Too big to invest: $4.3 trillion super savings outgrow Australia

Australia’s three decade old super system has become a victim of its own success. With retirement savings now exceeding $4.3 trillion – nearly double Australia’s annual GDP – the system has fundamentally outgrown its home market.

Within a decade, assets under management are projected to reach $10 trillion, making Australia’s retirement savings the world’s second-largest pension pool after the United States. This scale has forced a bigger structural transformation: Australia has evolved from a chronic capital importer into a net exporter of investment funds.

Just over $3bn flows into the Australian super system each week, and this cash needs to find a home. The home bias of super is already starting to crowd out Australia’s globally small stock market, and has already delivered a hefty premium to local shares. The price-to-earnings ratio of the S&P/ASX 200 is nearing 22 times, well above its long run average.

At the same time, while there’s clearly an infrastructure and housing shortfall, there are only so many toll roads, wind farms and solar panels that can absorb capital without either compressing returns to unacceptable levels or stoking cost blowouts (inflation) through supply-side pressures.

International super investment allocations have more than doubled over the past decade to be just under 50 per cent of all assets. International markets have historically delivered higher risk adjusted investment returns than Australian markets.

International markets, particularly the United States, offer deeper liquidity and historically superior risk-adjusted returns. Given the US represents the world’s largest and most sophisticated capital market, it was inevitable it would capture the lion’s share of Australia’s offshore deployment.

The Trump administration’s $US1 trillion announcement emerged from groundwork laid in February, when the heads of Australia’s largest funds – including the Future Fund, IFM Investors, AustralianSuper, Australian Retirement Trust, Cbus and Hesta – met newly sworn-in Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick in Washington.

Kevin Rudd, Australia’s ambassador, orchestrated the meetings, which also included Blackrock CEO Larry Fink, state governors and other institutional investors. There, Australian funds committed to accelerating US exposure across private credit, artificial intelligence infrastructure and digital assets, while gaining early insight into the administration’s emerging tariff architecture.

The funds were positioning themselves deliberately. AustralianSuper, the nation’s largest industry fund, already holds over $US80bn in US assets, including a $US1.5bn stake in Nvidia and $US1.3bn in Microsoft. IFM Investors, which opened a New York office in 2007, now controls US toll roads and energy infrastructure. These aren’t opportunistic punts but shows Australia’s inability to absorb domestic capital at scale. AustralianSuper opened its New York office in 2022.

Australia’s super system has become a victim of its own success. With retirement savings exceeding $4.3 trillion – nearly double annual GDP – there’s too much money for too few local investments.

BlackRock’s Larry Fink has emerged as a prominent advocate for the Australian superannuation model, frequently urging other nations to adopt similar frameworks to address retirement funding crises. Yet Fink’s praises come with pointed criticism: Australian super remains excessively conservative, favouring long-dated infrastructure, equities and fixed income over “risk capital” deployment. The deep pools aren’t backing entrepreneurs or start-ups – these are engines of economic dynamism that characterise US capital markets.

This conservatism stems partly from prudential design. Superannuation trustees operate under strict fiduciary obligations to preserve retirement savings, naturally inclining them towards established assets with predictable cash flows. Yet it also reflects market structure: Australia lacks the sophisticated private capital that can push patient money towards emerging ventures.

Private credit represents the emerging bridge between superannuation conservatism and economic dynamism. Wall Street firms – Blackrock, Blackstone, KKR, Apollo, and Australia’s own Macquarie – are now structuring vehicles specifically designed to capture superannuation flows seeking yield beyond traditional fixed income without full equity risk. This intermediation promises to redirect some Australian retirement savings towards productive risk-taking, though whether it genuinely finances innovation or merely layers fees onto higher risk remains to be seen.

In recent weeks, several Wall Street bankers, including JP Morgan’s Jamie Dimon have warned of strains (or more cockroaches to come) in private credit markets.

Where the US dominates Australian offshore deployment, Aussie funds are increasingly looking at Europe for opportunities. Asset valuations there remain less inflated following years of economic stagnation. A delegation of Australian superannuation bosses are currently in the UK looking at long-term opportunities. This week, AustralianSuper launched a new UK living platform with an initial $1.1bn commitment, signalling that capital allocation is becoming genuinely global rather than merely US-centric.

The success of Australian super funds has created the need for exports at trillion-dollar scale. However, this means Australian retirement savings are inextricably linked to global capital flows as much as the risks of geopolitics.

This article first appeared in The Australian as Too big to invest: $4.3 trillion super savings outgrow Australia