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.

 


 

Leave a Comment:

RELATED ARTICLES

Super prospects from Australia’s most powerful CIO

How to fix the Commonwealth Superannuation Scheme

2024/25 super thresholds – key changes and implications

banner

Most viewed in recent weeks

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

100 Aussies: seven charts on who earns, pays, and owns

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Latest Updates

Economy

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Investing

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Property

Australian house price speculators: What were you thinking?

Australian housing’s 50-year boom was driven by falling rates and rising borrowing power — not rent or yield. With those drivers exhausted, future returns must reconcile with economic fundamentals. Are we ready?

Shares

ASX reporting season: Room for optimism

Despite mixed ASX results, the market has shown surprising resilience. With rate cuts ahead and economic conditions improving, investors should look beyond short-term noise and position for a potential cyclical upswing.

Property

A Bunnings play without the hefty price tag

BWT Trust has moved to bring management in house. Meanwhile, many of the properties it leases to Bunnings have been repriced to materially higher rents. This has removed two of the key 'snags' holding back the stock.

Investment strategies

Replacing bank hybrids with something similar

With APRA phasing out bank hybrids from 2027, investors must reassess these complex instruments. A synthetic hybrid strategy may offer similar returns but with greater control and clearer understanding of risks.

Shares

Nvidia's CEO is selling. Here's why Aussie investors should care

The magnitude of founder Jensen Huang’s selldown may seem small, but the signal is hard to ignore. When the person with the clearest insight into the company’s future starts cashing out, it’s worth asking why.

Sponsors

Alliances

© 2025 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.