Regulators navigate Australia’s soaring super growth

Australia’s super system will become the second largest in the world by 2031.

Australia’s superannuation system is expected to become the world’s second largest by 2030-31, underscoring how important it is for our regulators to get their settings right.

The sheer scale and importance of our $4.1 trillion super pool was again in focus last week as some of Australia’s largest funds promoted their wares to stakeholders and policy makers in the United States, including US Treasury Secretary Scott Bessent.

At the same time, the Australian Securities and Investments Commission released a landmark report delving into the evolving dynamics within the nation’s public and private markets. Super funds have a hugely influential role in both, given their ever-increasing exposures to listed and unlisted investments.

For example, the ASIC report showed super funds, including self-managed ones, account for more than one third of the Australian exchange’s ownership by value. There is also an increased allocation, particularly by the larger super funds, to private assets and investments such as infrastructure, real estate, direct lending by non-banks or private credit, venture capital and private equity.

The July increase in the super guarantee to 12 per cent from 11.5 per cent and continued growth in Australia’s overall retirement savings pool secures its ongoing place as a bigger force on the global stage.

IFM Investors chair Cath Bowtell. Picture: Nicki Connolly

Analysis by the Super Members Council shows a clear growth trajectory. While the United States’ pension system is well out in front, given the size of its population, the analysis projects Australia’s pension or super assets will surpass those of the United Kingdom in 2030 and Canada by 2031.

Australia’s ability to punch well above its weight here has to do with its longstanding compulsory super policy, relative to other developed markets. In the UK, for example, typical pension contributions have increased to 8 per cent, of which 3 per cent comes from the employer and the remainder – inclusive of tax relief – from the employee.

IFM Investors chair Cath Bowtell, who addressed the US super summit last week, said after being in place for some 40 years Australia’s super system was now an “integral part” of the nation’s social fabric.

She also highlighted the opportunity in the US for large Australian funds, noting while they currently invested $1 in every $5 of Australians’ super in the US that total was set to reach $US1 trillion over the next decade.

“Australian pension fund investment in the US is expected to more than double over the next decade – from $US400 billion to over $US1 trillion,” Bowtell said.

Given the mammoth growth overall, it’s no wonder ASIC’s report last week included a section on growth in the nation’s super system, unpicking some of the dynamics the sector is navigating.

The very existence of ASIC’s 61-page discussion paper is evidence of the growing risks the regulator sees in the more opaque private markets sector, which may warrant increased surveillance and potential regulation. ASIC’s chair Joe Longo made it clear he wants more data from private markets players – in line with what is happening in some markets offshore – and more engagement.

ASIC chair Joe Longo. Picture: John Feder

It’s a fine balance though. As Longo is acutely aware, regulation can have unintended consequences and a considered approach is required when it comes to boosting transparency in private markets, while also helping improve Australia’s standing as a destination for sharemarket listings.

The prudential regulator’s performance test imposed on super funds annually has already caused some funds to subscribe to a herd-like mentality. That is, just doing what is required to ensure they pass muster on the test and keep up with peers, without pursuing above average returns for members.

So, any new regulation or data requirements for players operating or investing in private markets – including super funds – needs to strike a balance between providing regulators the necessary information, without causing market distortions or issues.

Much of the concerns about private assets centre around scant disclosures, their illiquid nature and the potential contagion issue between private and public markets, given their links.

Regulators are right to want to keep close tabs on developments in the burgeoning private asset space, given its rapid growth more recently often at the expense of listed markets. The value of private capital funds in Australia swelled to $148.6bn in 2024, up from $57.1bn a decade earlier, according to ASIC’s report.

The debate over the evolution of public and private markets touches all working Australians, as Longo poignantly touched on last week.

“This is about the future of Australia’s economic growth, and it affects us all. Not just the institutional investors and funds that immediately come to mind, but everyone, for example, with a superannuation account,” he said. “For these reasons I would say this is the most important piece of proactive work ASIC has undertaken in my time as chair.”

This is Joyce Moullakis’s final column for The Australian