Over the past decade, Australia’s superannuation funds have steadily reshaped their portfolios in response to low yields, market volatility and changing global growth patterns. Where listed equities and bonds once dominated, many large funds now hold substantial allocations to unlisted alternatives which have become a key engine of long-term returns for members.

This shift is occurring within a tightly defined legal and prudential framework, and the combination of larger allocations to complex, illiquid assets and heightened regulatory expectations means governance can no longer be treated as a periodic, backward-looking review of performance. Funds must instead think of it as a long-term discipline that must match the horizon over which retirement outcomes are delivered.

The defining feature of many alternative assets is their duration. Infrastructure projects, unlisted property portfolios and private companies are designed to be owned and managed across cycles, not quarters. Valuations are model-based and periodic rather than continuous. Cashflows can be irregular. Risks emerge gradually through regulation, technological change, competition and project execution rather than through daily price movements.

But for superannuation funds, whose promises to members are inherently long term, these characteristics are a natural fit. Still, they do change what good governance looks like in practice. Traditional oversight, which has in the past focused heavily on short-term and index-relative performance, is no longer sufficient when assets may not reach their full value for many years. Trustees must think and act like long-term owners by understanding how each asset is expected to create value over time, how resilient its business model is to structural shifts and how it contributes to the fund’s overall risk, liquidity and income profile through full cycles.

In effect, the prudential framework pushes governance toward a more explicitly forward-looking, long-horizon orientation.

But as exposure to alternatives grows, so does the breadth of risks trustees must manage. Valuation risk has become central, especially where public and private markets diverge, and APRA’s recent supervisory work has highlighted gaps in board ability, valuation governance and liquidity stress testing. This reinforces that investing in alternatives requires deeper board engagement and more sophisticated risk frameworks, not just appetite for higher returns.

Liquidity risk is now a strategic concern. Capital-call timing, irregular distributions and limited exit options mean funds must maintain appropriate liquidity buffers and model their ability to meet obligations under stress. Regulators increasingly expect trustees to demonstrate robust, documented liquidity management aligned to their investment strategy and member outcomes.

ESG risks are also more prominent, with assets like renewable energy platforms, data centres and logistics facilities exposing funds to execution, regulatory and social licence risks that require strong oversight of external managers. And fee and cost structures in alternatives demand close scrutiny, with RG97 requiring trustees to make sure performance fees and interposed vehicle costs are accurately calculated and clearly disclosed.

All of that means that many superannuation funds are redesigning their governance so that it better reflects the long-term nature of their portfolios. Specialist investment committees for private markets are becoming more common, enabling trustees with relevant skills to examine complex deals in detail while keeping the full board focused on strategy, risk appetite and member outcomes.

Internal capability is also being strengthened. Superannuation funds are building teams of private market analysts, portfolio risk specialists, valuation experts and ESG professionals who can interrogate managers, understand asset-level risks and provide independent challenge, while reporting and information flows are also evolving to take in more than headline returns. Funds want clarity on valuation methodologies, look-through risk analytics, liquidity projections and asset-level drivers of value, consistent with APRA’s guidance on investment governance and stress testing.

Governance as a Long-Term Competitive Advantage

Across the superannuation system, a clear pattern is emerging: funds that treat governance as a long-term strategic asset are better positioned to harness the value of alternative assets, while those relying on governance models built for simpler, more liquid portfolios face increasing vulnerability as their exposure to private markets grows. So what more can trustees do to stay ahead of these risks and strengthen governance for an alternatives-heavy future?

They can go further by embedding full-cycle scenario analysis into investment decision-making, explicitly testing how private assets may behave across regulatory, technological and market shifts. Establishing specialised valuation or pricing sub-committees, or formalising periodic independent valuation reviews, can provide structured challenge and reduce model or assumption risk. Enhancing liquidity governance through dynamic liquidity operating models that reflect capital-call cycles, distribution timing and constrained exit pathways can also mitigate vulnerabilities highlighted in APRA’s supervisory work.

Governance can also be further uplifted by expanding internal capability across valuation, ESG and portfolio risk, equipping trustees with the expertise needed to interrogate complex assets and external managers. Trustees can also formalise long-term manager accountability through structured scorecards, forward-looking business plans, and deep-dive sessions that assess not just performance but the robustness of value-creation plans, risk controls and alignment of interests.

But beyond those processes and structures, trustees can invest in governance culture: clearer role delineation, enhanced board education in private markets, and expectations that directors provide informed challenge. Improved information flows, including more granular valuation insights, look-through risk analysis and liquidity projections, can also support boards.

With investment landscapes grow increasingly complex, super fund trustees face greater challenges that demand strong, forward-looking governance frameworks. For these trustees, the opportunity is clear: funds that build capable people, resilient structures, reliable information flows and a culture of accountability are best equipped to manage complexity and uncertainty. These funds are more likely to deliver consistent, durable retirement outcomes within an evolving legal and regulatory environment.

Arthur Marusevich is a financial services lawyer with expertise in superannuation and investments. He regularly writes on the evolving regulatory and legal trends shaping Australia’s financial sector.