Australia’s superannuation sector is unusually high profile and political within its home jurisdiction, at least compared with other countries.
Much handwringing takes place in both the specialist financial and more generalist media Down Under about the purpose of superannuation and the rules over how people can access their retirement savings – to an extent that is not generally seen in public in Europe or North America.
This means that the sector’s lobby groups have an important role to play in fighting for the interests of the funds themselves – and even this has seen some intriguing developments in recent years.
The Association of Superannuation Funds of Australia, the largest of these groups, pitches itself as “the voice of superannuation since 1962”, representing the full spectrum of superfunds that operate in either the profit-for-member industry fund space or in the for-profit retail side.
A new player emerged in 2023, though, as the largest profit-for-member funds banded together to form the Super Members Council following the merger of two other industry bodies: Industry Super Australia and the Australian Institute of Superannuation Trustees.
This left some asking where ASFA fit in, given that the largest industry funds now dominate Australian superannuation in terms of funds under management and their general influence over the agenda (see AustralianSuper’s skewering of the Brookfield Asset Management-led takeover bid for Origin Energy as a prime example).
ASFA chief executive Mary Delahunty, who has been in post since February 2024 after a 10-year-plus stint with industry fund Hesta, tells Infrastructure Investor that the organisation is the “only association” that covers what she calls the “broad tent” of all funds and service providers, as opposed to a “subset” of the sector.
ASFA’s role
We speak to Delahunty shortly after Treasurer Jim Chalmers handed down the federal government’s 2024 Budget, which Delahunty says was an “unusually quiet” one for superfunds.
One area that did stand out was the government’s emphasis on its Future Made in Australia policy, widely viewed as a response to the US Inflation Reduction Act.
“We understand that is an attempt to mobilise private capital behind projects that bring prosperity to the nation – so we have to have conversations with the government about how institutional investors will need to be included in the building of a framework, if it is [the case] that institutional investors will be encouraged to participate in it,” she says.
“ASFA’s role in that sense is to ensure those conversations are authentic and deep, and truly reflect what institutional investors need to participate.
‘‘If we are to participate in this transition in the way the nation needs us to, we need to allow investors to really do their stuff”
Mary Delahunty
“But it is exciting. We are seeing movement of capital to areas of economies internationally where it has been shown that a government has set a policy agenda that leans into the energy transition. If you look at the IRA, for example, we risk the flight of capital out of Australia. It’s important for Australia to have that framework as well, so that we can attract international capital.”
With calls from the incumbent Labor government for superfunds to get more involved in so-called nation-building projects, such as upgrading the electricity transmission network or funding the construction of more social housing, Delahunty says it is important to bear in mind that a top priority must be financial returns.
“There’s a necessity for investors to be able to think like investors – the world does better when that happens,” she says. “They are investing with people’s deferred wages, and it’s important that money works hard – just as hard as people worked to put it [into the fund].
“We understand as an investment community, though, that projects can often have a double dividend, so they can have an appropriate risk-adjusted return within the portfolio while building prosperity for the nation. That’s really difficult to work into an investment thesis, but it’s well-understood within the Australian community that it’s appropriate for superannuation funds to participate where they can see that risk-adjusted return.”
Regulatory role
Regulators in Australia are also increasingly paying attention to how superfunds value their unlisted
assets, in line with higher levels of scrutiny that are emerging in other countries.
Delahunty says unlisted asset valuations have “rightfully gained” the attention of the Australian Prudential Regulation Authority, which is known to be undertaking a review into the issue as part of an assessment of whether there are hidden systemic risks in the sector.
“It is necessary to make sure there are robust governance arrangements around the valuation of unlisted assets,” she says. “What we find, and from what I personally saw within a fund, is that there are robust arrangements in place. It is always helpful, though, to have updated guidance from the regulator, especially as unlisted assets become more important.
“It’s to the benefit of superannuation funds that they can have exposure to unlisted assets that match their time horizon.”
‘‘If we see investors doing their own research and taking risks… then we will be able to fast-track the transition”
Mary Delahunty
Another area of concern in recent years has been the performance test introduced by the previous Coalition government whereby funds’ default MySuper options were benchmarked against a range of investment indices. Particularly troubling were the indices used to benchmark unlisted assets, which initially were felt by many to be unrepresentative of the asset classes they tracked.
“Members landed on the position that the test itself is certainly not ideal – but it has already been considered in funds’ operations now,” Delahunty says.
“ASFA members, regardless of what kind of fund they are, are conscious about not adding costs to the way they operate, so that becomes of paramount consideration when they look at changes [to how things work]. But we’re having a constructive conversation with government about what the test means.
“I think we need to keep a broader mind about when a fund has come close to failing, or has failed, the test because they have exposure to assets that we need in a transition, and that they have conviction will produce an appropriate return [which] isn’t necessarily reflected in the benchmark.”
Internalisation and performance
Delahunty reflects on the trend towards increased internalisation of investment operations at the largest superfunds, too, saying that funds are taking very different approaches to this in terms of the asset classes they pursue for internalisation.
“It means we have developed the capability in Australia to really have world-class portfolio strategies that can be executed on the investment side as well. This will necessarily lead to different approaches from superfunds around how they participate in a transitioning economy,” she says.
“If we see investors doing their own research and taking risks or assessing opportunities in ways they find compelling, then we will be able to fast-track the transition more so than if we have a very vanilla approach to investment opportunities. From our sector’s perspective, we need a regulatory and policy environment that is reflective of the necessity for funds to be able to operate in such a way that they can take their own decisions.”
The performance test can sometimes hamper this ability, she adds, with cost pressures that funds face from the regulatory environment adding to this.
“I think perhaps it’s time to take a breath from some of these pressures and realise that we’re all better off if we allow investors to really compete in this space. The market does best when there is competition for ideas and opportunities. If we are to participate in this transition in the way the nation needs us to, we need to allow investors to really do their stuff.”
Another hot topic is debate around the need for superfunds to set portfolio-wide net-zero targets, with some funds being pressured into setting more ambitious targets by members.
Delahunty says: “It’s not necessarily the most articulate thing to expect an institutional investor to have a straight-line approach to their net-zero commitment.
“Year-on-year do we actually want to see the carbon footprint of the portfolio go down, or are we ready in this country to be able to accept that these are lumpy commitments? They might go up one year because a good owner might pick up a ‘bad asset’ and drive it through the transition.
“It would be unfortunate if the regulatory environment drives that straight-line approach, because we want to see good stewards of capital take assets that would otherwise continue to represent a threat to our broader prosperity and that with their intervention can decarbonise faster.”
That call will be music to the ears of infrastructure investors in market with transition strategies, of course. But the overarching message from Delahunty is clear: Australia’s superannuation sector is poised to play a major role in supporting the wider transition of the country’s economy towards net zero, by backing assets across unlisted markets.