Australia’s superannuation sector is increasingly emerging as the dominant gateway to private markets investment, with Morningstar arguing institutional scale and governance capabilities are giving funds a significant advantage as regulators intensify scrutiny of the rapidly expanding sector.
New Morningstar research found private capital funds in Australia have grown 161 per cent over the past decade, comfortably outpacing the growth of public equity and debt markets as investors pursue alternative sources of return, income and diversification.
The report, Going Mainstream: Accessing Private Markets Through Super, highlighted rising investor demand for exposure to infrastructure, private credit and private equity, particularly as higher inflation and elevated market volatility have weakened the diversification benefits traditionally associated with listed equities and bonds.
Morningstar principal, manager research William Anglingdarma said private assets could strengthen long-term portfolio resilience, though the benefits depended heavily on how exposures were structured and governed.
“Private assets aren’t inherently superior or inferior — the net benefit depends on structure, sizing, governance, and liquidity management,” Anglingdarma said.
“Super funds have structural advantages that individual investors generally can’t replicate.”
Morningstar said Australian super funds were particularly well positioned to hold illiquid investments because of their long investment horizons, consistent member inflows and access to specialist investment expertise.
The report pointed to institutional-grade governance, valuation oversight and stronger bargaining power with managers as major differentiators between super funds and retail investors.
As of June 2025, the super sector allocated an average 16.5 per cent of assets to unlisted investments, according to APRA data cited by Morningstar.
Infrastructure remained the largest exposure across the sector, while private credit was identified as the fastest-growing segment. Some of the country’s largest industry funds now allocate between 15 per cent and 30 per cent of portfolios to private assets.
The report noted infrastructure investments continued attracting strong interest from large super funds because of their inflation-linked revenue streams and relatively predictable cash flows, making them attractive for long-term retirement savings strategies.
Morningstar also pointed to the shrinking pool of listed infrastructure opportunities on the ASX following major privatisations, including Sydney Airport and Qube Holdings, as another factor driving institutional investors deeper into private markets.
At the same time, Morningstar warned the rapid expansion of private markets had increased concerns around liquidity risk, transparency and valuation practices.
The report said private assets were inherently more complex than listed investments because valuations often relied on models and discretionary assumptions rather than observable market pricing.
It also cautioned that higher fees, leverage and conflicts of interest could create additional risks for investors if governance standards were inadequate.
“Regulators are intensifying their scrutiny of private markets, particularly in relation to governance, valuations, liquidity management, disclosure, and conflicts, raising the bar for trustees and product providers as the sector expands,” Morningstar stated.
ASIC and APRA have both sharpened their focus on private markets in recent years, particularly private credit, amid concerns about investor protection and governance standards.
Morningstar noted ASIC’s recent surveillance work found large prudentially regulated institutional investors, including major super funds, were generally operating in line with better-practice standards because of their scale, transparency and oversight capabilities.
The research also argued super funds were increasingly leveraging their scale to negotiate lower fees and improved investment terms in private markets, including access to co-investment opportunities on reduced or zero-fee arrangements that would typically remain inaccessible to retail investors.
Despite the growing institutional appetite for private assets, Morningstar stressed allocations still needed to be appropriately sized within portfolios and supported by robust governance frameworks.
“Overall, the net benefits from having private assets in a portfolio depend on structure and sizing,” the report said.
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