Australia’s biggest superannuation fund, AustralianSuper, has committed to invest another £8bn in the UK by 2030, underscoring the growing trend of the country’s pension funds deploying more capital outside abroad. 

The fund’s announcement on March 5 will take its total UK portfolio to more than £18bn by the end of this decade, as it targets a long-term goal of investing 70% of its capital outside of Australia — a significant departure from today’s 50:50 split between domestic and foreign investment. AustralianSuper’s total asset under management stood at over A$315bn ($205bn) at the end of 2023.

The freshly pledged capital will go into sectors such as energy transition, digital infrastructure, mixed-use estates, transport and logistics. This is in line with the fund’s growing portfolio of large stakes in real assets across the UK, including its 74% interest in King’s Cross Estate, one of London’s biggest urban regeneration projects, and its 32% stake in Peel Ports Group.

“[We’ve] built strong partnerships with like-minded industry leaders and capital providers, especially in real assets such as property and infrastructure,” the fund’s CEO, Paul Schroder, said in a statement. “These relationships reflect our approach to direct investing and value creation during ownership.”

AustralianSuper’s commitment to investing more abroad is supported by its growing international office footprint. It opened its first overseas office in London in 2016, and then in New York in 2021. Late last year, it moved its New York office to a bigger location to accommodate its growing headcount. The fund expects to grow its current overseas employee base from 100 to around 300, split equally between London and New York. 

This allows the fund’s team to be “closer to the assets”, its deputy chief investment officer, Damian Moloney said. Having a growing team in the US financial capital has also helped facilitate its private equity investments in the country. “We’ve found being in New York better for managing the relationships as well, as [private equity firms] are there in the city, around the corner and talking to us a lot more frequently,” he said. “So the location works for that reason as well.” 

Another reason for expanding in London and New York is to support its goal of increasing the percentage of members’ money managed internally to 75% by 2033. This is a broader industry trend of moving away from investing via third-party funds and managers, partly to reduce fees. But it requires the expertise to actively manage different asset classes. “That's one of the reasons we went to London [and] New York: to get that sort of talent,” Mr Moloney added. 

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Outgrowing Australia

AustralianSuper’s £8bn announcement comes less than four months after Aware Super, the country’s third-biggest pension fund, opened its first overseas office in London and committed to invest another A$10bn in the UK and Europe. 

A November 2023 survey of 41 superannuation funds by National Australia Bank (NAB) found that overseas assets account for a growing percentage of their portfolios, hitting 47.8% last year up from 41% in 2019. “These funds have plenty of resources, and the Australian domestic market is not generating enough returns, they need to diversify,” says Gavin Winbanks, founder of White Hawk Green and co-founder of the UK’s Office for Investment. 

Australia’s pension system managed A$3.5tn as of June 30 2023, and is the fastest growing in the developed world with assets under management (AUM) doubling every five years. Ray Attrill, head of foreign exchange strategy at NAB and the report’s co-author, points out that super funds AUM exceed the A$2.6tn market capitalisation of the S&P/ASX200 — Australia’s 200 largest listed stocks. “There are, therefore, limits to how much additional exposure to domestic stocks funds can take on without owning a disproportionately large share of these companies,” he says. NAB said that larger super funds in particular could encounter challenges deploying more capital in the domestic market without “amplifying concentration risk” which creates the potential for financial loss due to overexposure to a single counterparty, sector or geography.

The rise of pension funds globally as direct investors is eliciting the interest of governments and investment promotion agencies, including the UK’s Office for Investment, which feature among the agencies that have been sharpening their focus on institutional investors.

This story has been updated to include NAB's comments.

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