Australian superannuation funds are increasingly investing in private capital markets
As public markets shrink, giant super funds are looking to private capital to fill out their investment portfolios. What are the risks?
The value of the Australian superannuation system has more than doubled in the last ten years to $4.083 trillion. It is worth a trillion dollars more than the total value of the Australian Stock Exchange. The pool of superannuation assets invested in the ASX stands at 34.8% of the Exchange’s total market capitalisation; 23% in Apra-regulated super funds and the remainder in self-managed funds.
It would seem, however, that opportunities for investment in Australian public markets has been declining. Over the past decade there has been a decrease in initial public offerings and an increase in delistings. This is a trend observable in other Western countries including the UK, France and Canada and, in these cases, the decline is more pronounced than in Austrailia.
Part of the reason for this decline is an increase in the importance and size of private equity and debt markets. “Over the past decade, global private capital assets under management (AUM) have tripled to an estimated US$14.6 trillion.” At the same time private capital funds in Australia have tripled to $148.6billion. This trend is contributing to the decay of public markets as the growth of private capital makes it easier for companies to raise funds outside traditional public channels. Also, private sources of capital are not subject to the same regulatory and reporting requirements of listed companies making them easier and cheaper to administer.
These are the insights provided in a recent discussion paper released by ASIC (Australian Securities and Investment Commission) called Australia’s evolving capital markets. As private credit provision takes an increasingly important role in the economy it is essential to be clear about the risks associated with this type of finance. ASIC Chair Joe Delongo lists the challenges associated with the growth of private sources of capital:
However, they also carry different risks, including those related to illiquidity, leverage, conflicts and valuation uncertainty. The opacity of private markets poses a challenge for informed investor decision-making, and raises questions regarding appropriate regulatory oversight of these risks. This combination of risk factors is untested in historic stress scenarios making it critical that regulators and participants understand the associated risks. (Emphasis in original)1
For further details on the risks presented by exposure to private capital markets see the discussion paper.
The superannuation industry, representing the retirement savings of Australians, is increasingly holding investments in private capital markets on their books. This means that through their super, ordinary Australians are exposed to the risks of private capital listed above. According to APRA super funds allocated between 0% and 38% of their investment portfolio to private assets. For example:
The two largest funds – AustralianSuper and Australian Retirement Trust – have invested approximately 22% of their AUM in private assets. Approximately half of these private assets are international exposures. Both funds are most exposed to infrastructure assets. Many large superannuation funds have publicly indicated their intention to increase their exposure to private market assets.
One of the problems is the sheer scale of superannuation funds. As of this year 12% of the nation’s wages bill is paid into superfunds. As we’ve seen much of this money is parked on the Australian Stock Exchange which, in itself, can lead to overvaluation of stocks. For instance, the value of Australia’s stock market is highly concentrated in financial and resources companies. The big four banks alone account for 20 per cent of the value of the ASX200 which means that capital inflows from superfunds are more or less guaranteed. This routine investment by super companies increases demand for dominant bank stocks putting upward pressure on prices not neceasarily linked to company fundamentals like profitability. Furthermore, in the case of banks, artificially bouyed share prices feeds into increased lending, one effect of which is the further pumping of property prices.
The discussion paper highlights the importance of the shift to private capital as superannuation companies invest in these markets:
The size of Australian superannuation funds influence our capital markets and will likely drive the further growth of private markets, embedding them into the structure of our economy. With superannuation now one of the most important assets in a working Australian’s life, it underpins Australians’ wealth.
Recent comments by Blackrock CEO Larry Fink regarding Australia’s superannuation system One of the big theme’s in Fink’s annual letter to investors is that in order to fund infrastructure projects in the future, financially stretched governments are going to need to look beyond taxpayer contributions. “The future of infrastructure is public-private partnership”2 he writes. Part of this strategy includes the tapping of our superannuation system:
This will involve looking at the power of private markets to grow economies. Fink says while Australia has deep pools of capital sitting in its superannuation system, it isn’t being deployed significantly to back risk. 3
Australian superannuation has long been seen by govnernments and private companies as a pot of gold to be tapped for uses other than the retirement of Australians who contribute to it. In 2006 Wayne Swan said “that taxpayers’ superannuation should be used to pay for ‘social infrastructure – schools, hospitals, public housing, aged and child care.”4 This was not the deal. Super is the retirement savings of those who contribute to it. Australians did not sign up (if it can be said that we signed up to it at all) “to back risk” or prop up governments who won’t confront the structural dysfunction of debt economics. Given that ASIC is saying “At present, ASIC’s data and information gathering powers are inefficient and incomplete. We simply can’t do our job properly if we are in the dark”5 the continuing expansion of super funds into private capital markets seems totally inappropriate. If the size of funds makes it impossible to manage without undue risks why not provide an option for people to withdraw their super? Let them take their own risks.
Worst case scenario this is the first act in a sequence which will end in a massive transfer of wealth from ordinary Australians to international financial operators. We saw it in the GFC where superfunds were exposed to a class of “assets” called Collateralised Debt Obligations (CDOs). Members lost hundreds of millions of dollars. The point is it’s happened before and according to ASIC Chair Joe Longo it’ll happen again: “there will be more failures in private credit investments, and Australian investors will lose money. ASIC is increasing its focus on private credit…”
We should hope so.
ASIC. Feb 2025. Australia’s evolving capital markets: A discussion paper on the dynamics between publc and private markets. Available from: https://download.asic.gov.au/media/w0gp0xuy/australia-s-evolving-capital-markets-a-discussion-paper-on-the-dynamics-between-public-and-private-markets.pdf
Fink, L. 2024. Larry Fink’s 2024 Annual Chairman’s Letter to Investors. Availble from: https://www.blackrock.com/corporate/investor-relations/larry-fink-annual-chairmans-letter
Johnston, E. 21.2.25. Unlock the capital: The big themes from BlackRock boss Larry Fink’s next letter. The Australian. Available from: https://www.theaustralian.com.au/business/companies/unlock-the-capital-the-big-themes-from-blackrock-boss-larry-finks-next-letter/news-story/b7c1cf13e3ecadbc67a01d41dfcc43ea
Minister’s Treasury Portfolio. 2002. Labour still plans to spend your super. Availale from: https://ministers.treasury.gov.au/ministers/peter-dutton-2006/media-releases/labor-still-plans-spend-your-super
ASIC. 26.2.25. Advancing Australia’s regulatory roadmap for public and private capital markets. Available from: https://asic.gov.au/about-asic/news-centre/find-a-media-release/2025-releases/25-021mr-advancing-australia-s-regulatory-roadmap-for-public-and-private-capital-markets/