‘Our plan is to roughly double the PE portfolio’

AustralianSuper, one of the fastest growing pension funds globally, wants private equity to play a larger role in its portfolio moving forward.

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The A$356 billion ($218.7 billion; €214 billion) institution is Australia’s largest superannuation fund. Between 2014 and 2024, its assets under management have grown at a 16 percent compound annual growth rate. And with one in seven working Australians relying on the superannuation fund to provide for their retirement, returns are a top priority.

It is within this context that Terry Charalambous, head of private equity and an 18-year veteran of the institution, has been tasked with scaling the behemoth’s private equity allocation. He is doing so from its New York office, which opened in 2021.

Charalambous is one of the speakers at PEI Group’s NEXUS 2025 conference in Orlando from 10-12 March. He’ll be speaking on day two of the conference in a conversation with Isabelle Scemama, global head of AXA IM Alts.

Private Equity International caught up with Charalambous ahead of the event to discuss the institution’s ambitious plans for its private equity portfolio.

AusSuper has grand plans for private equity. Can you outline how your portfolio is evolving?

The plan is to increase the allocation to private equity from roughly 5 percent of the balanced plan today to roughly 8 percent in the medium to long term.

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The private equity strategy [is] one of partnering with the world’s best private equity managers. We are highly selective in who we partner with; we have less than 20 private equity manager relationships globally. Most of those managers are based in the US. Our plan is to selectively add to that list of managers over time.

Another principle of our private equity strategy is that we seek partnerships with private equity managers with which we can invest at scale in their funds and also pursue co-investments and co-underwrites alongside them. We like co-investments and co-underwrites because it enables us to increase our exposure to high-quality investments on a no-fee, no-carried-interest basis.

It’s also important to mention that in addition to our private equity portfolio, the team is investing in other private asset classes such as infrastructure, real estate and credit.

Does this selectivity and scale mean you naturally gravitate towards household-name GPs? Are you precluded from investing in the mid-market?

We’re open to investing with managers in the mid-market as well as the large end of the market, though our size does mean smaller managers are going to be a smaller part of the portfolio. Outside Australia, most of our private equity portfolio is allocated to control buyouts, because these are more likely to generate co-investments and co-underwrites alongside their funds in high-quality investments. It plays to our strategy.

In a nutshell, what is your checklist for a potential new manager? Do you have any selection idiosyncrasies besides an impressive track record?

We look at a number of factors – not just track record, but really unpacking the drivers of that track record. We ask ourselves, ‘How do they make money?’ And implicit in that is whether we believe there is a consistent, repeatable and sustained capability to generate strong returns going forward.

Another question we ask ourselves is around alignment and focusing on incentives: the confidence that the GP is aligned with our capital and is motivated to generate strong returns for us as investors, both in their funds as well as in co-in investments and co-underwrites.

How significant is your appetite for co-investments in your decision to commit? Is it written in stone, for example, that you’ll have a one-to-one co-invest ratio, or are these discussions more informal?

It varies by manager. There is typically an express understanding going into a fund commitment that it will be part of a broader strategic relationship, and that express understanding can take the form of verbal or written commitments. We strive to be one of the first calls that our private equity partners make when they’re looking for a co-investment or a co-underwrite partner.

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Our scale and growth means we are able to make sizable commitments to their funds and also form relationships that should scale over time as we grow our portfolio. We have strong investment capabilities that enable us to execute efficiently and diligently alongside the private equity partners.

To what extent has today’s difficult exit environment impacted your own ability to deploy?

We certainly have an appetite to deploy capital and have had an appetite for some time. Our plan is to roughly double the private equity portfolio over the next three years, from roughly A$17 billion today to over A$30 billion in three years. That will require us to deploy over A$6 billion per annum for the foreseeable future across funds, co-investments and co-underwrites.

We’re less concerned about money coming back to us. The fund is growing, and we’re starting from a point where we want to increase our asset allocation to private equity at the same time as having a strong tailwind of a growing denominator.

We have seen a pick-up probably since the start of September in terms of transaction activity. In the fourth quarter of 2024, we deployed roughly A$1 billion across six co-investments based in the US and Western Europe. We’ve been pleased with the momentum that we’ve seen in transaction activity over recent months, and we’re relatively optimistic that that momentum will continue into 2025.

There’s been an increasing number of GPs seeking alternative paths to liquidity of late, whether it be NAV loans that are used specifically for distributions, or continuation funds. What will be your stance if and when these happen within your portfolio?

We’ll assess those situations on a case-by-case basis. We have participated in continuation funds from time to time, assessing them on their merits and forming a view as to whether we think the return outlook justifies continuing to remain invested.

We’re certainly not a stressed seller. We’re under no pressure to seek liquidity for liquidity’s sake. If we think the outlook for the investment and return expectations are attractive, then we’ll roll. That’s typically been the case.

Charalambous will be a featured speaker at PEI’s NEXUS 2025 conference. Interested in LPs? PEI’s NEXUS 2025 private equity conference in March will feature an extensive line-up of GPs, LPs and content.