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Australian pension funds likely to outgrow domestic market, says TMX CEO – Interview

By Alice Uribe

SYDNEY–Big Australian pension funds are likely to keep most of their wealth outside the country going forward as they outgrow the local stock market and seek access to a broader range of investments, according to TMX Group Ltd., which owns the Toronto Stock Exchange.

TMX Group chief executive John McKenzie said Canada’s pension system has been through a multi-year process of increasing exposure to international markets and Australia is likely to follow.

“In fact, most large pension funds in Canada hold more assets outside Canada than inside Canada. That’s a change from where it was 20 years ago,” he told the Wall Street Journal in an interview during a visit to Australia.

“Our hypothesis is that this is likely something that large Australian funds need to do. There is only a limited amount you can invest domestically, and international funds are also coming for those domestic investments.”

Australia’s pension wealth totaled A$3.3 trillion (US$2.19 trillion) in June, according to data from Australia’s Prudential Regulatory Regulation Authority. For pension schemes with more than four members, assets totaled A$2.4 trillion, with over A$2.1 trillion in investments. Of this, around 53% was equity investments, with almost 22% in Australian listed shares and 26% in international listed shares.

Mr. McKenzie’s visit coincides with an effort to expand the Company’s business globally while making the Canadian market more accessible to Australian institutional investors. The TMX Group operates the Toronto Stock Exchange and the Montreal Exchange, among others. It is currently the world’s largest listing of mining companies, but boosting the listings of technology companies remains a priority.

During his time in Australia, Mr. McKenzie meets with local funds and investment managers to discuss how they can access the Canadian market to diversify their holdings.

“We want to make sure Canada is on that radar screen as funds look for more international assets. Not just what’s unique or different about us, but how you actually access us,” he said.

“If we don’t make it easy for ourselves, international managers will simply buy in the States.”

TMX Group extended trading hours on the Montreal Exhange last year, giving investors in the Asia-Pacific region the ability to manage their exposure to Canadian markets and execute cross-market strategies in local time nearly 24 hours a day.

“The major global futures markets have already done so. We can’t take that approach…we’re right next to the United States,” he said.

“Exchanges that have been doing this for a long time would actually generate between 15% and 30% of their business volume outside of their own time zone. Today we’re about 6%, and we’re going to keep pushing it because given the interest in Canadian resources and some other companies, we should be able to go even more international.”

TMX Group sees growth potential for its futures market in Asia Pacific, where only 1% to 2% of trading activity currently originates.

“That should be 15% of our activity. That’s the kind of success we’re looking for over time. We have to build those relationships and get people to act… it’s going to take time,” he said.

Write to Alice Uribe at [email protected]

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