Is AustralianSuper continuing to prove that Bigger isn't necessarily Better?
AustralianSuper is (currently) Australia's largest superannuation fund, with over $385 billion in assets under management (AUM) and 3.56 million members as at June 30, 2025.
Some volatility in returns is to be expected, but this article focuses on whether "bigger is necessarily better" when it comes to selecting a superannuation fund, using AustralianSuper as the exemplar. Let's look at the question from the following perspectives.
Recent Investment Performance
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AustralianSuper has just reported a return of 9.52% from its balanced option for the financial year to June, 2025 - around 90% of its members are invested in this option. According to SuperRatings, the median return for for the 50 largest balanced superannuation options in Australia was 10.1% and AustralianSuper result was the weakest performance amongst the five "mega funds". The others, Australian Retirement Trust, UniSuper, Aware and Hostplus all performed above the median. Media coverage has indicated that, while AustralianSuper has lagged its peers, it still posted a strong absolute result, with its Chief Investment Officer emphasizing the benefits of diversification and the stabilizing effect of unlisted assets. Indeed, the Chief Investment Officer indicated an intention to hire more private equity teams and one headline read, "AusSuper lags peers but still bullish on unlisted assets". This headline prompts a sense of "deja vu" and is eerily similar to those that ran in 2024 when the funds results were also unexciting, and raises the question of why there continues to be a continuing, strong commitment to private equity investments, which are much more opaque than market investments. This is particularly given incidents such as the substantial write-off by AustralianSuper of more than $1.1 billion in equity and loans tied to an American online education start-up, Pluralsight, in late 2024. At the minimum AustralianSuper should more widely communicate why it has a continuing bias to private equity and perhaps afford members to ability to "opt out" of or dilute their participation in an asset class that is neither transparent, liquid or marked to the market. Meanwhile, its marketing continues to trumpet historical than current investment performance and seems to forget the old warning label, "Past performance is no guarantee of future results". |
Is Bigger Better?
In very general terms, a larger fund probably has the following advantages 1) the ability to reduce the unit cost of managing the funds since you are spreading your fixed costs over a larger base, although experience suggests that remuneration tends to increase with assets under management, regardless of performance; 2) the ability to better resource your investment department - although this would be marginal beyond a certain point, and 3) access to investments which were not readily accessible to "smaller" funds.
It is the third element that tends to be highlighted in public, and particularly the ability to invest in private markets including private/direct property and infrastructure with longer time frames. However, this seems to be used partly underpin the need for investment offices in both New York and London - these will be very expensive to maintain on any measure, located as they are in Kings Cross and Mid town Manhattan, but no costs are broken out in any AustralianSuper reporting.
But where the "rubber hits the road" is investment performance, and it's very hard to argue looking at the figures below that AustralianSuper's overall investment performance has improved over the last few years with increasing size. Although to a degree this is unfair because the fund is being measured against very high quality results over the preceding decade it is nevertheless failing to meet the majority of investment benchmarks.
In the chart below - which will be updated shortly when 2025 benchmarks become available - you will see that AustralianSuper only exceeded the one year benchmark return in 3 of the 10 asset classes as at June 30, 2024 - and if you are a conservative investor, which applies to many in retirement - you would be particularly upset at the significant, continued under-performance in the Conservative Balanced and Stable investment options.
So, there is no obvious evidence in recent investment results that the significant growth in AUM over the last three years has provided a competitive edge in terms of results. Indeed, some of the poor results can be associated with significant write-downs of direct property assets and while some of the factors triggering the write-downs could not necessarily have been foreseen, the issue is whether the ability to hold large directs assets means that the fund becomes less diversified. There is also the important issue, subject to much discussion, around whether privately held assets offer too little transparency when it comes to valuation.
Service Levels
Size absolutely provides an advantage when it comes to implementing the best and most appropriate service systems - and, when you are dealing with 3.4 million members, "quality people operating quality systems" is a must. Again, however, AustralianSuper was a "large fund" before it became a "mega fund" and in principle existing systems should simply have scaled up to meet higher volumes - providing a cost rather than necessarily a quality advantage. In terms of fees alone, AustralianSuper is certainly competitive, just edging into the "Top 10" list of Low Fee providers as ranked by SuperRatings.
Unfortunately, perhaps the only objective barometer we have at the moment to assess the quality of service provided by AustralianSuper is the number of complaints made to the Australian Financial Complaints Authority (AFCA). AFCA no longer appear to publish information regarding the number of "complaints per member" but the chart below provides a comparator, showing total complaints made regarding super accounts matters (not including life insurance claims) over the period 2021 to 2024 contrasted with other large funds.
There is no clear reason for the relatively high level of complaints - there have for example been no substantial mergers in the period, such as with ART- or why they have remained persistently high. Note that in early 2025 AustralianSuper agreed to pay a $27 million fine levied by ASIC after the regulator alleged "a shambolic treatment of a core issues over a long period of time”. Furthermore, in March 2025 ASIC sued AustralianSuper over the alleged delayed processing of nearly 7,000 death benefit claims.
We are not sure how levying fines in this situations actually helps members. In effect they are fining the same group that were impacted by the poor behaviour, so "double jeopardy", and not the guilty parties. ASIC should seek to identify and rectify the causes of the poor or illegal behaviour - and if the problem lies with individuals, including Board Members, then ban them from working in the superannuation or financial services industry permanently or for proscribed periods.
The crucial question that applies to many superannuation funds as more more members move into the retirement phase is, whether organisations that have been largely focused on investments are well-placed to move into an environment where an increasingly large part of the organisation is focused on higher volume service transactions? Given the above it would be hard to argue that AustralianSuper has made a successful transition.
Product Development
Continuing the thread above, bigger funds should mean bigger resources, and that should extend to product development. In this context, what we mean by product development is offering a lifetime income stream - such as we have seen from QSuper, ART and UniSuper - all smaller funds. All that we know at the moment is that AustralianSuper will launch an "Income for Life" product with its life insurance partner TAL. This was announced in March 2024 and there was an expectation that a product would be available in early 2025. Unfortunately, we are now in mid 2025 and no announcements have been forthcoming
How this pace of development is acceptable to a leading Australian superannuation fund, at least in terms of retired members, is difficult to comprehend. Nor is it difficult to avoid a conclusion that AustralianSuper may have decided to "contract out" their retirement income responsibilities rather than developing it as a core competence.
What has become apparent is a lot more marketing around AustralianSuper's Choice Income product for retirees - that does no harm, but it is not a substitute for substantial product development or doing more to meet its commitment to developing a "Retirement Income Strategy". Communicating more with members in or approaching retirement, in terms of seminars and access to advice is again a good thing, but two hour seminars prior to retirement are fundamentally inadequate except as a means of channeling some individuals into advice.
As we have argued previously, both AustralianSuper and the industry more widely, need to invest heavily in member education for their own benefit and this should be approached on a cooperative basis and extend throughout the member's life. Funds should certainly compete in relation to investment performance and service, but not in terms of education where there needs to be a shared view on syllabus and delivery - something which does not exist at the present time.
In Summary
For much of its existence AustralianSuper's major problem has been to manage significant growth year on year but there appears to be no clear evidence at all to suggest that AustralianSuper has (yet) leveraged its substantial increase in size over recent years to provide significant additional benefit to members. It is possible that substantial size will bring investment benefits but they are yet to be realised, and there are also potential disbenefits, such as less management flexibility and distance from membership - perhaps the "ideal" super fund is large in size, but not "mega".
Hence, while on most metrics AustralianSuper remains a high quality super fund prospective members should not assume that "big necessarily means better". Indeed there are some indicators that suggest that a relative lack of recent performance is impacting rollovers into the fund; and while the size of the fund provides it with some advantages these will not allow it to prosper through a prolonged period of sub-par investment and service under-performance relative to its peers - particularly since it appears "accident prone" at present. Nor will marketing triumph over substantive service and product improvements.
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