Are industry super funds too big to fail?

Major industry super funds have delivered good outcomes for many Australians. Asking how they would handle stress is not the same as predicting that they will fail. It is a question about what sits beneath a large, diversified fund and how those investments behave when members need to move their money.

Unlisted property, infrastructure, private equity and private credit can play a role in a portfolio. They may not reprice every day as listed shares do. But that does not mean they are always easy to sell quickly, at a fair price, during a downturn.

Imagine many members switching from Growth or Balanced to Cash at once. They might stay with the same super fund, but the fund still needs liquid assets to accommodate those switches. Listed securities are generally easier to sell promptly than an airport, an office building or a private loan.

In the original post, I referred to APRA stress testing in which member switching into cash was a significant source of liquidity pressure. That does not make every private asset unsuitable. It does mean that liquidity, valuation and the way a fund handles stress are worth understanding—not just the return displayed on a statement.

Super funds are also taking a larger role in providing advice to members. Greater access to advice is a worthwhile aim. At the same time, it is reasonable to ask how advice is kept focused on a person’s interests when the institution providing it also manufactures or administers the product.

Advice should begin with what someone is trying to achieve, the options available to them and what suits their circumstances. The product should follow that conversation, not lead it. The question is not whether large super funds are about to fail. It is whether their growing scale, private-asset exposure and advice role receive the scrutiny they deserve.