AustralianSuper: How a Mutual Fund Became Australia’s Most Powerful Investor

An industry fund is an unusual institution: it is a mutual with no shareholders, run for members, that has accidentally become one of the most significant sources of capital in the country. AustralianSuper votes on takeovers, buys airports, employs its own investment teams and can single-handedly determine the outcome of a corporate transaction. Understanding how it operates matters to anyone dealing with Australian capital markets, because on any large deal it is likely to be on the other side of the table.

Where did AustralianSuper come from?

From a merger. The fund was created on 1 July 2006 by combining the Australian Retirement Fund and the Superannuation Trust of Australia, two industry funds serving overlapping segments of the workforce. Ian Silk, who had led ARF, became chief executive; Mark Delaney, who had led STA, became deputy chief executive and chief investment officer, a role he still holds.

The structural origin explains a great deal. Industry funds emerged from Australia’s enterprise bargaining system, where superannuation contributions were negotiated into industrial agreements before compulsory superannuation existed nationally. The trustee is jointly owned by employer and union peak bodies, giving the fund a governance model that is neither corporate nor governmental.

Growth since then has come from three sources: compulsory contributions flowing in every payday, further mergers such as the absorption of LUCRF Super in 2022, and investment returns compounding over two decades. Paul Schroder became chief executive in 2021 and has been explicit about the strategy, describing the fund as “unashamedly in the business of scale”.

Why does scale matter so much in superannuation?

Because fees are charged as a percentage of assets while many costs are fixed. Administration systems, compliance functions, investment teams and technology cost broadly the same whether a fund manages A$50 billion or A$500 billion, so a larger fund can charge a lower percentage fee and still cover its costs. Over a forty-year working life, a fee difference of 0.3% compounds into a materially different retirement balance.

Scale also changes what a fund can own. A small fund buys listed shares and bonds through external managers. A very large fund can build internal investment teams, negotiate directly for unlisted infrastructure and property, participate in private credit, and co-invest alongside global institutions. AustralianSuper owns ports, airports, rail and road infrastructure across Australia, Europe and North America.

Internalising investment management is the key economic decision. Paying an external manager a percentage of a growing pool becomes extraordinarily expensive at scale, so beyond a certain size it is cheaper to hire the team directly. That is why AustralianSuper employs around 2,000 people, maintains offices in London and New York, and has run staff exchange programmes with large Canadian pension investors who solved the same problem earlier.

What is the deployment problem?

Australia’s compulsory system generates a continuous inflow of capital that must be invested regardless of whether attractive opportunities exist. AustralianSuper alone receives billions each year, and the Australian listed market is small — dominated by banks, miners and a handful of large industrials — while domestic unlisted infrastructure has largely already been bought.

The result is that a large majority of the fund’s assets are now managed offshore, and Schroder has said publicly that the fund is “too big for Australia”. Offices in London and New York exist to source international private equity, infrastructure and credit opportunities that simply are not available domestically at the required scale.

This creates a policy tension nobody has resolved. Compulsory Australian savings are increasingly invested in foreign assets, which is rational for members seeking returns and diversification, and awkward for a government that would prefer domestic capital funding domestic housing, energy and infrastructure. Every proposal to direct super into national priorities collides with the trustee’s legal duty to act in members’ best financial interests.

How much power does a fund this large have?

Decisive power, on occasion. The clearest recent example was the proposed A$18.7 billion takeover of Origin Energy by a Brookfield-led consortium, which the board recommended and which failed in December 2023 after AustralianSuper publicly argued the offer undervalued the company and voted against it.

That episode changed how Australian takeovers are structured. A scheme of arrangement requires 75% of votes cast, so a single institution holding 15% to 20% of a register can block a transaction outright. Bidders now engage the largest superannuation shareholders before announcing terms, because those funds are the effective counterparty regardless of what the target board recommends.

The influence extends to governance generally. Large funds vote on remuneration reports, director elections and climate resolutions across the entire ASX, and they have the resources to form independent views rather than following proxy adviser recommendations. For a listed company, the superannuation register is now the constituency that matters most.

How are unlisted assets valued, and why is it contentious?

Unlisted infrastructure, property and private equity have no market price, so they are valued periodically using models and independent assessments. Between valuations, the carrying value does not move even when comparable listed assets fall sharply. That smooths reported returns, which members experience as lower volatility.

The criticism is that smoothing is not the same as stability. If a fund holds an airport at a valuation set months earlier while listed transport stocks have fallen 20%, members who switch investment options or leave the fund during that window transact at a price that may not reflect current reality — a transfer of value between members.

Regulators have therefore focused on valuation governance: how often assets are revalued, who decides, what triggers an out-of-cycle revaluation, and whether the process is independent of the investment team whose performance it flatters. This is a genuinely difficult problem with no clean answer, and it becomes more consequential as unlisted allocations grow.

What does the shift to retirement mean?

It changes the fund’s entire purpose. Australia’s system was built to accumulate savings and has been comparatively poor at converting them into retirement income. Large cohorts are now reaching retirement with substantial balances and no default mechanism for drawing them down sensibly, and legislation now obliges trustees to develop a strategy for assisting members in retirement.

The practical challenges are considerable. A retiring member needs income that lasts an unknown number of years, protection against inflation and market falls early in retirement, some access to capital for health and housing, and guidance they can act on without paying for full financial advice. Most funds are building retirement products and digital guidance tools simultaneously.

The investment consequence is a shift in the liquidity profile. A fund with net inflows can hold illiquid assets comfortably; a fund paying out more than it receives cannot. As the member base ages, the tolerance for unlisted assets falls, which will eventually reshape how the largest funds invest. Our overview of the Australian superannuation system covers the policy framework behind this transition.

How do industry funds differ from retail funds?

In ownership and in where the profit goes. An industry fund operates as a mutual: there are no external shareholders, and any surplus is returned to members through lower fees or higher net returns. A retail fund is operated by a company that earns a profit from running it, which must come from somewhere in the fee structure.

The historical performance gap between the two segments was substantial and well documented, which is what made the segment distinction politically charged for years. It has narrowed as retail products repriced under competitive and regulatory pressure, and the annual performance test now applies the same standard to both regardless of ownership model.

The more useful modern distinction is not industry versus retail but scale and cost. A large, low-fee product with internal investment capability will generally beat a small, expensive one over a working life, whatever the ownership structure. Members choosing a fund should compare net returns and total fees on comparable options rather than the label attached to the provider.

What are the risks of concentration in a few mega-funds?

Operational risk becomes systemic risk. When one institution administers the retirement savings of three and a half million people, an administration failure, a cyber incident or a prolonged system outage affects a meaningful share of the country’s workforce. Regulators have accordingly shifted attention toward operational resilience and member service standards.

Market concentration is the second issue. A handful of funds now own substantial stakes in most large ASX-listed companies, which means the same institutions sit on both sides of many transactions and vote on governance across the entire index. That is efficient for stewardship and uncomfortable for competition, since the largest shareholders of competing companies are frequently identical.

The third is behavioural. Very large funds tend to hold similar portfolios, because the same asset classes and managers are the only ones that can absorb their scale. If they all rebalance in the same direction at the same time, they move markets, and the diversification members believe they hold across funds may be smaller than it appears.

Frequently Asked Questions