Their defence comes amid growing concerns about the growing dominance of private markets, particularly as public markets continue to shrink in the face of superannuation’s expanding role in the economy.
In February, ASIC chair Joe Longo unveiled a discussion paper, heralded by the regulator as “one of its most important pieces of proactive work”, which calls for a re-evaluation of Australia’s capital markets, with a focus on striking a balance between enhancing transparency in private markets and boosting the appeal of public markets.
“We are keen to understand how the growing dominance of superannuation in Australia’s economy is influencing our markets,” Longo said at the time.
But it’s not just ASIC taking a closer look at funds’ private market exposure. APRA has also raised alarms about the need for more robust risk management practices, particularly in asset valuation governance and liquidity management, as holdings in unlisted assets, now nearing $500 billion, are expected to grow.
In a pointed rebuttal to regulators’ concerns, super fund leaders are standing firm in their belief that private markets offer far more than just higher returns – they provide stability and control that are critical in a volatile economic environment.
Speaking at an event in Melbourne last week, John Pearce, chief investment officer at UniSuper, made it clear that for funds like his, private markets are an indispensable tool for achieving long-term goals, particularly when it comes to managing risk.
Pearce said companies are staying private for longer because they have access to the kind of capital that institutional investors like superannuation funds are eager to provide.
“Why do companies stay private for longer? Because they have access to capital. Why do they have access to capital? Because we keep giving it to them,” Pearce said.
He pointed to the example of Sydney Airport’s transition from public to private ownership, a move that, according to Pearce, has allowed his fund to take a much longer-term approach to its operations.
But Pearce also offered a more candid reason for private market investments: what he described as “volatility laundering”.
“Once you take something from public to private, you don’t have the market volatility and for our retired members they don’t like volatility. Volatility hurts them,” he said.
He acknowledged that retail investors may have valid concerns about the opacity of private markets, but argued that institutional investors, like UniSuper, are well-equipped to price in those risks, including illiquidity and opacity.
“We understand opacity, we understand illiquidity, we understand pricing, so these factors are all taken into account when we actually price the asset,” Pearce added, urging that any regulatory response should not place a heavier burden on private markets, but rather focus on enhancing the attractiveness of public markets.
“We don’t want a situation where we try and even out private and public markets by putting a bigger burden on private.”
Ultimately, responding to regulators’ concerns about funds posing a systemic risk, Pearce remarked, “I don’t think we are”, adding that he is “pretty comfortable” with UniSuper’s level of exposure.
HESTA’s chief investment officer, Sonya Sawtell-Rickson, echoed similar sentiments, defending the governance structures available in private markets.
Speaking alongside Pearce, she argued that transparency in private markets is often superior to that of public markets.
“You can actually get better insights, better governance, you can have board appointments … so I feel we often have better transparency,” said Sawtell-Rickson said.
Earlier this month, the Association of Superannuation Funds of Australia (ASFA) released new research challenging the narrative that the influence of superannuation funds over the economy and capital markets poses a potential risk to the stability of the financial system.
Rather than destabilising markets, ASFA said that super funds strengthened Australia’s economy by boosting national savings, reducing reliance on foreign capital, and acting as a stabilising force during downturns.
In fact, the association said that during periods of heightened volatility, super funds tend to deploy new financial capital in a countercyclical manner.
“The steady stream of contributions – particularly into the compulsory super system – provides a fairly predictable source of new demand for domestic securities. Net of stable outflows for the payment of retirement incomes, these annual flows amount to around $50 billion,” ASFA said.
“In addition, super funds – as investors with relatively long-time horizons – can afford to absorb short-term asset price fluctuations and are reluctant to realise losses.”
