Super funds unlikely to expand corporate bond market

Despite progress in the corporate bond market, a panel of fund executives at the Association of Superannuation Funds of Australia (ASFA) investment conference last week cast doubt on super funds' ability or propensity to expand the market.

Mercer principal Sue Wang said that although expansion of the corporate bond market may be dependent on large investments, institutions could not ignore other more attractive and less expensive asset classes.

"I understand it's a chicken-and-egg thing, but we're also asking a question at a time when this sector may potentially be more expensive and may not be as attractive as other asset classes," she said.

The market still lacked diversification and opportunities in comparison with other markets around the world, which drove non-bank institutions to invest offshore — something that had not changed despite the listing of Commonwealth Government Securities, Wang said.

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Energy Industry Super investment manager Mary-Jane Fallon said the decision by the Government to prohibit super fund investment into high quality corporate bonds under new liquidity requirements was a failure of the local market and did not align with the Basel II requirements of other nations.

However, Metrics Credit Partners director Andrew Lockhart said the debate focused on the wrong issues.

"When you look at the breadth of opportunity that is available through the loan market which is maturely larger and diversified, there are investable opportunities available across the credit curve," he said.

"Not all investors will find that appealing, but the debate needs to move on from the development of the corporate bond market to saying is there a viable and functioning debt capital market in Australia, and how is the best way that people can participate in that market and are the returns and risk profiles appropriate for non-bank investors?"