Uncovering the Top Tactics of Australian Small Pension Funds for Successful Investing

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Small pension funds in Australia are leveraging a range of tactics to achieve success with their investments.

This year, minor players in Australia’s A$3.3 trillion ($2.3 trillion) pensions industry have a double challenge: to outshine their competitors and grapple with stubborn inflation whilst navigating markets influenced by rate hikes.

As regulators require more mergers among smaller funds that have difficulty achieving profitable returns, some are performing better than others. They hunt for investments from private credit to property and infrastructure that won’t entice industry mega-funds, as they’re too small in size.

These successful funds have picked up on some key tactics to increase their returns and reduce their risks.

One of the effective tactics is diversification. With the aid of a financial adviser, smaller funds can access alternatives such as private debt, direct property and infrastructure that may not be accessible in the open market. By diversifying their investments across multiple asset classes, funds can reduce the risks associated with holding a single class and increase returns over time.

Small pension funds also have an advantage when it comes to skill. The smaller size of these funds allows them to react quickly to changing market conditions, allowing them to move into new opportunities that may only be available to a limited amount of funds.

“Small funds can move quickly to take advantage of emerging opportunities, like investing in private debt or direct property. This is a large tactic fund may not be able to do because of the size and complexity of their portfolios,” said Mark McPherson from the Australian Small Pension Fund Association.

Another tactic employed by successful Australian small pensions is leverage. Using leverage, funds can increase the size of their portfolios and achieve greater returns over time. This requires thoughtful consideration to ensure that risk is managed, but it can be a highly effective way to generate long-term profits.

“By using leverage, smaller funds can increase their returns on investments without taking on too much risk. This can be a powerful strategy for long-term and sustainable success,” says McPherson.

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