AustralianSuper ‘strongly committed’ to private equity despite $1.1bn hit

Despite a $1.1 billion hit, Australia's largest super fund says it remains “strongly committed” to private equity.

AustralianSuper has written off a $1.1 billion investment in Pluralsight, after the latter entered a restructure.

The fund invested in the US-based education software back in 2021 via private equity firm Vista Equity Partners, in which it is an investor, as well as acting as a co-underwriter in the take-private deal worth some U$S3.5 billion.

According to media reports, Vista and its co-investors put some US$4 billion into the firm, alongside providing over US$1 billion for debt financing.

As interest rates rose and market competitors threatened Pluralsight’s offering, the firm quickly deteriorated, with the situation culminating in the exit of Vista and AustralianSuper over the weekend, under a deal led by private credit lenders Blue Owl Capital and Ares Management.

Pluralsight, which was once said to be worth US$5 billion, is now valued at just US$900 million.

Speaking to InvestorDaily after The Australian Financial Review broke the news that the fund has written off over $1.1 billion in equity and loans tied to Pluralsight, AustralianSuper’s Mark Hargraves said the fund remains committed to private equity.

“AustralianSuper remains strongly committed to private equity as it has been the top-performing asset class over five and 10 years for the fund, delivering 10 per cent and 12 per cent, respectively, for members,” the head of international equities and private equity said.

According to Hargraves, AustraliaSuper is not intimidated by the asset’s higher risk profile.

“The higher risk/return profile for private equity is a characteristic of the asset class and we will continue to invest in private equity, venture capital and also the tech sector in general. These asset classes and the tech sector are strong value creators for members,” he said.

On Pluralsight, in particular, Hargraves said the asset was well supported by a range of major global investors, however, the impact of the COVID-19 pandemic, volatile macroeconomic conditions, rising interest rates and increasing competition combined to create a very challenging environment for the company.

“The combination of deteriorating sales revenue from US corporates due to cost-cutting and the increase in debt service costs due to higher interest rates led to a sharp deterioration in the company’s trading performance, triggering a restructure,” Hargraves said.

“Although these types of situations are rare, they can occur from time to time and serve to reinforce the benefit of a diversified portfolio.

“AustralianSuper has a rigorous ongoing valuation process, and this investment was continuously reviewed as part of that process.”

He added that the valuation has been fully accounted for, assuring “there will be no impact on members’ future earnings”.

Last week, the Australian Securities and Investments Commission (ASIC) announced it will prioritise reviewing the growth of Australia’s “opaque” private markets, with chair Joe Longo highlighting the heightened risk to market integrity as investor exposure increases.

“While Australia’s private markets are dwarfed in size by our listed equity markets, their opacity presents an outsized risk to market integrity, particularly as more investors become exposed,” the ASIC chair said on Thursday.

Earlier this month, a global survey revealed that private credit is gaining popularity among institutional investors, with sovereign wealth funds particularly capitalising on new lending opportunities.

Also this month, an analysis of capital commitment plans into alternatives over the next 12 months revealed private credit as the favourite among investors globally, with around half of investors noting they intend to increase their allocations to the asset class.

The private credit market stood at around $188 billion in Australia last year, according to recent projections from EY.