Australia’s $3.6 trillion superannuation system has drifted into a new strategic era—one not fully acknowledged by policymakers, regulators or even the funds themselves. What began as a compulsory savings framework built on diversified, liquid portfolios has evolved into something structurally closer to a sovereign wealth fund. This evolution has been gradual, organic and largely unplanned. Yet the consequences are profound.
A close reading of the 2024–25 annual reports of the major super funds shows that private markets—once peripheral—now form the spine of MySuper portfolios. Hostplus allocates 38% of its Balanced option to private markets, AustralianSuper sits at 23.75%, and ART discloses 29.5% in unlisted and alternative assets. Aware Super and HESTA provide no numerical breakdown of their MySuper illiquid allocations, a notable gap in transparency at this scale, but we can make some educated guesses.
Aware Super and HESTA do publish the underlying structure of their holdings, thus providing strong inferential signals about likely exposure. Aware’s annual report lists dozens of global private-equity, infrastructure and private-credit managers, supported by a growing internal team and offices in London sourcing data-centre, digital-infrastructure and European real-asset investments. This platform resembles those maintained by funds with allocations in the mid-20s to mid-30s. Accordingly, Aware’s overall private-markets exposure is most plausibly in the 25–35% range—broadly consistent with its peer group, but without the same level of disclosure.
HESTA, by contrast, reveals its strategic asset allocation, which indicates roughly 25.5% across private equity, infrastructure, property and alternatives. Without consolidated, member-facing figures, like-for-like comparison is unnecessarily complex, but the available evidence suggests both funds operate at private-markets levels similar to AustralianSuper and ART even if transparency standards diverge.
In summary, private equity, private credit, unlisted property and infrastructure are no longer specialist exposures. They are now foundational.
This quiet realignment has created a system that behaves like a sovereign wealth fund: deeply illiquid, globally oriented and increasingly reliant on valuation-smoothing mechanisms that obscure underlying risks. It has also elevated super funds into political actors in ways few anticipated. As governments grapple with infrastructure funding gaps, climate-transition demands and soft economic growth, the sheer scale of superannuation capital is becoming impossible to ignore.
This essay examines how the system reached this point, why private markets have become core holdings, and why 2026 looms as a decisive year for regulatory recalibration.
Private Markets as the New Core
The most striking feature of the 2024–25 reporting cycle is the normalisation of illiquidity.
Hostplus’s CIO, Sam Sicilia, describes private markets as essential long-term value engines, pointing to inflation-linked cashflows from infrastructure and strong performance from private equity and credit. AustralianSuper highlights its expanding global footprint—New York, London, Beijing—as it seeks to source and co-develop unlisted assets directly. ART emphasises its investments in airports, data centres and global infrastructure networks.
This is not a speculative tilt. It is the result of deep structural incentives embedded in the design of Australia’s superannuation system.
Why the Shift Happened
Several long-term features explain the migration towards private markets.
First, funds enjoy unusually long horizons. With contributions flowing in for decades, superannuation is naturally suited to hold assets that take years to mature. Illiquidity, in this context, is not a problem—it is a feature.
Second, compulsory contributions provide reliable inflows. Unlike retail investment funds, super funds face limited redemption pressure. This stability gives CIOs the freedom to invest in assets that cannot be sold quickly.
Third, APRA’s Your Future, Your Super (YFYS) performance test inadvertently rewards return smoothing. Since private-markets valuations are updated quarterly or annually, pricing lags public markets. This dampens volatility and improves the odds of passing a benchmark that measures relative performance with mathematical precision but limited nuance.
Fourth, scale has changed what is possible. AustralianSuper, Aware and ART now control capital pools comparable to Canadian pension giants and sovereign wealth vehicles. This enables direct stakes in ports, toll roads, digital infrastructure platforms and renewable-energy assets—opportunities unavailable to smaller investors.
Finally, in a world of modest real yields, private credit and private equity offer higher expected returns. The illiquidity premium remains compelling, even as global private-credit markets enter a more challenging late-cycle environment.
A useful analogue is the Yale Endowment Model, pioneered by David Swensen, which demonstrated how long-horizon institutional investors could capture outsized returns by allocating heavily to private markets, real assets and alternatives. While Australia’s super funds did not consciously adopt the Yale model, their structural characteristics—perpetual capital, predictable inflows and limited liquidity demands—have pushed them towards a similar endowment-style architecture.
The result is a system that behaves less like a retail investment vehicle and more like a university endowment or sovereign wealth fund, albeit without the same purpose-built governance frameworks.
Together, these forces have pushed the system towards a structural portfolio model far more illiquid than its original design anticipated.
The Hidden Vulnerability
But the shift comes with underappreciated risks.
Private assets do not price daily. This creates valuation inertia that can mask deterioration for months. Unlisted property values often stay flat until auditors force write-downs. Members, meanwhile, can switch options daily, creating a mismatch between liquid liabilities and illiquid underlying assets.
Private credit is even more opaque. Global private-credit markets are entering a default cycle driven by higher interest costs, weaker covenants and slowing economic growth. Yet disclosures by Australian funds remain general and descriptive, offering limited insight into concentration risks or borrower quality.
Opacity compounds the challenge. Without detailed, standardised reporting of private-market exposures—especially from Aware and, to a lesser degree, HESTA—it is difficult to assess system-wide concentration or contagion risk.
Political Risk Arrives
As the sector grows, political attention is intensifying. The Victorian Government’s recent comments about compelling super funds to invest in specific state infrastructure projects reflect a broader trend: governments increasingly see superannuation as a tool for macroeconomic policy.
The instinct is understandable—super funds are large, sophisticated and well-capitalised. But mandating investment into particular assets misunderstands both portfolio construction and fiduciary duty. Funds already invest heavily in infrastructure; they simply do so on commercial terms, in projects and jurisdictions that meet their risk-return criteria.
Political intervention risks distorting asset allocation, exacerbating liquidity mismatches and undermining member trust. It marks a new era in which superannuation investment choices are no longer merely financial decisions—they are political-economy events.
2026: The Regulatory Inflection Point
Regulators are aware of these dynamics. Treasury, APRA and ASIC have all signalled that the current governance framework may not be adequate for a system dominated by illiquid private assets.
Reforms under consideration include:
- stronger liquidity stress-testing
- standardised valuation approaches for unlisted assets
- harmonised reporting of private-market exposures
- potential soft limits on MySuper illiquidity
- more frequent member disclosure
These changes would bring Australia closer to the governance frameworks used by sovereign wealth funds and large Canadian pension plans—the very models that inspired Australia’s shift into private markets.
Aligning Structure With Reality
Australia’s superannuation system remains one of the world’s strongest. It has delivered excellent long-term outcomes and built a deep pool of national wealth. But its evolution into a de facto sovereign wealth fund brings new responsibilities and new risks.
The issue is not that funds invest in private markets; these assets have delivered strong returns and genuine diversification. The issue is that the regulatory architecture, liquidity management and disclosure standards have not kept pace with the system’s structural transformation.
As political visibility grows and the macro environment becomes more complex, 2026 will be the year Australia decides whether its superannuation system continues to evolve by accident—or whether it begins to govern it like the sovereign wealth vehicle it has already become.
Mike Fagan, Head of Market Strategy, Openmarkets Group