Australia’s $4.5 Trillion Superannuation Pool Is Underinvested in Private Capital — and It’s Costing Retirees

The 4.4% Allocation That Doesn’t Match the Returns

Australia’s superannuation system holds $4.5 trillion in assets, making it one of the largest pools of retirement capital in the world. Yet Australian super funds allocate just 4.4 per cent of their default MySuper products to private equity and venture capital — less than one-third of the 14 per cent allocation typical of top-performing global pension funds.

This under-allocation is not a neutral choice. Research commissioned by the Australian Investment Council and conducted by Mandal Partners found that PEVC delivers an annualised 10-year return 10.8 percentage points higher than Australian listed equity. Superannuation products that allocate more to PEVC achieve three times the fee efficiency of those with below-average allocations, because fees are “purchasing” superior net returns.

The cost of this gap is tangible. The report estimates that the under-allocation to PEVC is costing Australian retirees up to $20,000 each in retirement income — a figure comparable to the benefit of raising the Superannuation Guarantee from 12 to 12.5 per cent. It is also costing the Australian economy up to 140,000 jobs.

Why Regulatory Settings Are Distorting Investment Decisions

The barriers to higher PEVC allocation are not primarily about risk appetite. They are embedded in the regulatory architecture that governs how super funds report fees and benchmark performance. Regulatory Guide 97 (RG 97) incentivises prioritising fee reduction over net returns, creating what the report describes as “an unlevel playing field against unlisted assets”. The Your Future, Your Super (YFYS) performance test uses a benchmark that the report argues is inappropriate for private assets, creating distortionary behaviour that harms member outcomes.

The practical effect is that super funds face regulatory penalties for allocating to asset classes that deliver higher net returns. This is not a market failure — it is a regulatory design failure. The Mandala Partners analysis recommends benchmarking funds on net returns, reporting an additional fee efficiency metric, and providing clarifying information on investment fees as three immediate actions to correct the distortion.

The Global Capital That Australia Is Leaving on the Table

The under-allocation has implications beyond retirement outcomes. Australian PEVC funds are increasingly reliant on non-domestic investors, who contributed 59 per cent of capital raised in 2025. While international interest validates the quality of Australian assets, it also means that the returns from Australian innovation are increasingly flowing to offshore pension funds and sovereign wealth funds rather than to Australian retirees.

International investors are drawn to what Prasad describes as Australia’s “macroeconomic stability, transparent regulation and relatively low leverage”. The irony is that domestic institutional capital — which has the longest time horizon and the deepest alignment with Australian economic interests — is structurally constrained from participating at scale.

The $54 Billion Opportunity

Mandal Partners’ modelling suggests that an additional $54 billion should be invested into PEVC from MySuper products to bring Australia’s allocation closer to best-performing global pension funds, while maintaining the existing balance between growth and defensive investments. This is not a call for super funds to abandon prudence. It is a call to remove regulatory distortions that prevent them from making fully informed, return-maximising allocation decisions.

The government’s commitment to “strengthen the superannuation performance test to ensure there are no unintended barriers to investment” signals that reform is on the agenda. The question is whether the pace of reform will match the scale of the opportunity.