There is no comprehensive data available in respect of asset allocation for the whole Australian superannuation industry.
However for default superannuation funds, the table below shows the asset allocation of the default investment strategy for the last five years. The table shows the proportion that these assets represent of all pooled superannuation funds, which excludes small funds and life office statutory funds. The data shows that the default investment strategies have consistently had about half of the assets invested in equities with about 10 per cent invested in property. The other assets are likely to include a wide range of alternative assets including private equity, hedge funds and infrastructure.
Asset allocation for detault investment strategies
An important sector of the Australian superannuation industry is the self-managed superannuation funds (SMSFs) which represent about one third of all superannuation assets. This type of funds is uniquely Australian where all the members of each fund must also be the shows trustees and therefore bear full responsibility of managing the fund for themselves. The table below shows the asset allocation of these funds for the last five years, as reported by the Australian Taxation Office.
It is apparent that the asset allocation of SMSFs is quite different from the default strategies shown earlier with a much higher investment in cash and term deposits. One of the reasons for this outcome is likely to be that these members are older, with many in the pension drawdown phase. The other assets include loans and debt securities offset by some borrowing.
Notwithstanding the high allocation to cash and term deposits, SMSFs have an allocation to growth assets (such as equities and property) of at least 55 per cent, if one assumes that at least half of the trusts and managed investments are invested in these types of assets.
Asset allocation for the SMSFs
This data suggests that our superannuation industry has about two-thirds of its assets invested in areas that may be broadly defined as “growth” assets, where the actual returns are related to economic performance and therefore may be volatile.
The obvious question to ask is whether this relatively high exposure to growth assets places an unreasonable risk on the provision of adequate and sustainable retirement incomes for Australians over the long terms.
There is not a single asset allocation for pension funds that is correct in all circumstances. Diversification of assets across several investment categories (i.e. beyond just equities and bonds) should represent a fundamental feature of all pension plans.
As the superannuation system matures and there is a shift in funds towards retirees, it is likely that this exposure will gradually reduce. The current overall allocation, which provides a high level of exposure to potentially volatile assets, will become less appropriate as the baby boomers retire and begin to drawdown their funds. A broader range of assets, including corporate bonds and credit is likely to provide a better long-term outcome for these members.
*All information sourced from the Mercer, Financial Services Council: “Asset Allocation of Pension Funds Around the World” (February 2014).
