Home / News / Aussie funds still number one: Thinking Ahead Institute

Aussie funds still number one: Thinking Ahead Institute

News

Australia’s superannuation system is leading the world in pensions, but the broader market is still missing opportunities on stewardship and technology.

The Thinking Ahead Institute’s 2022 Global Pension Assets Study has named Australia the world’s number one pension market, with 20-year pension asset growth of 11.3 per cent per annum in US dollar terms.

The critical features of Australia’s success were the compulsory nature of the system, a “competitive institutional model”, and the dominance of defined contribution – which has seen substantial growth over defined benefit systems.

“Australian funds aren’t resting on their laurels, with significant change still occurring in the industry, including merger activity among all sizes of fund and increasing internalisation of investment functions at large funds,” said Martin Goss, senior director for investments for Willis Towers Watson in Australia.

“The themes Australian funds need to continue to address resonate with global issues – accountability, increasing benchmarking, collaboration, diversity and evolving risk frameworks – with increasing regulation in particular impacting behaviour with heightened sensitivity to cost and peers.”

But Australia – and the broader pensions market – are still missing the stewardship opportunities of influencing and mitigating corporate misalignments like executive pay and other poor leadership practices. In Australia, at least, recent efforts to kneecap super fund stewardship and engagement have been prevented with Treasurer Josh Frydenberg’s proxy advice reforms thrown out in the senate.

Most pension funds are also a  “no show” on technology, and the report notes that technology impacts have been “surprisingly light” given funds still rely heavily on legacy systems and haven’t prioritised technological innovation.

“Looking back on a near-doubling in pension assets over the last decade, it is clear this extraordinary valuation of the world’s retirement dreams could bring both challenges and opportunities. High valuations imply financial security but also pose difficult questions about future allocations – and will encourage many pension schemes to continue looking beyond the most traditional asset classes, in order to maintain returns.

“Investing for sustained growth is going to become an even more nuanced question in future decades,” said Marisa Hall, co-head of the Thinking Ahead Institute. “Doubling assets again in the next ten years will need global pension schemes to confront the unsustainability of the global carbon economy and look with renewed imagination at the fundamentals of sources of return.”

The report’s top five issues for investments include the push into alternatives in a lower for longer interest rate environment, inflation, opportunities in the emerging markets space, liability driven investing, and the design of lifecycle assets for defined contribution schemes.

“DC schemes continue to focus on designing better lifecycle strategies. The ideal lifecycle portfolio is one where the asset composition shifts to best suit an individual’s changing risk tolerance and time horizon i.e. higher exposure to growth assets for younger members with progressive switches into secure income assets.”

Lachlan Maddock

  • Lachlan is editor of Investor Strategy News and has extensive experience covering institutional investment.




    Print Article

    Related
    The good, the bad and the AI: Financial sheriffs take aim

    Regulators are on red alert as this technology spreads like wildfire, presenting increasing issues, risks and challenges for global financial markets.

    David Chaplin | 28th Mar 2025 | More
    Family offices warn of threat to critical investment decisions

    Despite being a growing reservoir of funds under management, this critically important pool of capital is confronting mounting problems collating and disseminating key data in a timely manner.

    Duncan Hughes | 7th Mar 2025 | More
    APRA’s governance move could trigger wholesale change

    If the regulator’s proposal to limit board tenure to 10 years takes effect, then many non-executive board members will be in the firing line, with industry funds likely to have the most casualties.

    Nicholas Way | 7th Mar 2025 | More
    Popular