Australian superannuation assets reached a record high of $2.34 trillion in June 2023 (for funds with more than six members), with the top nine funds managing more than $100 billion each. This growth has been driven by several factors, including compulsory superannuation contributions, increasing life expectancy, and a growing population of retirees.
What is asset allocation?
The way that superannuation funds invest their members' money is known as asset allocation. Asset allocation is the process of dividing a portfolio into different asset classes, such as equities, fixed income, property, and infrastructure. The mix of asset classes that a fund chooses will depend on a number of factors, including the risk tolerance of its members, their time horizon, and the current market environment.
Superannuation asset allocation in 2023
The latest data on the Australian superannuation asset allocation is explored in an interactive visual below.
The following are some key insights from the superannuation asset allocation data for Q3 2023:
- Equities are the largest asset class in Australian superannuation portfolios, accounting for 53% of assets. This reflects the long-term growth potential of equities.
- Fixed income is the second largest asset class in Australian superannuation portfolios, accounting for 20% of assets. Fixed income provides a source of income and helps to reduce portfolio volatility.
- Cash accounts for 9% of Australian superannuation portfolios. Cash provides liquidity and helps to reduce portfolio volatility.
- Infrastructure is the fourth largest asset class in Australian superannuation portfolios, accounting for 8% of assets. Infrastructure provides a source of stable income and long-term capital growth.
- Property is the fifth largest asset class in Australian superannuation portfolios, accounting for 7% of assets. Property provides a hedge against inflation and diversification benefits.
Key trends in asset allocation
The following are some of the key trends in Australian superannuation asset allocation:
- Shift towards growth assets: Superannuation funds have been increasing their exposure to growth assets, such as equities and infrastructure, in recent years. This is due to a number of factors, including the ageing population, low interest rates, and the search for higher returns.
- Diversification into unlisted assets: Superannuation funds are also increasingly investing in unlisted assets, such as private equity and venture capital. This is due to the potential for higher returns and the diversification benefits of investing in assets that are not correlated to the public markets.
- Focus on ESG: Superannuation funds are increasingly incorporating environmental, social, and governance (ESG) factors into their investment decisions. This is due to a growing recognition of the importance of ESG factors in achieving long-term investment success.
What does this mean for funds?
The shift towards growth assets and unlisted assets is likely to continue in the coming years as funds seek to generate higher returns to meet the needs of their members. However, this also means that funds need to be aware of the risks associated with investing in these asset classes, and their relative positioning compared to their competitors.
The increasing focus on ESG is also likely to continue. Members are increasingly demanding that their money be invested in a responsible and sustainable manner, and funds need to be prepared to meet this demand.
Conclusion
The Australian superannuation system is undergoing several changes, which are having a significant impact on asset allocation. Superannuation executives and market participants need to closely monitor these changes and adjust their strategies accordingly.
Data sourced and adapted from APRA's Quarterly Superannuation Statistics, licensed under the Creative Commons Attribution 3.0 Australia Licence.