By Mike Duncan | September 2025
Rethinking Superannuation’s Investment Function
Australia’s superannuation system manages over AUD 3.5 trillion. Much of its investment function is still run like a compliance department.
That is the blindspot.
Most super funds do not underperform because of asset allocation. They underperform because governance, execution, and risk frameworks are designed to avoid deviation rather than optimise outcomes. FX is hedged mechanically via monthly forward rolls with no tactical discretion. Derivatives are underused or pushed to custodians who lack the mandate to act on them. Collateral is managed reactively. Illiquid credit allocations are built for yield, not for exit. And benchmark-tracking behaviour – entrenched by the YFYS performance test – has suppressed innovation across the industry at precisely the moment markets are demanding more of it.
The funds that consistently outperform do something structurally different. They integrate investment, risk, treasury, and execution into a single decision framework. They treat capital, liquidity, and risk as dynamic variables rather than reporting artefacts. Canadian pension giants like CPP and OTPP have internal structuring desks, automated execution infrastructure, and real-time ALM dashboards. Dutch funds embed scenario-based governance with pre-agreed tactical playbooks. Australian super funds have world-class boards and deeply inadequate execution capability beneath them.
What this paper argues
Scale without execution fluency is not an advantage. A $100 billion fund running passive FX rolls, outsourced overlay management, and static SAA is not a capital steward. It is a large compliance function with expensive real estate. The transformation required is not about taking more risk. It is about closing the gap between governance ambition and implementation reality.
What it covers
- The hidden cost of benchmark-hugging, static SAA, and outsourcing dependency — including up to 80bps in fee leakage in some multi-manager models
- Five structural inefficiency case studies: FX execution drag, illiquid credit overexposure, overdiversification without differentiation, collateral and margin mismanagement, and gating risk in private assets
- Lessons from global pension powerhouses: Canada, Netherlands, UK, and where Australian funds sit relative to international peers
- Eight strategic levers for reform: governance, internal capability, execution infrastructure, capital-linked mandates, automation, active risk management, and capital as a strategic input
- A practical framework for repositioning the superannuation investment office from fiduciary administrator to capital catalyst
The central argument
The future of the superannuation investment office is not compliance. It is command. The structural inefficiencies are real, the global precedents are clear, and the execution gap is closeable – for funds willing to make it a priority.
Read the practitioner paper
Designing Long-Dated Rates Hedges That Actually Work – Why Familiar Structures Fail and What Endures Across Regimes