Super funds driving Australia’s private markets boom

Superannuation funds have become the dominant force behind Australia’s private markets boom, fuelling unprecedented growth and reshaping manager operations.

Australian superannuation funds have become the largest investors in private markets, driving what Mavin Advisory Group has described as a “Golden Age” for private market investing.

In its latest whitepaper, House of Sticks: What Private Markets Managers Can Learn from Their Public Markets Peers, the firm showed that in the decade to September 2024, the overall assets under management of private capital funds in Australia have increased by more than 160 per cent.

“As the largest investor base in the Australian market, superannuation funds’ investments in private markets now represent over 16 per cent of their total portfolio, with some funds holding a substantially higher portion of their total holdings,” the report stated.

Investments in unlisted real estate and infrastructure comprise the largest component of these allocations, followed by private equity, while private debt is the fastest-growing segment, albeit from a low base.

The firm noted that this influx of capital has helped to underpin strong confidence in the asset class.

“The attractive, long-term factors of higher returns, diversification benefits, and the potential for inflation hedging have been consistent across all,” it said.

However, the report cautioned that the rapid expansion of private market investment capabilities within superannuation funds has created intense competition for external private market managers.

“Increased competition and internalisation will lead to inevitable margin pressure,” it said.

“To capitalise on the ongoing growth in allocations to private markets, as well as to address the increasingly targeted reviews from Australian regulators, private markets managers would be well advised to undertake a strategic review of their existing operating and governance models.”

Moreover, the whitepaper highlighted the growing scrutiny from both the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA), particularly following the introduction of APRA’s new prudential standard, CPS 230.

CPS 230 requires regulated entities — including superannuation trustees — to enhance their oversight of material service providers such as investment managers.

Mavin Advisory Group said the standard “is agnostic on asset class – whether public or private” and “has set the floor for all manager due diligence – and it should not be considered to be an aspirational ceiling”.

According to the group, public market managers are already well ahead of their private market peers in developing governance and operating models that meet these higher diligence standards.

The whitepaper argued that private market managers must now invest strategically in their own operating platforms, technology systems, and governance frameworks if they are to retain the confidence of institutional investors such as super funds.

“It is therefore incumbent on private market managers to use this moment to gain efficiencies in their operating models whilst also facilitating better investment decision-making,” it said.

“This is the opportunity to make hay while the sun is still shining on private markets.”