Australian superannuation funds are increasingly investing overseas, yet there is no clear government policy guiding how economic diplomacy should support these high-stakes investments. As super funds face growing exposure to foreign political and regulatory risks—especially in the US, UK, and EU—Australia urgently needs a more coherent strategy to safeguard national retirement savings and define the role of its diplomats in protecting member interests abroad.  

Australian economic diplomacy has long championed Australian businesses and investors in foreign markets. It is surprising, then, that there is no (public) government policy or strategy addressing the specific circumstances of overseas investments by superannuation funds. Both the Southeast Asia Economic Strategy and the India Economic Strategy update, for instance, point to the potential for greater investment by Australia’s superannuation sector, but they do not consider the broader policy implications.

This suggests that any issues arising with superannuation investments are being dealt with in an ad hoc and reactive way by DFAT, Austrade, and other agencies, as well as Australia’s diplomatic missions and trade representatives. The lack of strategy or policy also leaves the door open for lobbying, political interference, and ministerial discretion, which could allow some funds to receive more advantageous treatment and support in foreign markets based on arbitrary factors.

By thinking through the risks posed by these massive international investments, we can begin to understand why a more coherent approach is needed.

Most fundamentally, the risk is that Australians lose out on their retirement savings because of conditions in foreign markets and the decisions of foreign governments. While market fluctuations are a risk inherent to any investment, in this new period of protectionism, industry policy, geoeconomics and economic statecraft it is increasingly difficult to discern between government interventions and regular market behaviour.

Many Australian investors—including some superannuation funds—have recognised the direct risks posed by a market such as China where the national government has few qualms about weaponising foreign trade and investment. In recent years, AusSuper, Aware Super and ART have all cooled on China and reduced their exposure, reflecting a mix of economic and political risks. This has coincided with heightened bilateral tensions between Canberra and Beijing. The government’s trade and investment diversification push since 2019 has helped all Australian investors better understand the risks of working in certain markets.

“Liberation Day” has shown the risks of betting big on US stocks

Beyond this, though, there are risks emerging even in the “friendly” traditional markets for Australian investors. It is no surprise that the US, the UK, and Europe are the largest destinations for investment by Australian superannuation funds given strong historical connections, a shared language, similar legal systems, and the scale of their financial markets.

In US, UK, and European markets, and their portfolios of listed assets (i.e., shares traded in stock exchanges), are less likely to attract public policy risks given they are relative liquid and often comprise only small holdings in any one company, meaning they can be exchanged easily as conditions and risk profiles change.

However, the losses felt by Australian superannuation funds since Liberation Day show that reckless economic policy can cause macro-level, systemic damage to entire financial markets. While stocks will bounce back to some degree from these historic lows, the current administration’s policies over the long term are arguably undermining the perceived exceptionalism of the US market as being dependably profitable despite prevailing conditions and politics.

Australian super funds are increasingly relying on foreign markets, especially the US, to generate the returns needed to service their members’ retirement. AusSuper, for instance, has said that it intends to invest 70c in every new dollar coming into the fund outside Australia. Moreover, the Australian Government has actively courted super funds to invest in the US.

Should the destructive and unpredictable policy approach of the Trump administration continue, then both super funds and the Australian Government will need to reconsider how much reliance they can place in the US market and what an alternate strategy might entail.

Policy risks with unlisted assets

Risks for superannuation investments also extend beyond stock market fluctuations. Superannuation funds are increasingly looking to invest directly in unlisted or private assets to generate greater returns and, in some cases, meet the investment mandate of their members.

These kinds of assets include real estate, infrastructure, and large or controlling stakes in businesses, especially technology innovators. Notable examples include:

• ART, Australia’s second largest super fund, holds stakes in Heathrow, Birmingham, and Bristol airports, and has invested in Pattern Energy, a US renewable energy platform.
• IFM owns infrastructure assets across 30 states in the US (including the Indiana Toll Road, Switch, Swift Current Energy, and Freeport LNG), as well as in Europe, such as its 40 percent stake in Vienna airport.
• AusSuper has invested AUD$2.2 billion in DataBank, a data centre platform in the US. In the UK, AusSuper has significant real estate and development holdings, including a 74 percent stake in King’s Cross Estate and a joint venture to deliver the massive Canada Water Masterplan for 2,600 new homes, workspaces and urban renewal.
• Consortiums led by Macquarie, comprising superannuation funds, own the Long Beach Container Terminal in California and the Goethals Bridge linking New York and New Jersey.

Such investments tend to be more illiquid and long-term, with funders often playing an active management role in the enterprise. Importantly, the success of such investments is often directly subject to local regulatory regimes and policy decisions.

So, with super funds growing their portfolios of unlisted assets in markets such as the UK, US, and Europe, the fortunes of many Australians’ retirement savings are increasingly contingent on the regulatory regimes of foreign governments, whether that be economic, industry, infrastructure, environmental or other policy areas.

In the US, this means Australian investments are subject to the Trump administration’s tariffs and decoupling from China, its pushback on Diversity, Equity, and Inclusion and ESG, its defence and national security industry policies, and its promises around reshoring manufacturing, as well as numerous state and local laws. In the UK and the EU, for instance, industry policies, data protection laws, and technology and environmental regulation will also have a bearing on Australian superannuation assets. With the US and the EU increasingly heading in opposite directions on key policy decisions (e.g., environmental protection or digital regulation), Australian funds also face a more fractured global regulatory landscape.

Of course, it is nothing new for Australian investors and businesses operating overseas to face challenges around local regulations and policy. But when the retirement savings of millions of everyday Australians are at stake, what responsibilities might the Australian Government hold?

Should the high commissioner in London be lobbying the UK Government to permit the expansion of Heathrow to help ART’s members? Should he also be pushing for more favourable zoning and construction conditions for Australian-funded housing developments? In the US, should the ambassador and consuls-general such as Heather Ridout (a former chair of AusSuper) be actively pushing the interests of Australian superannuation funds in business and government forums and intervene in domestic policy debates? If so, to what extent? And in doing so, whose interests are they representing? Those of the fund managers or the members?

In sum, the question is whether super funds be afforded the same diplomatic cover and support as any other Australian investor, or whether they are owed something more given the interests of their members.

Affirmative answers to all these questions could dramatically expand the remit of Australian diplomacy to intervene deep in the domestic policy of foreign jurisdictions. This will inevitably generate trade-offs in scarce diplomatic equities and potentially some pushback against what could be labelled “foreign interference.” Moreover, if an investment turns sour, the Australian Government could come under pressure to bail out a fund, commit public money to ensure its viability, or compensate members, especially if the government has encouraged an investment for strategic purposes.

Consider a hypothetical in which a superannuation fund has made a large investment in a major property and infrastructure development in California that is now threatened by shifting state and federal regulations. The fund and its members stand to lose billions if the development does not proceed, but the construction company and its investors are getting little traction with state and federal regulators. The fund now mobilises its Australian members to pressure their government to intervene on their behalf. If it is an industry super fund, meaning a large share of its members are linked to trade unions, then this mobilisation may be quicker and stronger. One can imagine countless similar dilemmas arising from the industrial, infrastructure, labour or environmental policies of foreign governments.

At present, it is not clear how the Australian government would or should respond to such demands, speaking to a broader lack of clarity and detail about the limits and purposes of Canberra’s economic diplomacy in supporting public and private interests.

A lack of comprehensive risk protection

There are existing mitigations for superannuation funds against both macro, market-level risks and regulatory risks associated with individual private assets. The industry is highly regulated to protect the interests of members. Well-managed funds will factor in sensible risk margins and diversify their portfolios to spread that risk while being insured to some extent against adverse outcomes. Larger funds can also absorb significant losses on individual investments without it hurting any single member too greatly. Meanwhile, politically savvy funds invest in geopolitical and regulatory risk analysis. International trade and investment agreements also prohibit many kinds of discriminatory treatment against foreign investors.

However, even in combination, these are complete protections against the policy decisions of foreign governments. Government must urgently recognise that the success of its retirement system demands a more coherent and focused foreign policy response.

This article is part two in a three part series examing Australia’s overseas supperannuation investment choices and current government policy. Part one is avilable here.

Hugh Piper is a director at Ancrum Advisory. He also edits The Policymaker, a digital publication of the James Martin Institute for Public Policy. Hugh has previously worked at the Tony Blair Institute for Global Change, the Asia-Pacific Development, Diplomacy & Defence Dialogue, and as a ministerial speechwriter and strategic policy adviser at the Department of Foreign Affairs & Trade. He holds a master’s degree in public policy from the University of Oxford and degrees in law and history from the University of Sydney.

This article is published under a Creative Commons License and may be republished with attribution.