Global Survey: Australia's Super Funds Drive Superior Growth

(September 7, 2011) — New research from Towers Watson shows that Australia’s major institutional superannuation funds grew at more than double the pace of their global peers last year.

From 2005 to 2010, eleven Australian funds were added to the ranking of the world’s 300 largest pension funds, determined by Towers Watson and Pension & Investments – the highest of all other countries on the list. While Australia’s Future Fund ranked 35th overall with $73.4 billion in assets, Australian Super followed in 78th place, with State Super in 93rd and QSuper in 99th. In total, there are 15 Australian funds in the top 300 global institutional funds ranked by the firm.

Australian funds under management grew by 26% in 2010 in US dollar terms compared to a global growth rate of 11%, the consultancy found. Towers Watson Australia senior investment consultant Martin Goss commented that the growth rate for Australian funds had been supported by merger activity in the superannuation industry. “Other factors that have played a significant role…this include the strong performance of Australian equities relative to global equities combined with the home country bias of many Australian investors.”

He continued: “Looking to the future, Australian funds are expected to maintain their growth trajectory, with a number of high-profile mergers during 2011…we are seeing increasing investment sophistication in Australian funds, with more use of internal expertise, further expansion into alternative assets at the expense of equities and more control by funds over their fund managers when designing and implementing investment strategies and structures.”

In explaining the success of Australia’s institutional funds, Towers Watson noted that the rise of the Australian dollar against the US dollar and Euro, increasing investment sophistication, and the shift towards alternative assets at the expense of equities have also assisted. The combined assets of the world’s largest 300 pension funds grew $1.2 trillion to $12.5 trillion over the last year, according to the report by the firm. The US accounts for 34% of those assets, followed by Japan with 18%, the Netherlands with 6% and the UK and Canada with 5% each.

Recent remarksby Australia’s Prime Minister Julia Gillard provide further heft to the perceived strength of the country’s superannuation industry. In response to domestic and international pressure, Gillard asserted late last month that the country’s superannuation regime is robust enough to stand in the place of a sovereign wealth fund.

While trade unions and institutions worldwide have urged the Australian government to create a sovereign wealth fund, Gillard has asserted that superannuation is already a trillion-dollar sovereign wealth fund–but with market benefits. “That’s because it’s privately managed by thousands of trustees instead of a sovereign wealth fund managed centrally by a Canberra-appointed manager,” Gillard said in an address to the Financial Services Council in Sydney, Money Management reported. “Or alternatively, you could say that Australia has 8 million sovereign wealth funds–the superannuation accounts of Australians across the country.”