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Investing in Australia’s Future
Hi, everyone. Welcome back to Voice of Super, ASFA's podcast by the super sector for the super sector. I'm so delighted to bring you a very special guest today because we're recording this episode a week after the treasurer's investor roundtable and just ahead of the treasurer's productivity roundtable or economic reform roundtable, which will run from the nineteenth to the August 21 and as for will be representing the super sector on the nineteenth. But both of those events have have sharpened the national focus on how Australia can boost productivity and really ensure that investment is flowing into sectors that will drive long term economic reform. So our guest today is the very delightful Jason Collins who leads BlackRock's business in Australasia.
Mary Delahunty:BlackRock invests around $280,000,000,000 in Australia. I always have to check that I've said that rather, since, like, that's an enormous number. Most of that capital comes from overseas, and so you bring quite a global perspective on what it will take to attract more of that investment here, and I think we can explore that today and how Super can be part of the solution to the productivity question in Australia. Jason, it's very good to see you.
Jason Collins:Thanks for having me.
Mary Delahunty:So I've got, pages and pages of notes that we're going to attempt to get through in some extraordinary amount of short time. So but let's start with what we all wanna hear about. Your, founder, Larry Fink, is on record as being a huge fan of Australia's superannuation system. And so can you tell us about the dialogue that you two have about super and and and how that shapes out in BlackRock?
Jason Collins:Yeah. Larry's, you know, pretty outspoken on the issue of retirement globally. More than 50% of the assets we manage on behalf of our clients is retirement money. He writes to, CEOs and chairman every year. A few years back, he highlighted the Australian retirement system in one of those letters.
Jason Collins:He said that Australia's the fifty fourth most populous nation in the world, and it has the fourth largest savings pool. Actually, we're the thirteenth largest economy in the world as well, so we bat above our weight from a population point of view. Clearly, the super system is the output of some fantastic policy decisions over the past few decades. And, you know, he uses it as an example of what can be achieved in retirement. Globally, now, one in eleven people are 65, but by 02/1950, one in six people will be 65.
Jason Collins:So this is a global issue that he's facing into when he thinks Australia is a guiding light.
Mary Delahunty:That's it. It's It's good news to hear, but it's quite a challenge too, isn't it? And then so you've been in funds management for a while. We were talking before we turned the mics on about earlier stages of your career, but in that funds management space, tell us about how the relationship between the fund manager and those providers of retirement services, or more the super funds but the pension funds, how's that, looking at the moment? What are your observations?
Mary Delahunty:Yeah.
Jason Collins:I joined BlackRock twelve years ago, just over twelve years ago, and at that time, I think there were nearly 400 AFRA regulated funds.
Mary Delahunty:Yeah. Wow.
Jason Collins:And today, I think it's what? Under a 100? You look at the top 10 funds. If you strip out self money super, the top 10 funds are probably 50%, of the assets. There's two funds that are actually getting more than 50% of the net industry flows at the moment.
Jason Collins:So the dynamics have changed enormously. The level of insourcing has increased a lot. So super funds have become asset managers, and, think it's anywhere between 30 to 70%, for some of the larger funds in terms of the amount of, the amount of asset management they're doing in house. So the relationship certainly changed. I think, the work that went on following the productivity commission, the benchmarking process was directionally 100% correct.
Jason Collins:And, you know, the the the notion of super, as we all know, and I'm speaking as an Australian now, as a as a BlackRock employee, but as an Australian, is to ensure that the government's balance sheet is in a good state and super is an insulation point. So the process of consolidation, the process of internalization, has been very important. It has changed the way that asset managers interact with super funds. For us, I think we're in a bit of a unique situation because, we have an end to end offering. We call ourselves a platform as a service.
Jason Collins:So we do work across all asset classes. We're a technology business. We're a data business. And I think when I started, most of my job was was selling BlackRock to Australian super funds. Yeah.
Jason Collins:But today, a lot of the job, not all of it, but a lot of the job is selling Australia to BlackRock. And, you know, we we as you said before, we invest, about $280,000,000,000 into Australia's capital markets, public and private, on behalf of our global investors. 80% of that's, as you said, sourced from offshore. And and so what what's happening now is we are certainly partnering with super funds, trying to crowdsource, really, funding for critical projects. In the past, I think we were more of a supplier, but today, certainly, we are seen as a peer organization and as a partner, and, I think that's a that's a positive if you look at the national priorities at the moment.
Mary Delahunty:Yeah. I think that's that would be right from my observation as well. Was inside a fund when the dynamics started to change and there was more internal capability being built, you could see how the, I guess, the more advanced and the more strategic consultants and asset managers and fund managers were able to really pivot and provide services that were still really needed by Australian funds.
Jason Collins:I think as they set up internalization functions, internal asset management functions, trading desks as well, there's a need to upgrade technology. Yeah. There's a need for better data. There's a need to to trade instruments to make sure your asset allocation's working, you're managing your cash flows. And, you know, for us, it's actually we've been able to work in that environment.
Jason Collins:We have a a a technology platform that a lot that a lot of the super funds are using at the moment to to manage their asset management teams. And, so, yeah, it's changed enormously over the past ten well, thirteen years, but actually the last five years, our level of acceleration has been extraordinary.
Mary Delahunty:Yeah. I think that's probably right. The the internal load too that's carried by those investment ops teams, like the data, goes a little bit unnoticed I think from outside the sector, doesn't it? But you'll be able to see when you're dealing with funds that you've kind of got those two distinct client bases as well and the internal uplift, the capability build that's gone into investment teams, people are kind of aware about. The capability build that's gone into investment ops has been equally exponential.
Jason Collins:Enormous. Yeah. Enormous. Yeah. Some of these, projects where you're bringing on board a technology provider Yeah.
Jason Collins:They can be year long processes.
Mary Delahunty:So let's talk about productivity because that's if you don't say that word a few times in a podcast, it might be just cancelled. So everyone's got to talk about it. From your perspective, you're bringing in international capital, you're dealing with the capital pools in Australia as well. Which sectors in Australia most need that investment to unlock productivity?
Jason Collins:Yeah. So I think, without a doubt, I'd say infrastructure. And the I mean, the quantum of capital needed for, national priorities, it could be, AI. It could be, it could be the transition of net zero.
Mary Delahunty:Yeah.
Jason Collins:It could be, you know, regionalisation. The quantum of capital actually breaks traditional finance models because the the demand for capital far exceeds the traditional sources of capital as we know them. Yep. And the traditional sources are, of course, government
Mary Delahunty:Yeah.
Jason Collins:And banks. And, if you look at, government debt to GDP around the world, it's around 90%. Now Australia's actually quite good. I think it's around 40%. Yeah.
Jason Collins:But, you've got aging populations. You've got in Australia a tax base, or or a revenue base really reliant on personal income tax. And so if you fast forward, and you and and I think there's a forecast for deficits for the next five years, so that debt to GDP level will probably increase, at a time when capital is really needed to build out the capabilities that are required in a changing world. So, so infrastructure is a key component part of that, and policy settings around infrastructure, really matter.
Mary Delahunty:I've been having a really inarticulate conversation with because I just can't find the words for it, but I think you may have, where it's just because there's no model, that exists about how we seem to be having that infrastructure conversation or the need for funding at too low a level given the pools of capital that we have available. So we good and really lively conversations, in my opinion, about start ups and about how to fund, you know, early stage and where climate tech could be and everything. We have good good investors and probably international ones, but I'd love your opinion on that, competing for well established assets. And then we seem to have a missing conversation about how we take on and find the product for really big lumpy infrastructure projects in what might be, let's say, the energy transition. So I don't know.
Mary Delahunty:Is that am I right in that theory? Like, I feel like we need to to come at it from the top. We've got investors that are ready to the capital there, ready for for good lumpy, investment opportunities. Yeah.
Jason Collins:Mean, there is, there is pools of capital around the world, whether it be sovereign funds, retirement schemes, in Australia, massive retirement. Think there are pools of capital that are certainly looking for opportunities in infrastructure. And, and, you know, it comes down to a risk return scenario and the policy settings to enable that. I mean, I'm really sanguine about our ability as a as a nation to to meet these needs. But, you know, I was I was reading the other day that, you know, a large data center can cost, you know, $40 to 50 billion US.
Jason Collins:You know, that's just such an extraordinary amount of money. It's enormous. So you've got to crowd in capital Yeah. In as many ways possible, and that can come from the super sector. It can come from offshore sovereigns, offshore pension schemes.
Jason Collins:And actually, you know, retail investors around the world, which don't have a lot of access to private markets as it stands.
Mary Delahunty:The other opportunity in front of us is in a different, vein, I suppose. We've got a a lot of discussion about retirement. It's just every time someone says productivity, someone else says retirement. So, let's let's talk about your partnership with Generation Life and what that means.
Jason Collins:Yeah. We we were watching policy for a long time. We saw the government's moves around, making sure that, there was an income solution for funds. You know, everyone knows the stats 10% of the population hits 65 in the next decade. And we were very, developed with, decimulation solutions in The US, but we couldn't really crack the code here.
Jason Collins:The tax system's very complex. Super's complex. Social security is complex. We knew we couldn't organically build that, in Australia. So we're thinking about ways to best bring in some of our thought leadership into the local market.
Jason Collins:We we looked around. Generation Development Group has a subsidiary, Generation Life. Generation Life, is an issue of annuities, investment bonds. We we had a conviction in their strategy. We knew them because we were an asset management partner as well, and we just decided the best way to try and bring in, some expertise in a really fluid area of policy right now was, to form a partnership as opposed to developing something organically.
Mary Delahunty:It's it's such an interesting because it's been such a kind of, I don't know, underdeveloped market, but people have tried to to crack this code before. I think all the all the parts are moving together a little bit better now. Do you reckon Australia's ready for
Jason Collins:something? I think look, I think it's a bit of a secret source of BlackRock as a organization. We are very conscious of local environments, and we were never gonna import something that wasn't fit for purpose. And I think there's been a few false starts, but, you know, it's it's had a really positive reception. There's work to do still.
Jason Collins:The idea, obviously, is we don't look across our shoulders at competitors. We're trying to grow the pie. Right? And the and the government wants to do that as well. And it's important that retirement when people, accumulate all this money, they get to retirement stage, that money can be spent with confidence.
Jason Collins:That's good for the economy.
Mary Delahunty:Yes.
Jason Collins:And and, and with the wave of people moving into retirement age, it's gonna be really important.
Mary Delahunty:Yeah. It does feel like the right time too because you've got people retiring with their super balances more meaningful than they have been before because of their lifetime of accumulation. So hopefully that's the the other setting that was missing from this to to really build a proper marketplace here as well. Yeah. And then we need, I guess, some sort of cultural understanding of what it means to have an annuity based, product in your mix.
Mary Delahunty:Yes. Because that's not a conversation we've had in
Jason Collins:a space. It's complex and it's technical. Yeah. In The US, we've got this thing called life path paycheck, which is an education process leading into retirement age.
Mary Delahunty:Alright.
Jason Collins:And so it's part of the asset allocation. So you're actually well trained to understand what it's about before you get to the point of retirement. And then you can have a pretty seamless transition from that accumulation phase to decumulation. So that's the nirvana. That's what we're trying to sort of solve for.
Jason Collins:And, you know, I think there's good organisations in Australia now that are doing that in the retirement space as well. Yes. And if we can contribute to the to the fabric of it, that'll be that's that's the aim.
Mary Delahunty:So, Jason, a key part to this podcast, is to ignore the wild gesticulation from behind the scenes there that tells us we're at time because there's just one more topic I'd really like for you to run through, and that is your thoughts on private markets. So I know that earlier, this year, you've participated in an ASIC public private market symposium, brought together a number of players in this space, and BlackRock has, an incredible amount to offer in the conversation. Where do you think it's going?
Jason Collins:I think it was a really important body of work that ASIC did. The discussion paper is an incredible read. In some ways, what's happening in Australia mirrors what's happening globally. You know, public markets, the number of companies listed is decreasing. The amount of capital raised, in IPOs, in Australia, is not keeping the momentum of previous years.
Jason Collins:And, and public markets are such a great democratizing force.
Mary Delahunty:Yes.
Jason Collins:You know, you can't access private markets today in the, you know, in the way that you can access public markets. Hopefully, one day you can. So it's a really important body of work. BlackRock, has a really large private markets business now. Over the last eighteen months, we've acquired a couple of businesses globally.
Jason Collins:One of them is Global Infrastructure Partners. Another one is HBS, a big private credit business, PreQin, a data business, which is related to private markets. And Global Infrastructure Partners and HBS in particular, are quite meaningful investors into Australia in infrastructure and private credit. More than half of our investment team now, people will be surprised to know this, in Australia, is either infrastructure or private debt or private equity in real estate. So
Mary Delahunty:That's a change, isn't it?
Jason Collins:That's a yeah. It is. It is. And, I I, I think the main focus of ASIC has been around the suitability of, of product to retail investors.
Mary Delahunty:Yes.
Jason Collins:So that's a consideration. But understanding the dynamics is so important to policy, to crowdsource capital. And, you know, it's not a matter of private or public. It's a matter of elevating both because of this thing we spoke about before, the, mismatch between the demand for capital and traditional sources. So a really timely body of work.
Jason Collins:I'm really pleased that we could participate. And we are also working on the policy side, replying to discussion papers, making submissions to treasury and the like.
Mary Delahunty:Yeah. We had a long we had long conversations with ASIC over that body of work as well. It's so good to see the regulator get in front of what we know to be a growing retail attraction to a product that needs some good good regulation around it and yeah. Good piece of work. Well, we have had a flyby tour of all of the topics that are hot in super at the moment, and there are many more.
Mary Delahunty:For any other hot topics, this is your podcast. This is supposed to be. So, thanks for listening. Thanks for joining us today, Jason. And this is ASFA, Voice of Super.
Mary Delahunty:If you would like to subscribe, you can get all of those episodes delivered to you in some meaningful way. Thanks very much. See you next time.