Navigating liquidity and operational resilience in superannuation

Australia’s superannuation system has been a standout success for 30 years – compulsory contributions, strong governance and long investment horizons have built a substantial pool of retirement capital. 

However, success has also created new challenges as the system has outgrown the domestic market, with an increasing number of investments held offshore and a larger portion now allocated to investment in private asset classes, topics highlighted by the Australian Securities and Investments Commission (ASIC) in its recent report on evolving capital markets. 

This means balancing a greater focus on the liquidity profile of these superannuation funds, as many members enter into their draw down phase and are focused on capital preservation. Meeting these needs requires an increasingly large and complex investment product and underlying operational setup. 

Lessons from COVID-19: Liquidity stress 

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The system underwent a live stress rehearsal during the COVID-19 pandemic. In 2020, the federal government sanctioned early access to funds for hardship relief, with members switching into defensive investment options in large numbers as markets fell. 

Over the course of the COVID-19 early-release scheme there were roughly 4.9 million applications worth A$37.3 billion. To meet this demand and ensure liquidity, managers of superannuation funds lifted aggregate cash by about A$51 billion in a single quarter, in large part through the sale of bonds and foreign equities. 

The system held up, but the episode revealed how quickly liquidity pressure can spike when market volatility and changes in mass member behaviour collide.

Mounting pressures 

Two structural features will make the next market event harder. Firstly, portfolios carry an increasing sleeve of unlisted assets, as infrastructure, property and private markets have added diversification and return sources. That depth strengthens retirement outcomes over time, but illiquid assets can complicate life in moments when access to cash is a priority.

Secondly, Australia’s member investment choice architecture allows switching between investment options in roughly three business days, as well as superannuation fund portability. 

The IMF has warned that this flexibility, when paired with the level of exposure to illiquid assets common in the Australian market (above 20 per cent on average), shortens the effective duration of liabilities and can transmit stress into markets if many members move at once. Superannuation fund trustees cannot change the architecture, so they must design for it by having access to global markets, a large network of counterparties and liquidity venues to mitigate the potential risk. 

Globalisation adds further complexity. As offshore allocations grow, hedge books grow with them because most funds seek to reduce currency volatility using FX forwards and swaps. The Reserve Bank of Australia has been explicit that the sector’s FX hedging and related collateral needs are likely to expand substantially over the coming decade. 

When the Australian dollar moves sharply, margin calls can arrive quickly and at a large scale. The question is no longer whether funds can access liquidity in principle, but how predictably they can source eligible collateral, across time zones and jurisdictions, when they need it.

Trustees are not waiting for policy to catch up. Several large funds now manage multi-currency liquidity, rather than relying solely on the Australian dollar, with explicit US dollar access so they can meet overseas obligations or derivative margins without forced conversion at unfavourable exchange rates during periods of market stress.

By outsourcing the post-trade collateral workflow to a neutral agent, funds can mobilise diverse assets against eligibility schedules, automate substitutions, and reuse the collateral they receive to meet initial margins, reducing the drag on cash and operational friction. This allows funds to take control of their own collateral and liquidity, rather than depending on counterparties’ balance sheets.

Benchmarking progress

What does good look like in this environment? To start, liquidity should be designed at portfolio level rather than at investment option level. That means central pools, explicit buffers sized for combined stresses, and forecasting that runs daily and within the day, pulling together benefit payments, switching behaviour, private-asset capital calls and derivative margins. 

The intraday layer turns planning into execution: real-time cash visibility across accounts, automated payment and settlement processing, direct links to payment systems and market infrastructures for same-day funding, and optimisation that limits idle balances and lowers funding costs.

Collateral can be treated as a strategic asset. Eligibility mapping, margin forecasting and triparty mobilisation can enable funds to meet calls with the right assets in the right place, which preserves return-seeking exposures.

There is a policy and infrastructure dimension too. Australia’s debate on central clearing of bonds and repos, noted by ASIC, is timely. Clearing would not remove the need for prudent buffers, but it could expand liquidity channels, diversify counterparties and improve transparency in stress. In parallel, wider adoption of triparty services would make it easier for funds to raise and route cash across markets without bespoke bilateral negotiations. 

These developments, together with continued enhancements to data and reporting, would support a superannuation system that is ever more global, yet anchored in predictable local systems.

Otto Vaeisaenen is head of liquidity, finance and collateral Australia and New Zealand at BNY.