Super funds have focused on liquidity, private markets and concentrated equity risks as shifting market structures reshape long-term investment decisions.Super funds have continued to lift their exposure to private markets as structural shifts in global capital formation leave fewer growth opportunities in listed equities, according to Northern Trust Asset Management chief investment strategist, international Gary Paulin.
Speaking to SuperReview, Paulin said the private market trend remained “very sustainable”, noting that the number of public companies had fallen significantly over recent decades while private businesses backed by capital had “gone up by a multiple of three or four”.
He added that around “80 per cent of companies with revenues over $100 million” in the US were now private.
“If you have a growth mandate, and you need to expose yourself to equity growth, then you have to look at the private market,” he said, adding that companies increasingly saw “every reason to stay private for longer”.
On whether super funds were being adequately compensated for illiquidity, Paulin said the liquidity premium had become “really fascinating”, particularly as Europe explored indexing approaches to broaden retail access to private assets.
He noted that increased valuation frequency could introduce “more volatility into the risk profile of that asset”.
Paulin stressed that manager selection was critical, given “massive dispersion in returns for private equity”.
He said investors needed managers with strong expertise and “a good liquidity track record” across tools such as secondaries and NAV lending. He also expected public markets to provide more exits over the next few years, supported by lower rates and improved deal flow.
“I think the outlook from a liquidity perspective is reasonably robust,” he said.
Turning to equity concentration risks linked to AI-led mega caps, Paulin said recent conversations with funds suggested a growing focus on diversification both within and beyond the US market.
Some were considering more equal-weight approaches or increasing exposure to small caps, which had “just started to break out”, according to Paulin
“That’s a really interesting tell, because it tells you that the market is broadening beyond the very narrow leadership that we’ve had,” he said.
Small caps’ sensitivity to falling rates and early signs that AI benefits were spreading were also shaping allocation decisions.
Paulin added that funds were also diversifying regionally, with heightened interest in emerging markets and broader ex-US exposure which provided both diversification and “a dollar hedge” away from concentrated US market dominance.
On long-term thematic investing, Paulin pushed back on suggestions that the energy transition theme had become overcrowded, arguing that the market remained far more focused on the AI value chain, particularly chips, compute and networks, while underappreciating the energy and materials constraints that underpin them.
“Energy is a gating constraint to AI, particularly data centre rollout,” he said, adding that materials such as copper, iron ore and rare earths had been “left behind in terms of valuations” despite being central to AI infrastructure.
This created potential “mean reversion opportunities where the value might transfer from the builders to some of these beneficiaries”.
Finally, Paulin said liquidity management had become one of the top issues for super funds as switching activity and retirement outflows grew, stating that funds were “very aware of the risks” and increasingly focused on optimising balance sheets across liquidity, collateral and financing needs.
“They’re sitting on rather large balance sheets… thinking about optimising that can lead to quite positive outcomes,” he said. “It’s a risk, but it’s one that they’re observing, and I think they’re taking good measures to ensure that these risks don’t manifest into big problems.”
