Going global: Unlocking the growth potential of Australian pension capital

Australia has built one of the world’s most successful pension systems. The country’s pension assets total approximately US$2.8 trillion, making it one of the largest and fastest growing pools of retirement savings in the world. 

As the system has grown and matured, Australian pension funds have been increasingly investing in international markets to help diversify their portfolios, manage risks and deliver healthy long-term returns for their members. Large institutional pension funds are now investing nearly half their assets in international markets, with nearly US$800 billion currently invested outside of Australia. 

This report sets out what that may mean over the next decade as the pool of retirement savings continues to grow and as funds continue to look globally for the best investment opportunities. International investments have already increased 2.6 times since 2014. Based on existing trends, this report forecasts that Australian pension funds will have over US$2.6 trillion invested outside of Australia by 2035. As the world’s largest and most dynamic economy, the US is expected to be the top destination for this investment. Over the next decade, total investment in the US is expected to more than double from US$0.4 trillion to US$1 trillion.

Most of the current investment in the US is in equities and bonds, although Australian pension funds, led by the large ‘industry’ or ‘profit-to-member’ funds, already have significant investments in US infrastructure, real estate, and private equity. These funds have decades of expertise in infrastructure and other private markets, and have established themselves as valuable investment partners, providing a critical supply of long-term and value-adding capital.

This report sets out estimates of Australian pension funds’ current global and US exposures in these private markets and looks at the opportunity to expand and accelerate investment over the next decade. 

Based on existing trends, Australian pension fund investments in US private markets are expected to grow from US$50 billion today to US$140 billion by 2035. However, with deeper collaboration and partnerships between Australian pension funds and US governments, investors, and other stakeholders, this could be US$240 billion or more. That would see, for example, Australian pension fund investment in American infrastructure increasing from US$20 billion today to US$110 billion, across roads, ports and logistics, data centres, energy, telecommunications networks and more. 

The opportunity is clear: forging stronger partnerships between Australian pension funds and US partners has the potential to deliver healthy returns for Australian workers and help drive US growth, jobs, and infrastructure.

Read the full report here.