Greater Risk = Potential Greater Returns for Aussie Super Funds

In June, it was reported that the Australian superannuation fund Hostplus invested $USD125 million (AUD$181 million) into Boston-based Safar Partners.

The Australian Financial Review article noted the Safar Partners fund “backs commercialisation of science and technology at three leading US universities ….. and claims deep links with the laboratories of Massachussetts Institute of Technology (MIT), Harvard University and University of Rochester.”

From reading this, Safar Partners looks to be a fund of funds structure.

It is a positive sign for hard working Aussies having some of their retirement savings being put to work in investments driving technology innovation at leading US tech institutions like MIT.  Side note: if you’re visiting Cambridge in Massachusetts, be sure to visit the MIT Museum.. It’s amazing.

What other Australian superfunds should learn from Hostplus is by investing into US universities, they are looking at venture capital  beyond the normal Series A, B, C round venture capital 6-10 year fund lifecycle.

It is visionary that Sam Sicilia and Neil Stanford at Hostplus have looked at their fund member cohort  (average aged of Hostplus  1.2 million members is 34) and matched it to the longer term horizon of return of capital coming from early stage investments in technologies being developed at Universities.

Frequency Ventures has introduced and set up meetings for Australian superfunds with US venture capital funds in the Bay Area (Silicon Valley) which  these typically have a 6-10 year fund lifecycle.

The model early stage US venture capital funds work to is that while about 1/3 of the capital raised will be invested in 2-3 years with a following 1/3 of capital invested in the subsequent 4-6 years in follow on Series A, B, C rounds, superfunds like Hostplus also want 10 to 15+ year time investment horizons – that match their cohort retirement ages when  retiring members want to start cashing out their super. 1/3 of capital in VC is saved for maintaining pro rata for very successful investments and for bailing out portfolio companies that are struggling.

It’s all about the expected lifecycle of return.  “Going early” and investing into tech being developed in labs at Universities has more risk as technologies are often undefined in university labs and use cases too early to wrap around an embryonic technology research and development process.

It’s good to see Hostplus taking a long term view and not relying on short sighted asset consultants.

MIT has an impressive record of significant innovators and inventions and if you are wondering which is the most successful University cranking out money machines then counting all degrees, Harvard University is the #1 US College by alumni who have created the highest amount of net wealth.