In its 2023 Future of Superannuation Report, JP Morgan Securities Services found that several of Australia’s largest superannuation funds are leveraging their scale to ramp up internal investment capabilities and increase investments offshore.
The report included in-depth interviews with six superannuation fund leaders in Australia and the UK which manage a collective $800 billion in assets.
“Australia’s $3.5 trillion superannuation industry is one of the fastest growing pension markets in the world,” said Stephen Jani, head of sales and marketing, markets and platform sales, Australia and New Zealand, JPMorgan.
“Despite facing some of the most challenging investment markets of the last two decades, funds are evolving their investment strategies to continue to drive growth and compete on the global stage.”
Unlisted assets are also set to play a key role in portfolios, with a particular focus on infrastructure, which has delivered historically strong returns.
“The Australian superannuation fund industry is leading the charge towards unlisted assets, which have been a significant driver of long-term outperformance,” said Mr Jani.
According to the report, some of the largest funds with assets above $100 billion are using this scale to increase their offshore investment across a range of asset classes and set up global offices to explore new opportunities.
Funds in the $50–$100 billion range have taken a more cautious approach regarding the benefits of offshore offices and continue to assess the strategy.
“JP Morgan’s Future of Superannuation report shows how these funds are harnessing growth to expand their global footprint, explore new asset classes and opportunities, and deliver retirement outcomes for their members across Australia,” said Nick Paparo, head of platform sales, securities services, Australia and New Zealand, JPMorgan.
Funds are using this scale to grow their internal investment teams to manage certain asset classes or co-invest alongside their fund managers.
“This strategy is enabling teams to make bigger deals and deliver greater investment insights at lower cost,” said Mr Paparo.
He added that there has also been a considerable consolidation among super funds, with merger activity continuing strongly through 2022 and early 2023.
It is also in line with the findings of JP Morgan’s 2022 super report, in which more than half of executives expected there to be fewer than 75 funds left by 2025.
“There were 137 funds remaining by the end of March 2023, compared to 174 in September 2021. There are no signs of this consolidation slowing down — with a number of new mergers announced this year,” said Mr Paparo.
The report said that the growing size and complexity of portfolios puts greater importance on gathering and aggregating quality data to reveal investment insights and manage risk, adding that funds are heavily investing in their operating infrastructure to drive future performance.
On a recent episode of Relative Return, the new podcast by Momentum Media, Mayflower Consulting chief executive officer Sarah Penn explained that superannuation funds don’t know what to do with the influx of funds being pushed their way.
“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,” Ms Penn said.
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.”
To hear more from Ms Penn, click here.