Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 128

Where do Australian funds sit in the global pension industry?

Australia’s largest superannuation and pension funds recorded a compound growth rate of 11% per annum between 2009 and 2014, stronger than the growth rate of funds across the entire world of 6.4%. Yet despite this strong growth, a current challenge for all funds is how to diversify across return opportunities and risks in an environment of increasing asset market and interest rate uncertainty.

These are two of the findings in Towers Watson’s annual report of the top 300 global pension funds, available here. It contains analysis of growth rates, asset allocations, fund types, regions and countries.

Towers Watson said the key drivers behind Australian funds’ growth are:

“The net inflows resulting from the compulsory superannuation guarantee which continue to aid in growing Australia’s retirement savings and perhaps more importantly the fact that Australian superannuation is 84% defined contribution with a larger allocation to equities and other growth-orientated assets than other geographies. This last point, and the strong, positive returns over the five years since the global financial crisis in these growth-oriented assets, have held Australian funds in particularly good stead.”

Other points specific to Australian funds include:

  • Australia had 16 funds in the top 300, as listed in Figure 1, the same as in 2013, with no new entrants in the last year
  • Of these 16 funds, eight improved their ranking compared to 2013, one fund stayed the same and seven funds fell
  • The number of Australian funds in the top 100 increased by one, with UniSuper joining the Future Fund, AustralianSuper, QSuper and First State Super
  • Australia has no funds in the top 20 but two in the top 50, the Future Fund and AustralianSuper.

The Future Fund ranked ninth amongst sovereign pension funds in the survey with US$89 billion in assets. Established during an era of Federal budget surplus, the fund will help provide for the defined benefit entitlements of Government employees. The report notes the decrease globally in defined benefit funds’ share of pension assets from 75% five years ago to 67% in 2014. Defined benefit funds continue to grow but at a slower rate than newer defined contribution funds.

In the next 12 months a number of economic and market factors will impact Australian funds’ rankings and rates of growth relative to international peers. These include:

  • The Australian dollar’s exchange rate against the US dollar, with a falling Australian dollar adversely impacting Australian funds’ rankings
  • Global and Australian interest rate changes impacting rankings of funds with higher bond asset allocations
  • Equity market returns, with rising markets generally improving rankings of Australian funds given their higher equity allocations.

The top 300 global pension funds combined had assets under management (AUM) of US$15 trillion in 2014, representing 43% of the estimated US$36 trillion total global pension asset pool. The total pool has doubled in the last decade, riding out the GFC and subsequent market recovery. North America remains the largest region accounting for 42% of AUM and 49% of funds, with 78% of their AUM in defined benefit funds.

While longer term growth has been strong, the annual growth for the top 300 decreased from 6.2% in 2013 to 3.4% in 2014, through lower global equity market and interest rate returns. Longer term asset mix and currency management will remain important in achieving strong and steady growth, with funds increasingly considering future sources of return value and adjusting their investment strategies accordingly.

Towers Watson says many funds are developing their product range, especially:

“ … in ‘added-value spaces’ to find the extra returns that no longer come from the market. In the process they are increasingly thinking about diversification in the context of all return drivers and adding the necessary governance or outsourcing to ensure success. This is likely to increasingly polarise winners and losers and could reshape the investment industry, completing the shift away from siloed - and indeed expensive - ‘asset class’ thinking and increasingly breaking down the distinction between ‘traditional’ and ‘alternative’ investments.”

While fund assets have doubled over 10 years, questions remain whether the funds management industry has focussed enough on the outcomes for members or reducing costs enough. In the past, most funds emphasised relative investment returns and less the value chain cost containment. This has allowed risk to build up in portfolios, and the cost gains for clients that should have come from such increases in fund size have been modest. There have been some margin reductions, especially in MySuper offers, and with greater scale, this should continue.

 

Iain Middlemiss was Executive Manager Strategy at Colonial First State and Head of Strategy at Superpartners. This article is for general educational purposes only.

 

  •   1 October 2015
  •      
  •   

 

Leave a Comment:

RELATED ARTICLES

Super prospects from Australia’s most powerful CIO

Are these assets the missing piece in Australian portfolios?

How to fix the Commonwealth Superannuation Scheme

banner

Most viewed in recent weeks

Why have Australian living standards 'fallen' and how do we fix it?

For the last few years there has been much talk of a 'cost-of-living' crisis in Australia and of 'falling living standards'. Lately this has flared up again with the pickup in inflation resulting in a renewed fall in real wages.

Will you run out of money in retirement?

Fear of running out has become a defining retirement anxiety. Why do some retirees die with substantial wealth while others deplete their nest egg? Evidence suggests the answer is more complicated than we think. 

Four options for an income investor’s next dollar

What if Australia’s golden age of dividends is ending? Rather than overhaul your portfolio, it may be worth considering where new capital can work harder. I discuss four income strategies and the trade-offs behind each.

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

The investment that sidesteps the new tax traps

Tax rules have changed, but many investors are still using yesterday’s strategies. Insurance bonds may offer advantages for those seeking greater control, tax efficiency and certainty about their wealth.

Testamentary trusts have secured the CGT exemption

Treasury’s latest CGT reform draft delivers a win for testamentary trusts and deceased estates, exempting estate-derived gains from the 30% floor. However, questions on death and divorce rollovers remain unresolved.

Latest Updates

Shares

Is it time to bail on Australian stocks?

For generations, Australian investors have backed banks, miners and dividends. But has that loyalty come at a cost? A look at the numbers raises an uncomfortable question about where future returns will come from.

Investment strategies

Making a case for the 40 year mortgage

The housing debate tends to focus on prices, interest rates and deposits. Yet an overlooked feature of the mortgage itself could help buyers enter the market sooner without abandoning prudent lending standards.

SMSF strategies

Red flags to watch out for when considering an SMSF

Thinking about an SMSF? Before you sign anything, learn how to spot the difference between genuine advice and a sales pitch, understand the real costs, and avoid the compliance mistakes that attract ATO attention.

Investment strategies

Not all income is created equal

Market conditions are shifting as familiar yield sources quietly lose momentum. Australian public credit may be the most compelling source of income in today's market but many investors haven't noticed the shift. 

Investment strategies

The market paid for change, not comfort

Reporting season has delivered a clear message: the market is no longer paying simply for quality, resilience or an earnings beat. It is paying for change in earnings expectations and the outlook ahead. 

Investment strategies

Will AI destroy investor capital?

Some of history's most important innovations changed the world while leaving investors much poorer. As trillions pour into AI, a familiar pattern may be emerging, one that rewards society far more generously than capital.

ASX reporting season: Signals, surprises, stock stories

August reporting season delivered strong earnings and bigger-than-expected dividends, but beneath this, a more nuanced story emerged. First Sentier Investors’ David Wilson and Christian Guerra unpack the key trends.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.