ASIC’s recent discussion paper has focused heavily on risks associated with superannuation’s influence on capital markets, particularly private markets.
However, the SMC has stated that the superannuation system’s growth has been a strength rather than a risk, supporting the economy through strategic long-term investment of members’ savings.
“Our submission highlights the importance of private market investments by funds on behalf of their members and the clear benefits these investments deliver, balancing this with the risks of public markets,” the SMC wrote in its submission.
The submission detailed how super funds have long invested in private markets, achieving higher net returns and, in many cases, lower risk compared to listed asset classes.
It also emphasised the existing regulatory frameworks, including stringent oversight of trustees and robust risk mitigation strategies.
Moreover, the SMC called for better coordination and data sharing between regulators to avoid duplication and ensure more accurate assessments of policy issues.
Profit-to-member super funds have played a pioneering role in unlisted asset investments, especially infrastructure.
Citing Frontier Investors’ analysis, SMC noted that around 16.5 per cent of assets held by APRA-regulated super funds are in private markets such as property, infrastructure, private credit and private equity.
This ranges from an average of 7.1 per cent for retail funds to 20.9 per cent for industry funds.
These investments have enabled funds to deliver stronger returns, reduced volatility and enhanced diversification. With careful cost management, they added net value for members that exceeds market benchmarks, according to the SMC.
“These attributes deliver strong benefits to millions of individual super fund members and the broader financial system,” the SMC said.
International comparisons also support the Australian approach, with the SMC noting a 2023 study found that 11 large Australian profit-to-member super funds operated at costs 11.7 basis points lower than comparable global peers, generating over $1 billion in annual savings.
Over the three years to June 2023, the sector’s outperformance added $18.5 billion to member accounts – equivalent to an additional $1,165 for a member with a $50,000 balance.
Private markets continue to offer long-term benefits, particularly in infrastructure investment, aligning with global trends.
The OECD has noted the natural fit between infrastructure assets and the long-term liabilities of pension plans, stating in a 2009 report, “infrastructure is made for the long term, and there seems to be a natural fit with the long-term liabilities of many pension plans”.
“Over the long-term, funds with more illiquid investments such as unlisted infrastructure have experienced higher risk-adjusted returns, which suggests they have captured a return premium for investing in these assets,” the submission outlined.
The submission also addressed risk management in private markets, noting that during the COVID-induced market stress in March 2020, funds maintained liquidity well.
This success was attributed to robust internal risk management and existing regulatory safeguards, including the APRA Prudential Standard SPS 530, which mandates board-approved liquidity plans for all funds.
“Super funds manage private market risk closely to ensure they can fulfil their regulatory obligations, especially during market stress events.”
While unlisted assets comprise a relatively small share of total super fund assets, they offer critical portfolio stability and diversification, the SMC highlighted. Funds with younger, more cash-flow-positive membership bases are particularly well-positioned to invest in these asset classes.
The SMC urged ASIC to examine private markets at the asset-class level rather than treating them as a monolithic group. “This important distinction of asset classes within the grouping of private markets is essential to engaging in an appropriate nuanced discussion,” the submission said.
It further highlighted that a range of other investors are active in private markets, including international pension funds, family offices, insurance companies, endowments, real estate investment trusts and retail private credit funds. These investors operate under varied regulatory obligations and disclosure regimes.
SMC concluded that a more balanced and informed approach is needed. The discussion should acknowledge not only the risks but also the demonstrated benefits of private markets for millions of Australians and the broader economy.
