By Alice Uribe
SYDNEY–Large Australian pension funds are likely to hold most of their assets outside the country in the future, as they outgrow the local stock market and seek access to a wider array of investments, according to TMX Group Ltd., which owns the Toronto Stock Exchange.
John McKenzie, TMX Group chief executive, said the Canadian pension system has gone through a multi-year process of becoming more exposed to international markets, and that Australia will likely follow suit.
“Most of the large pension funds in Canada actually hold more assets outside Canada than inside. That’s a change of where they would have been 20 years ago,” he told The Wall Street Journal in an interview while visiting Australia.
“Our hypothesis…is that this is likely something that large Australian funds are going to need to do. There’s only so much you can invest domestically and there are international funds coming for those domestic investments as well.”
Australian pension assets totaled 3.3 trillion Australian dollars (US$2.19 trillion) in June, according to data from the Australian Prudential Regulatory Regulation Authority. For pension entities with more than four members, assets totaled A$2.4 trillion, with over A$2.1 trillion in investments. Of these, around 53% were equity investments, comprising almost 22% in Australian listed equities and 26% in international listed equities.
Mr. McKenzie’s visit coincides with a push to grow the company’s business globally, while also making the Canadian market more accessible to Australian institutional investors. TMX Group operates the Toronto Stock Exchange and derivatives exchange Montreal Exchange, among other businesses. It is currently the largest lister of mining companies in the world, but increasing technology company listings remains a priority.
During his time in Australia, Mr. McKenzie is meeting with domestic funds and investment managers to highlight how they can access the Canadian market in order to diversify their holdings.
“We want to make sure that as funds are looking to get more international assets…that Canada is on that radar screen. Not just what’s unique about us, or what’s different about us, but how you actually access us,” he said.
“If we don’t make it easy, then international managers will just buy in the States.”
TMX Group last year extended the Montreal Exhange’s trading hours, allowing investors in the Asia-Pacific region the ability to manage their exposure to Canadian markets and execute cross-market strategies in local time, almost 24 hours a day.
“The big global futures markets have done it already. We used to take more of the approach of ‘well, people will come to us.’ We can’t take that approach…we’re right next to the United States,” he said.
“For exchanges that have been doing it for a long time, they would have anywhere from 15%-30% of their volume of their business would actually come outside their own time zone. Today, we’re about 6%, and we’re going to keep pushing it, because we should be able to be even more international, given the interest in Canadian resources and some of the other businesses.”
TMX Group sees room for its futures market to grow in the Asia-Pacific region, where currently only 1%-2% of trading activity originates.
“That should be 15% of our activity. That’s the kind of success we’re looking for over time. We need to build those relationships and get people trading…that’s going to take time,” he said.
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