Super’s approach to private markets exposure has been labelled “sophisticated” by the sector’s peak body, following the release of ASIC’s paper, Australia’s Evolving Capital Markets: A Discussion Paper on the Dynamics Between Public and Private Markets, this week.
The paper which explores, among other things, how the continued growth of superannuation funds will impact Australia’s capital markets, has put the onus on the sector for both the contraction of public markets and growth of private markets.
In a statement responding to the report, ASFA’s CEO, Mary Delahunty, said: “Every single Australian with a superannuation account has benefited from the sophisticated approach that super has taken to exposure in private markets.
“These investments have been delivering strong results for members, including double digit returns in 2024.”
While ASIC’s paper aims to establish how to ensure super balances in “opaque” markets are protected, the regulator’s chair, Joe Longo, said ASIC has no issues with Australia’s major super funds seeking overseas investments, including in private markets.
He, however, underlined the need for the regulator to have oversight given the possibility an adverse event could substantially impact Australia’s capital markets.
“We don’t have any concern about going offshore, it’s more about some of the unanswered questions about the possibility that things go wrong offshore to what extent will that translate to Australia,” he said.
Responding to this, Delahunty said ASFA will work with its members on a “comprehensive response” to the areas that ASIC has enquired on.
“We look forward to the continued discussion on this important set of asset classes, which is incredibly diverse,” she said.
“Of particular interest in this report is private credit, a relatively small sector for super fund investment, but nonetheless an important source of credit to fund Australian businesses.”
Delahunty also highlighted the importance of private markets for improving diversification within superannuation fund portfolios, and thereby “improving the reliability of long-term returns for members.”
“ASIC’s research shows how concentrated the listed equity markets have become, specifically for the US within global equity markets but also within Australia,” the CEO said, warning that any increase in regulatory burden by ASIC could disincentivise superannuation funds from diversifying out of listed markets.
This, she stressed, will impact member returns.
“The exposure to private markets has been a great driver of returns for Australians. It is important to remember super funds have delivered typical returns of at least 10.5 per cent for 2024, which is real money in real accounts for real people retiring,” Delahunty said.
She also encouraged ASIC to work with APRA, hinting that the regulator’s comments suggest communication is lacking between the two.
“ASIC’s media commentary this morning suggests their areas of interest are primarily areas that APRA has done extensive work on over a number of years, including liquidity, governance, valuations and system resilience,” she said.
“We encourage the regulators to work with one another to avoid any possible duplication of effort by the funds and we will draw this out in our comprehensive response.
“Strengthening practices is important, but every minute the super funds spend responding to duplicative regulatory requests is a minute they cannot spend servicing members and building members’ retirement funds.”
In a brief statement to InvestorDaily, Matt Linden, executive general manager of strategy at the Super Members Council (SMC), also emphasised the vital role of private markets in funds’ investment strategies.
“Profit-to-member super funds have long invested in unlisted assets such as roads, airports, container ports and energy grids,” Linden said. “These assets form a crucial part of profit-to-member super funds’ investment strategies and have helped to deliver impressive long-term risk-adjusted returns for members.”
“Valuations are already subject to stringent regulatory and governance frameworks and undertaken in compliance with those frameworks. Valuations are typically conservative with sales often achieving well above the valued price," he added.
While unable to comment on the paper’s contents, a spokesperson for AustralianSuper told InvestorDaily on Wednesday: “We welcome the discussion paper and will be providing a submission in response.”
