New figures show that growth in superannuation fund ownership levels of the Australian Securities Exchange has slowed dramatically just two weeks after the Treasurer signed off on an inquiry into the issue.

The inquiry, to be conducted by the House Standing Committee on Economics, came shortly after industry superannuation umbrella group IFM bid $22.3 billion for Sydney Airport’s listed owner.

However, new research from Rainmaker shows that the move towards increased ownership of the ASX by superannuation funds has actually slowed considerably in recent years.

Rainmaker predicted just two years ago, in 2019, that Australian super funds would own 50 per cent of the ASX by valuation by 2030.

That was based on the assumption that the relative holding of super funds in the ASX would rise by 4 percentage points every five years.

However, its most recent look at the issue in March revealed the rate of growth had slowed dramatically and its view has changed.

Now Rainmaker predicts that, based on current trends, super funds will only hold 41 per cent of the ASX by 2030. As at March 31, 2021, they held 37 per cent.

Using previous growth assumptions, growth from this point would have seen the figure reach 45 per cent by 2031. But growth has slowed so much that the more likely figure to be achieved will be 41 per cent.

Move away from ASX

What is driving the change is the move by not-for-profit super funds to hold less of their portfolios in Australian shares than in the past.

Currently the 37 per cent of the ASX held by super funds is made up of figures that vary with fund type.

Nor-for-profit (NFP) industry, corporate and public sector funds own 13 per cent of the stock exchange by valuation while for-profit retail funds hold 9 per cent.

The largest stake is held by self-managed super funds (SMSFs) which hold 15 per cent because their owners are very keen on the tax advantages of Australian share holdings.

“There is a reset going on which means that the holdings of not-for-profits, the bulk of the super system, in the ASX are declining,” said Rainmaker executive director Alex Dunnin.

Back in 2013 the NFPs held 24 per cent of their portfolios in Australian shares but that had fallen to 19 per cent in March 2021.

Meanwhile the retail funds have increased their ASX exposure from 26 per cent to 29 per cent of their portfolios.

But, as the chart below demonstrates, the relative size of the retail (commercial) funds is declining. Last June they accounted for 24.6 per cent of the super sector compared to 30.8 per cent 10 years earlier.Given that the NFP’s are predicted to grow dramatically while the relative share of retail funds will remain flat and SMSFs will fall, the trend that Rainmaker highlights is likely to continue.

There are two factors driving the relative move away from Australian shares by NFP’s.

One is a move to international shares, which have increased their relative position slightly since 2006.

Back then the average balanced industry fund, according to Chant West, held 25 per cent of the portfolio in ASX listed companies, compared to 28 per cent this March.

Another is a greater exposure to alternative assets like private equity, infrastructure and unlisted property, which have risen from 13 per cent to 22 per cent.

While the government has concerns about the rising stake of super funds in the stock market, others are more sanguine.

“We always new that as the world of superannuation increased in size, funds would have to find more things to put their money into,” said Helen Hodgson, taxation law professor at Curtin University in Western Australia.

As a result super funds will increase their influence in the markets because they have the collective ability to scrutinise companies far more than individual investors can.

“Where funds are listening to the views of their own members and using that to develop an investment strategy, that is actually a good way to deal with some of the corporate social responsibility issues that are becoming more prominent at the moment,” Dr Hodgson said.

Super funds, she noted, are actually owned by members.

“Once you take the flow-through to individual members you see that they are quite diversely held,” Dr Hodgson said.

ETFs are growing

Another growing area of collectively held investments is exchange traded funds (ETFs) which are operated by major international players like Black Rock and Vanguard and Australian based BetaShares.

Such funds pool investments for retail investors, allowing them to choose from a vast range of investment options that could not be accessed individually.

No figures are available for the Australian market but in the US these so-called passive investments accounted for 17.2 per cent of the US market in 2019, according to Investopedia. Back in 2000 it was just 3.5 per cent.

Those investors do not necessarily “play an active role in steering company strategy but in terms of governance, in things like reviewing directors fees, they can be significant,” said David Bassenese, chief economist with BetaShares.

However it was not their remit or within their brief to “get involved in changing companies’ business strategies”, Mr Bassenese said.

The New Daily is owned by Industry Super Holdings