Super Funds Balance Private Asset Growth and Liquidity

The ability of superannuation fund members to switch investment strategies with little notice is shaping how funds allocate capital. While private asset investments are growing, strict liquidity requirements mean they can’t outpace traditional public market investments without potential financial risks.

Super funds must maintain liquidity to allow members to switch investments and withdraw funds when needed. Unlike listed stocks, private assets—including infrastructure, private equity, and property—lack easy tradability. A recent regulatory discussion paper highlights a growing shift toward private assets, coinciding with a decline in sharemarket listings.

Currently, super funds can allocate up to 38% of their portfolio to private investments, but they remain primarily focused on public markets due to liquidity constraints. In countries like Canada, pension funds hold a much larger share in private assets since their liquidity rules differ. However, Australian super funds must balance growth with accessibility to ensure members can move their savings without issue.

Market shifts also impact how super funds manage their portfolios. When stock markets decline, funds may need to reduce private asset holdings to maintain the right balance. Conversely, rising markets allow funds to increase exposure to private investments, as seen in 2024. Regulators are now reviewing the broader implications of these trends, with industry bodies cautioning against excessive regulatory intervention that could stifle market growth.

Source: Australian Financial Review, JP Morgan, SC&C Tech