Allocations to private markets within Australian superannuation investment portfolios are continuing to rise, driven by the long-term return potential and diversification benefits that these assets offer. However, as speakers at the recent 3rd Private Markets Summit highlighted, the increasing complexity of managing such investments – particularly within the unique regulatory and liquidity environment of the Australian system – is creating significant challenges for asset owners.
Unlike many global pension systems, the Australian regulatory system is set up to allow superannuation fund members to switch between investment options or funds on a daily basis. While this flexibility empowers members and stimulates competition in the sector, it also amplifies the importance of managing liquidity and operational risk. During periods of market stress, switching activity can spike – often into cash – while funds still need to accommodate their unlisted asset holdings, which can be close to 40% of their portfolio.
One speaker noted that this dynamic creates a fundamental tension between long-term investment strategies and short-term liquidity demands.
“It’s a bit of an oxymoron to have upwards of 30 per cent invested in unlisted markets and yet require daily switching. Nobody else in the world has those constraints, and it makes it far more difficult for Australian superfunds to achieve long-term investment objectives,” Bev Durston, Managing Director at Edgehaven told the audience.
Durston pointed out that sovereign wealth funds, as well as for example the Canadian funds, are far better equipped to take on long term, illiquid assets. “Australian funds often look to emulate Canadian funds, but the Canadians are predominantly defined benefit funds, which means that they do not offer daily pricing or switching, have limited liquidity needs and so can naturally hold more illiquid assets, upwards of 35% to 40%. We have a completely different structural system, and for that reason, we shouldn’t be copying and pasting Canada when it comes to illiquid assets,” she said.
This tension also has significant implications for operational infrastructure. The requirement to support daily member switching has created pressure on fund accounting systems to deliver accurate, timely unit pricing—something many platforms were not built to handle at scale on a daily basis.
Growth in Australian private markets has been phenomenal, but many legacy systems, built off the back of spreadsheets, are not fit-for-purpose,” Enrique Gonzalez, Senior Director of SS&C GlobeOp for Australia and New Zealand told the audience. “You need robust technology and quality staff to value hundreds of complex funds on a daily basis.”
Beyond liquidity and operational pressures, regulatory frameworks are also influencing investment decision-making. Requirements such as RG 97, which emphasise fee and cost disclosure, and the performance benchmarking regime under Your Future, Your Super (YFYS) are shaping asset allocation decisions in ways that, some argue, are overly restrictive.
Private equity, for example, presents challenges around fee transparency and benchmark alignment. Even more constrained is the natural capital sector—including agriculture and timberland—where the absence of a suitable YFYS benchmark has significantly curtailed domestic investment.
“These are areas where Australia has a natural competitive advantage, yet because of benchmarking limitations and the risk of tracking error, few superfunds are willing to allocate to timberland or agriculture,” Richard Chapman, Director – Corporate Development & Strategy at LVP said. “Meanwhile, Canadian pension funds, like PSP Investments, are dominating ownership of Australian agricultural assets. It’s a missed opportunity,” he added.
While the enthusiasm for private markets remains solid, the summit underscored that, particularly in Australia, realising investment potential requires more than capital allocation—it requires deep investment expertise, robust systems and the ability to operate effectively within the existing regulatory framework.
