Superannuation funds don’t know what to do with the influx of funds being pushed their way, a leading consultant to the financial advice and wealth management industry has said.
On a recent episode of Relative Return, the new podcast by Momentum Media, Mayflower Consulting chief executive officer Sarah Penn explained that super funds are facing enormous capacity constraints.
“Our funds now, the big ones, are bigger than sovereign wealth funds in a lot of other countries. AustralianSuper, for instance, sources a lot of their investments offshore. And in fact, the area where it’s even worse is ESG,” Ms Penn said.
“The pressure on funds to do ESG, be totes ESG, is incredible. And there’s a lot of consumer pressure for funds to divest from the very non-ESG stuff they’re invested in like AGL. The problem is, if they do that, there is literally nowhere else to put the money. There is not enough investment.”
An urgent concern in Australia, as she highlighted, is the absence of a thriving start-up culture, compounded by a general lack of community interest in high-risk ventures.
“Our start-up situation and all the money that’s been pulled out of CSIRO and other issues, we just don’t have a lot of early-stage product development that happens here anymore,” Ms Penn said.
“And then on top of that, our investment community don’t like high-risk ventures … So, there’s not enough actual activity happening. And then the activity that is happening doesn’t meet the structure that you need for a big super fund to be able to invest in you.
“So, if you’re a big super fund, you want to do lots of ESG, but your minimum investment into something might be, I don’t know, 10, 50, a hundred million. There just isn’t the investments around. And also, as the super fund, in a lot of cases, you don’t want to own all of it. You just want a bit of it. So, then it just makes it even more difficult. So that is an ongoing issue.”
This ESG hurdle, in particular, has seen funds adopt an active investment approach, whereby they invest in companies that are “doing the wrong things” and use their significant buying power to push these companies to accelerate their move towards zero carbon.
That, however, she said, “generally does not go down well with consumers”.
Reflecting also on Labor’s recent, ample changes to the superannuation system, Ms Penn highlighted the party’s pre-election promise.
“At the ASFA conference, I think the year before last, they said if they were elected, they wouldn’t make any changes to super.
“And since they’ve got in, they have gone ahead and changed anything and everything they could get their mitts on. It is somewhat out of control actually at the moment,” she continued.
According to Ms Penn, super funds are less than thrilled with the government’s tinkering.
“You can see the whites of their eyes when you speak to people,” she said.
In last week’s budget, the government confirmed that from 1 July 2025, earnings on super balances exceeding $3 million will attract an increased concessional tax rate of 30 per cent.
This, however, is just one of the major changes Labor has made to date, as the government aims to legally establish the objective of superannuation as a vehicle for a dignified retirement.
To hear more from Ms Penn, click here.
