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Super on track to represent more than half of ASX market cap: Deloitte

By Rhea Nath
4 minute read

A new report has once again flagged super funds’ capacity problem, with funds likely to represent over 50 per cent of the ASX market capitalisation if they seek to retain the same percentage allocation to Australian shares.

Over two-thirds of assets are invested in “growth”-type assets like equities, property and growth across Australia’s superannuation funds, according to Deloitte’s Dynamics of the Australian Superannuation System report, which has noted a particularly high appetite from funds for Australian equities.

“The high allocation to growth assets recognises that the Australian superannuation system is predominantly comprised of account balances tied to investment returns earned on the underlying assets, both during accumulation phase and also throughout the pension drawdown period during the retirement phase and based on a long investment time horizon spanning many decades,” Deloitte explained.

“In particular, there is a high percentage of assets invested in equities, of which a significant proportion are domestic (Australian) equities.”


Deloitte highlighted a number of reasons contributing to the trend, including the long investment horizon for super investments and the fact that more conservative investments, such as bonds and cash, have struggled to achieve a return much more than keeping up with inflation.

Additionally, the dividend imputation system in Australia has meant funds effectively receive refunds of excess franking credits on franked dividends, boosting overall investment returns, the consultancy firm pointed out.

Also, many Australians hold Australian shares directly as a result of past privatisations and demutualisations and are “comfortable” with these investments and their growth potential, Deloitte suggested.

It noted the total investment by superannuation funds in Australian shares, including allocations within managed funds and pooled superannuation trusts, comprises about 36 per cent of the total market capitalisation of the Australian Stock Exchange (ASX).

“If we assume that superannuation funds seek to retain the same percentage allocation to Australian shares, we have estimated that the proportion of the ASX market capitalisation represented by superannuation funds would steadily increase, potentially to more than 50 per cent eventually,” the report stated.

With this, it highlighted the tax advantages of dividend imputation for Australian shares are “compelling” in delivering strong after-tax returns to members, though funds will need to navigate concentration risks.

“The key issue will be whether there will be enough capacity in the ASX to support this level of demand from superannuation funds, and any consequential impacts on assessment against APRA’s super product heatmaps,” it observed.

There could be a number of implications from this, according to Deloitte.

This included funds potentially utilising passive or active investments or investment managers to fulfil their allocations to equity markets; growing their proportionate exposures to alternative assets as they grow in size, which might result in lower growth in allocations to ASX-listed shares; seeking to increase overseas exposures over time for diversification; or seeking representation on the boards of public companies in which they hold significant investments.

“We have also seen superannuation funds enter into joint ventures and consortiums to make large acquisitions and investments,” it said, noting the removal of Sydney Airport from the ASX in 2022 after it was sold to a consortium of super funds and global investment partners including IFM Investors, AustralianSuper, and QSuper (now merged with Sunsuper to create the Australian Retirement Trust).

With this, the consortium completed “one of the largest corporate takeovers in Australian history”, Deloitte pointed out.

Total superannuation assets have grown to $3.2 trillion as at 30 June 2023. Assets have been relatively constant in the last four years, the report noted, given the uncertainty of the COVID-19 pandemic followed by an emerging high inflationary environment.

However, recovering from this period with increased contributions and positive investment returns increasing the size of the market, the base projections from the Deloitte super projections model reveal total net superannuation assets will continue to increase to $11.2 trillion by 2043.