Super funds’ private markets investments are a “good news story for the economy”, according to a long-awaited ASIC report into the sector, but one that must be carefully balanced with their members’ best financial needs and a lack of “established and mature tools of transparency, price discovery and market clearing”.   

“It’s our view that super fund investments into private markets have helped ensure that the growth of private markets has been fundamentally good for Australia, particularly when this growth is through mature, regulated superannuation channels,” ASIC Commissioner Simone Constant told a media briefing ahead of the report’s release. 

“Whilst growth in markets is good, the size of Australians’ private markets exposure, and superannuation size, mean that unexpected liquidity shocks could mean super funds have to act quickly in ways that might amplify stress.”  

ASIC pointed to RBA research which found that, although super has historically been supportive of the Australian financial system, its size could now amplify financial market stress in “severe scenarios”, while the country’s aging population could mean the balance between contributions and withdrawals shifts, heightening liquidity strains. The regulator also cited research from The Conexus Institute*.  

“Currency hedging and credit counterparty risk have been identified as possible transmission mechanisms through superannuation in a stress event, particularly one with an international origin and that causes material dislocation in listed and unlisted valuations,”  the ASIC report said. 

“Equally however, operational risk failures, such as large-scale outages, member service failures, or a malevolent cyber event, could damage system confidence triggering liquidity stress that may transmit from the funds into our financial system.” 

The ASIC report noted that APRA is also considering these issues, and that the prudential regulator had stress-tested the impact of a crisis on superannuation fund liquidity and potential channels of contagion. 

“Crises don’t repeat the same, but what we learned from previous crises is that it’s not upfront investment, it’s about what’s at the back end in terms of leverage and financial engineering and intersections of the system,” Constant said.

“That is a profound phenomenon, and so we need to understand that and be satisfied that it’s happening in a way that we understand.” 

While ASIC has been broadly satisfied with the functioning of the institutional end of the private markets, chair Joe Longo said that the sheer size of superannuation, and their growing exposure to private assets, meant it was necessary for regulators to keep a close eye on them.  

“We’re looking at between 20-25 per cent, depending on the fund, of their investments going into private markets,” Longo said.  

“And now where we have the rise of private markets and super funds playing a new role, we’re observing that and saying ‘We have to pay attention’.”  

ASIC also homed in on the platform sector, which it noted offered members “substantially more choice” than non-platform APRA-regulated funds, saying that recent “high-profile failures” in private market products held on the investment menus of some super funds “have exposed weaknesses in the protections offered by trustees, and both APRA and ASIC have called on the sector to lift standards”.  

“Trustees must exercise care, skill and diligence in relation to all matters affecting the fund, irrespective of the business model,” the report said. 

“This includes complying with valuation governance requirements. Superannuation trustees also have obligations to prudently select and monitor the investments made available to members, including in private markets.  

“This provides some protection for members, and for many retail investors, superannuation represents the safest way to access private markets and their returns.”