Australian SuperFund performance – a masterclass for success
May 23, 2024
Embedding technology innovation to drive wealth creation for the good of the community.
Australia's superannuation industry is one of the largest in the world, with some AUD$3.7 trillion in assets under management (Dec 23). However, this is old news because, for years, Australia has been leading the charge in the pension fund market, and here's some reasons why.
Government Policy
Australia has a compulsory superannuation system, where employers must contribute a percentage of their employees' salaries to a superannuation fund. Whilst this is becoming more prevalent worldwide, Australia has been doing it for decades and is enshrined in the country's financial ecosystem.
The benefits of this are two-fold. Firstly, there is a constant stream of capital coming into the funds. Secondly, the population is fully invested in this strategy, which has created many desirable employment opportunities, attracted top talent, and empowered innovation and continuous evolution.
Diversification
Where Australia's SuperFunds shine is their highly diverse investment strategies; unlike more traditional pension funds in the UK, for instance, whose portfolios primarily consist of bonds and stocks, the Australians looked farther afield. Current estimates indicate that around 20 per cent of their portfolios are unlisted, typically infrastructure, real estate, private equity, etc. Infrastructure projects, for example, offer a long-term yet relatively stable investment, and private equity can yield higher returns. They can also access specialized opportunities that may not exist in public markets, leveraging their scale and expertise to negotiate favourable rates.
Of course, geographical location has also helped as Australia has abundant natural resources such as mines, oil fields, and agricultural land, representing many immediate local fund opportunities. And now they are not restricted to Australia. In February 2024, British Land posted an article stating that it had joined forces with Australian Super to revive East London's Printworks as a cultural venue.
Modern technology
All of the above created a deep pool of talented, ambitious people, particularly in the technology sector who recognized that the burgeoning SuperFund industry needed modern solutions to enhance investment performance further and improve overall efficiency.
The complexities inherent in a SuperFund's diverse portfolios require unique technology solutions, for example, that can provide a look-through of all assets, particularly the unlisted ones. While it's no secret that spreadsheets can support basic needs, they are functionally constrained and notoriously unreliable when it comes to rebalancing activities that require a combination of expert data management with asset allocation and exposure management to provide true clarity. Furthermore, due to the region's time zone, the firms naturally wanted to partner with local tech providers that could support them during working hours.
Power of the people
It has been over 20 years since the Australian SuperFund’s joined forces to create an investment vehicle that uses its scale and expertise to access more complex global private markets. The critical point is that these forward-thinking industry pioneers were committed to putting the people first and still are. All employees can choose their workplace fund, and the regular publishing of league tables ensures the funds remain focused on fund performance as their clients can switch at will.
Furthermore, unlike other countries, Australian SuperFund trustees must strictly act in members' best "financial" interests. For example, in the UK, it's usually in the "best interests" of UK trustees without the laser-like focus on "financial". (FT)
Interestingly, despite ongoing regional conflicts, rising political tensions and economic uncertainty affecting international financial stability and investment performance worldwide, Australian asset owners continue to thrive. Due partly to sensible government mandates but also their visionary approach to modern technology and forging partnerships with expert firms, which has transformed data management capabilities, these firms are navigating these challenges better than most.
As a result, they can focus on achieving efficiencies, improving sustainable investment performance and managing change due to merger and acquisition activities, despite unforeseen economic or politically driven factors. So, as they continue to be the masters of the pension fund investment game, there is a lot to learn from their collaborative and innovation-led approach. Want to know more?
