparency, the full understanding of what it is that financial planners provide, a very clear definition of what a good quality product looks like versus a poor quality piece of financial advice – they’ll become much, much clearer in the years ahead. So I expect to see significant changes in the financial planning community over the next 10 years.

You have about half the housing loan securitisation market. Where does the money come from?

The demand is there; it’s just the issue of the supply. So how many Australians are there looking to get home loans? What percentage with the banks in Australia, what percentage of their loans are they wanting to get off their own balance sheet versus having them through the securitisation market? So they’re the sort of constraints that we’ve got there, but the demand is very significant.

Perpetual profits have grown about 15–20% over the past five years. Can you keep that up?

We think so. The rate of growth I’m a little bit unsure of, because it requires the crystal ball, but in terms of the need for a relatively light amount of capital, that’s part of the Perpetual business model.

Robert Gottliebsen is a national business commentator with The Australian.