Super funds sharpen private markets play

Australia’s largest super funds have deepened private markets exposure, scaled internal investment capability, and balanced liquidity as competition and consolidation intensify.

Australia’s major superannuation funds have continued to expand private markets exposure, build internal investment capability, and manage liquidity more actively, according to JP Morgan’s latest Future of Superannuation report.

The research shows leading funds have leaned further into unlisted assets to diversify returns and manage long-term risk, while newer funds and simplicity-focused offerings have remained anchored to liquid, listed markets.

According to the report, Aware Super has increased its private markets allocation to above 25 per cent, with chief investment officer Damian Graham describing this as an “ideal risk-reward ratio.”

The fund has boosted its investment in battery storage, renewables, and digital infrastructure and created Aware Real Estate to manage property more directly.

Graham also noted the importance of global reach and said the fund has “established an overseas office to build relationships and open up new investment possibilities.”

Meanwhile, HESTA has maintained a significant allocation to private markets, supported by a younger membership and positive cash flows.

Dianne Sandoval, head of portfolio design at HESTA, said exposure to unlisted assets “enhances diversification of growth exposure, provides another source of access to assets with revenues less directly linked to GDP and global trade, and may offer greater protection against inflation.”

The report noted that Cbus has adjusted its mix, shifting marginally from unlisted property to infrastructure, with CIO Leigh Gavin pointing to contrarian success: “Investing in retail property when others were exiting has done really well for our members.”

State Super, which already has more than 20 per cent in unlisted assets, expects further growth in the segment, but stressed capability, with CEO John Livanas emphasising that investing in infrastructure-like assets demands deep expertise.

“If you are going to hold a stake in an airport, a port, a water utility, or a shopping centre, these are businesses. Super funds need the skills to ask the right questions about how they’re run,” Livanas said.

In contrast, Vanguard Super has remained focused on listed assets. Managing director Daniel Shrimski said “liquidity and transparency remain key priorities for us, so our focus is on offering a simple, transparent, low-cost product.”

Liquidity planning has been a shared concern, with ART observing that private equity exit cycles and pricing conditions can strain funds at scale, while AustralianSuper’s chief liquidity officer, Chandu Bhindi, described a careful balance, aiming for a “goldilocks scenario” that ensures liquidity during volatility, while preserving capacity to invest through cycles.

Scale has strongly influenced strategy. ART continues to target opportunities enabled by size, with head of investment strategy, Andrew Fisher, noting the fund remains conscious of its footprint and the requirements of investing at scale.

Moreover, AustralianSuper, with around 20 per cent of member assets in private markets, has prioritised infrastructure, reflecting a membership base largely in the accumulation phase.

Simultaneously, HESTA has leaned into specialisation, faster decision making, and selective insourcing to keep costs down, while maintaining access to private opportunities.

As funds have grown, many have brought investment functions in-house to reduce fees and boost control, according to JP Morgan.

Aware Super directly manages around two-thirds of its infrastructure book, while blending internal and external expertise, and Cbus has saved more than $1 billion in fees since 2017 through internal management and improved risk systems.

HESTA also cited improved net returns from internalising selected investment functions.

ART has taken a different approach, outsourcing most investment activity, while internalising risk-critical functions because, as Fisher put it, “you can’t outsource risk.”

With APRA signalling that funds need at least $30 billion to operate efficiently, the research reinforces the industry’s direction: fewer, larger funds, deeper private markets exposure, and rising internal investment capability as the system matures and globalises.