Australian superannuation funds are at the forefront of building the nation’s international financial power with the latest balance of payments figures showing our positive balance with the rest of the world now stands at $369 billion.

To highlight this trend the country’s largest super fund, AustralianSuper, announced recently that it will increase its UK investments by eight billion pounds ($A15.49 billion) by the end of the decade. Currently AustSuper already has the same amount of eight billion pounds in UK investments.

“Despite ongoing global economic uncertainty, the UK remains an attractive destination for global investors like AustralianSuper which is evidenced by our forecast 8 billion pound commitment to the market over the rest of this decade,” said CEO Paul Schroder.

AustSuper to date has investments in real estate developments and infrastructure in the UK and plans to put new funds into sectors like energy transition, digital infrastructure, mixed-use real estate, and transport and logistics.

Big offshore investments

Overall the superannuation sector is heavily invested in offshore assets, said Alex Dunnin, director at Rainmaker. “The big super funds are increasing offshore investments by putting big licks of capital into overseas markets.”

Currently APRA regulated superannuation funds have $2.57 trillion in assets, a figure that grew 11 per cent last year.

According to Rainmaker 46 per cent of APRA-regulated superannuation assets are invested outside the country. Those investments are made up of the following:

• International equities – 26 per cent
• International fixed interest – 8 per cent
• Property – 4 per cent (half of total property investments)
• Alternative assets – 8 per cent (half of total alternative holdings)

Alternative assets include private equity, venture capital and various sorts of direct investments.

“The Australian market is reasonably small in the global scheme of things so as the super sector grows it gets harder to find investments in the local economy,” said Ian Fryer, research director of Chant West.

Not only is the local market relatively small, it is highly concentrated in sectors like resources and banking. So to get exposure to high growth sectors like tech, biotech, electronics and pharmaceuticals, the super sector needs to invest in large offshore markets.

Funds grow international strength

While the per centage of superannuation asset allocations in offshore investments has not grown in recent times, the funds themselves are growing massively. That is driven by a growing workforce, the maturation of member accounts as workers have held super for longer and the steady rise of the superannuation guarantee towards 12 per cent of wages by 2025.

“As funds grow strongly they need to keep finding more of those overseas investments,” Fryer said.

The growth of superannuation with its overseas investments is also building the net balances of Australia, turning us from a debtor nation into a capital exporter over the last 10 years.

“Total Australian holdings of offshore portfolio investments- equities and debt -at the end of 2023 stood at $1.67 trillion,” said independent economist Saul Eslake. “That’s up from $1.2 trillion in 2020 and $468 billion back at the end of 2010.”

Of that amount “super funds would be a significant proportion,” Eslake said. “We earn dividends interest and capital gains on those investments,” Eslake says.

While Australia still has a net foreign debt of $1.2 trillion the balance on equity investments is $369.6 billion in our favour.

That in turn builds strength for the overall economy, protecting the country from balance of payments crises that once played havoc with the local economy.

And debt is falling relatively. Debt levels are the same as they were five years ago and increasingly the debt is held in Australian dollars so the country is insulated against falls in the value of the currency.

That famously caused then Treasurer Paul Keating to  warn of the danger of becoming a ‘banana republic’ back in the 1980s’

While portfolio investments have grown in Australia’s favour over the last decade, as far as direct investments- holdings in businesses- goes, Australia is still in a negative position. Foreigners own $836 billion more in local businesses than Australians hold in offshore enterprises.

However the super sector is working to build offshore direct investments also. AustSuper currently has 100 staff based in the UK but plans to increase this to 300 by 2030.

The growing workforce will focus on both portfolio assets and real investments.

AustSuper has steadily expanded its international investment capability in recent years. In future it expects $7 of every new $10 invested to be deployed outside Australia, “as it pursues the best global investment opportunities and long-term returns for members,” Schroder said.

The New Daily is owned by Industry Super Holdings