Changing the investment landscape

5 min read
5 min read

Australian superannuation funds’ ability to manage a pandemic-inspired market crash, far-reaching regulatory changes, rising competition, and ongoing merger activity suggests they still rank among the world’s best investors.

But being the best requires ongoing innovation.

Funds are adding new strategies to their investment portfolios and strengthening their operating models despite many delivering outsize returns above 20 per cent in 2020-21.

A key driver is scale. The biggest funds are getting even bigger at a rapid pace thanks to surging inflows and heightened merger activity. And new regulations, such as Your Future, Your Super (YFYS), appear to be acting as a significant tailwind.

About three-quarters of assets under management and member accounts are now managed by the top 12 funds, according to KPMG. Given APRA recently suggested that funds with less than $30 billion in assets will become uncompetitive, it is expected further mergers will occur.

Size can lead to economies of scale but only if funds can find a way to align their views across culture and strategy. Larger scale should lead to lower fees and better net returns to members, however, funds will need to focus on the process of executing the merger, to ensure the merger delivers the full range of expected benefits.

New investment strategies tackle low interest rate environment

Several funds have recently lowered their MySuper investment targets given ultra-low interest rates are expected to remain in place for some time as the world recovers from the pandemic.

It means they’ll also need to explore new asset classes and investment strategies. For some, this can involve a greater allocation to global assets or increasing the proportional allocation of unlisted assets. Boston Consulting Group predicts that Australian super funds will more than double their private equity exposure over the next five years.

Many mega-funds are internalising parts of their funds management activities to lower costs and increase their control. For example, many are undertaking co-investments in private market assets, cutting out intermediaries and giving them a greater say in the timing of a sale.

With the 12 largest funds now managing at least $50 billion in assets each, many are increasing their exposure to global investments.

While there may be tax advantages to being overweight in Australian shares, thanks to our franking credits regime, many other investment opportunities, including unique property sub-sectors, can only be found offshore.

The publicity surrounding super and a growing interest in environmental, social and governance (ESG) issues is also prompting members to become more active. One large fund recently adjusted its climate strategy after action by one member, while some smaller but high-profile funds are competing with highly specialised investment strategies.

The super industry has largely focused on helping Australians accumulate the biggest retirement savings pot possible, but decumulation is now grabbing more attention as the population ages.

The upcoming Retirement Income Covenant will reshape retirees’ investment portfolios. It presents one of the biggest challenges of all – building an investment strategy to help members balance the competing goals of maximising their retirement income, managing risks, while maintaining flexibility.

This will require new portfolios and strategies given retirees are highly exposed to sequencing risk (which describes the way a market downturn has a far greater impact on their savings than it does for younger investors).

Better use of data and increasing automation

The onset of the COVID-19 pandemic presented a new challenge for funds.

Markets plunged in March 2020 just as the Government unveiled an early release scheme. Funds had to revalue unlisted assets to ensure all members were treated equitably as billions of dollars were leaving the system through the super early release scheme.

J.P. Morgan worked with a number of funds to revalue their assets – in some cases, more than 160 assets within just three days at the height of the turmoil. Funds also had to ensure that the system remained secure and safe, with large transactions triggering certain controls such as anti-money laundering regulations.

This pressure has accelerated some key trends already underway around digitisation, automation and data use. A wide range of fund data is being amalgamated and combined with artificial intelligence and machine learning capabilities, creating new portfolio insights.

This requires new skill sets and large funds, like many other organisations, are grappling with a global shortage of data specialists, such as data scientists. However, the workforce is becoming more flexible with many asset owners not only making work from home normal but appointing remote staff they have never met in person.

Technology is also turning the focus onto automation of manual processes, freeing up staff to focus on higher value adding activities. This is becoming a stronger focus with several industry mergers underway. There is a fine balance between achieving scale that lowers costs while managing the added complexity that comes with growth.

Investors face a challenging environment, but these changes are set to keep Australian super funds among the best investors in the world.

Picture of By Nadia Schiavon

By Nadia Schiavon

Head of Securities Services, Australia and New Zealand at J.P. Morgan

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Carmen Beverley-Smith

Executive Director - Superannuation, Life & Private Health Insurance, APRA

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Carmen joined APRA in March 2023 and holds the role of Executive Director, Life and Private Health Insurance and Superannuation.  

She has had an esteemed career in financial services, spanning over 25 years. She has held diverse leadership roles at Westpac and Commonwealth Bank of Australia, including across risk, transformation and change, product and portfolio development, and sales and service. 

Prior to joining APRA, she held the role of General Manager, Risk Transformation Delivery Integration at Westpac. This involved leading the group-wide implementation of a suite of solutions to uplift risk management capability and develop data, analytics and reporting. 

Carmen leads with a values-driven approach and a particular interest in developing and mentoring talent. 

She holds a Bachelor of Commerce and Accounting, is a certified Chartered Accountant and a Graduate of the Australian Institute of Company Directors. 

Amy C. Edmondson

Novartis Professor of Leadership and Management, Harvard Business School

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Keynote 8 – Navigating the energy transition: opportunities, investor strategies and policy needs

Amy C. Edmondson is the Novartis Professor of Leadership and Management at the Harvard Business School, a chair established to support the study of human interactions that lead to the creation of successful enterprises that contribute to the betterment of society.

Edmondson has been recognized by the biannual Thinkers50 global ranking of management thinkers since 2011, and most recently was ranked #1 in 2021 and 2023; she also received that organization’s Breakthrough Idea Award in 2019, and Talent Award in 2017.  She studies teaming, psychological safety, and organisational learning, and her articles have been published in numerous academic and management outlets, including Administrative Science Quarterly, Academy of Management Journal, Harvard Business Review and California Management Review. Her 2019 book, The Fearless Organization: Creating Psychological Safety in the Workplace for Learning, Innovation and Growth (Wiley), has been translated into 15 languages. Her prior books – Teaming: How organizations learn, innovate and compete in the knowledge economy (Jossey-Bass, 2012), Teaming to Innovate (Jossey-Bass, 2013) and Extreme Teaming (Emerald, 2017) – explore teamwork in dynamic organisational environments. In Building the future: Big teaming for audacious innovation (Berrett-Koehler, 2016), she examines the challenges and opportunities of teaming across industries to build smart cities. 

Edmondson’s latest book, Right Kind of Wrong (Atria), builds on her prior work on psychological safety and teaming to provide a framework for thinking about, discussing, and practicing the science of failing well. First published in the US and the UK in September, 2023, the book is due to be translated into 24 additional languages, and was selected for the Financial Times and Schroders Best Business Book of the Year award.

Before her academic career, she was Director of Research at Pecos River Learning Centers, where she worked on transformational change in large companies. In the early 1980s, she worked as Chief Engineer for architect/inventor Buckminster Fuller, and her book A Fuller Explanation: The Synergetic Geometry of R. Buckminster Fuller (Birkauser Boston, 1987) clarifies Fuller’s mathematical contributions for a non-technical audience. Edmondson received her PhD in organisational behavior, AM in psychology, and AB in engineering and design from Harvard University.

 

Daniel Mulino MP

Assistant Treasurer and Minister for Financial Services

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Keynote 8 – Navigating the energy transition: opportunities, investor strategies and policy needs

Born in Brindisi, Italy, Daniel was a young child when he moved with his family to Australia. He grew up in Canberra and completed his first degrees – arts and law – at the ANU. He then completed a Master of Economics (University of Sydney) and a PhD in economics from Yale.

He lectured at Monash University, was an economic adviser in the Gillard government and was a Victorian MP from 2014 to 2018. As Parliamentary Secretary to the Treasurer of Victoria, Daniel helped deliver major infrastructure projects and developed innovative financing structures for community projects.

In 2018 he was preselected for the new federal seat of Fraser and became its first MP at the 2019 election, re-elected in 2022 and 2025. From 2022 to 2025, Daniel was chair of the House of Representatives’ Standing Economics Committee in which he chaired inquiries; economic dynamism, competition and business formation and insurers’ responses to 2022 major floods claims.

In 2025, he became the Assistant Treasurer and Minister for Financial Services.

In August 2022, Daniel published ‘Safety Net: The Future of Welfare in Australia’, which aims to explore the ways in which an insurance approach can improve the effectiveness of government service delivery.