POWERED BY MOMENTUM MEDIA
Regulators eye super’s expanding influence
Super funds are flocking to private markets for diversification, but their rapid growth and increasing complexity are raising significant concerns for regulators.
As superannuation funds allocate larger portions of their portfolios to unlisted assets, the trend is catching the attention of regulatory bodies.
At ASIC’s Annual Forum last week, Michael Dwyer, chairperson of TCorp and former CEO of First State Super (now Aware Super), highlighted the allure of private markets, saying: “The purity of the investment process makes private markets attractive to institutions.”
With 22 per cent of TCorp’s $110 billion already invested in private markets, Dwyer revealed the firm’s target of reaching 30 per cent. He also predicted that most industry funds will set their sights on the same goal.
“If you buy the ASX, you’re buying bankers and miners. It’s heavily concentrated, and therefore risk is a big factor,” he said.
“The private market gives you less volatility, there’s lots of volatility in the public markets. The US sneezes and we catch a cold. It’s nothing to do with valuation, but how intrinsically linked we are to world markets.”
But the surge into private assets is triggering scrutiny from regulators.
Also speaking at the forum, ASIC commissioner Simone Constant said that superannuation funds are increasingly pouring up to 25 per cent of their portfolios into unlisted assets, particularly private credit.
“We’re beyond the questions. We do think there is something happening here. It’s important for us to look at this,” she said, highlighting the regulator’s growing concerns.
Constant said that the explosive growth of areas like private credit, which has tripled in recent years, is particularly concerning.
“What does that mean when you’ve got retail coming into parts of private credit, but super in other parts of private credit?” Constant said.
“We are watching this space carefully.”
Super’s growing influence raises financial stability concerns
Adding to the pressure, the Reserve Bank of Australia (RBA) has raised alarms about the risks posed by the superannuation sector to financial stability.
RBA governor Michele Bullock recently said that while super funds are less leveraged than banks, their growing presence in financial markets introduces new risks, particularly during times of market volatility.
With superannuation now accounting for a quarter of Australia’s financial assets, the RBA also highlighted in its most recent Financial Stability Review that the sector’s rapid growth could amplify financial shocks.
Asked to comment on the RBA’s findings at the forum, Constant agreed with the central bank, saying that the Australian Prudential Regulation Authority and the corporate regulator are asking very similar questions.
“This year we have expanded responsibilities in terms of looking at financial reporting and audits from the super funds to understand whether there is full, clear, transparent disclosure around what they have, where it is invested and how they’re approaching that,” she said.
According to the RBA’s findings, the superannuation sector’s connections to Australian banks have increased its importance to financial system stability.
Discussing this at the forum, CBA’s director Rob Whitfield acknowledged the real link between the superannuation industry and broader financial systems, saying that the super sector has a growing co-dependency with several industries – a trend that is set to increase in the near future.
One of these industries is infrastructure.
“The big super funds are the main owners of Transurban, the big super funds are also in each individual asset as an equity holder. They play in every part of the capital stack in the infrastructure sector,” he said.
“As we go through our energy transition, we’re going to find big super in all of the parts of the capital stack there.”
Whitfield anticipates that as the superannuation pool grows, it will become a major player in every industry that forms a significant part of the Australian economy.
AUTHOR
Maja Garaca Djurdjevic
Recommended for you
Super funds had a “tremendous month” in November, according to new data.
Australia faces a decade of deficits, with the sum of deficits over the next four years expected to overshoot forecasts by $21.8 billion.
APRA has raised an alarm about gaps in how superannuation trustees are managing the risks associated with unlisted assets, after releasing the findings of its latest review.
Compared to how funds were allocated to March this year, industry super funds have slightly decreased their allocation to infrastructure in the six months to September – dropping from 11 per cent to 10.6 per cent, according to the latest APRA data.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
Spire Oaktree Opportunities XI Second Close
61.07 3 y p.a(%)
2
Spire Oaktree Opportunities XI First Close USD
59.21 3 y p.a(%)
3
DomaCom Lot 21 Chellaston Road Munno Para West SA 5115 Australia
31.73 3 y p.a(%)
4
Fidante Credit Suisse Global Private Equity
30.15 3 y p.a(%)
5
DomaCom 4/27 Crombie Avenue Bundall QLD 4217 Australia
26.71 3 y p.a(%)
