Superannuation funds are increasing their allocation to alternatives in order to generate sustainable returns for members, according to State Street.
In a research report titled Pensions with Purpose – Meeting the Retirement Challenge, State Street said the search for returns is pushing super funds towards alternatives.
State Street head of sector solutions, Australia and New Zealand, Sinclair Scholfield said: “While there’s not one single strategy that will solve the challenges for the entire industry, super funds are focusing on owning the right mix of talent, strategy, risks and efficiency gains.”
According to report, private equity and real estate are the two sectors in which Australian super funds plan to increase their investment over the next year. Specifically, 65 per cent of the Australian funds surveyed said they plan to increase their exposure to real estate in the next three years.
Mr Scholfield said the research highlights the need for super funds to develop a “clear mission” and “sustainable strategies” to ensure they meet the needs of savers.
State Street indicated that many funds are focused on strengthening governance and acquiring specialist knowledge to manage their portfolios.
More than 77 per cent of global respondents said their fund would be more likely to hire a manager with experience in environmental, social and governance (ESG) investing. Further, 78 per cent said they are “modestly” interested in increasing their interest in ESG over the next three years.
In addition, 43.5 per cent of funds indicated that they will increase the autonomy of their investment function over the next year. Funds will also focus on talent retention, with almost 70 per cent of respondents signalling that they will revise employee incentive models over the next year.