In focus

Australian private debt under Your Future, Your Super

The Australian Government’s Your Future, Your Super (YFYS) reforms came into effect on 1 July 2021, with all super funds subsequently receiving their initial pass or fail result. For those in both camps, the pressure to pass future tests remains extraordinarily high given the dire consequences of failure (i.e. closing their default MySuper option to new
members for those failing two years in a row). Every allocation in the portfolio must pull its weight in helping to surpass their respective asset class benchmark. This paper demonstrates that private debt may have benefits for fixed income portfolios under YFYS, most notably in its potential to outperform the respective YFYS public markets benchmark.

This paper explores the additional return drivers of private debt, including illiquidity and complexity premia and enhanced credit quality, and compares the performance of a simulated private debt portfolio against the YFYS benchmark. Under our assumptions, the simulated private debt portfolio would have provided an outperformance of over 4% p.a. against the YFYS benchmark over the past 19 years. Additionally, private debt may also provide improved enhancements not considered within this analysis, such as portfolio diversification, reduced volatility, and a greater focus on ESG and sustainable investing.

Click here to read the paper.

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