Australia’s $4.2 trillion superannuation pool has been highlighted as a potential source of much-needed capital for early-stage innovation, with a new government issues paper pointing to the current system’s conservative investment culture as a barrier to research and development growth.
The federal government’s Strategic Examination of Research and Development (SERD) paper on investment and capital shows that superannuation funds dedicate only a small share of their portfolios to private equity — about 4.4 per cent on average — and much of that is invested offshore rather than into Australian ventures.
The paper says regulatory settings and performance tests encourage trustees to prioritise low-risk, lower-return assets, while disclosure rules can make higher-fee asset classes such as venture capital appear unattractive even when net returns are stronger.
The paper puts forward several options to encourage greater investment into local research and innovation – including adjusting the superannuation performance test so that funds are not penalised for choosing higher-risk, higher-return asset classes, reviewing fee disclosure requirements, creating pooled investment vehicles to spread risk across multiple funds, and developing member options that would allow savings to be directed into emerging Australian technologies.
New South Wales Premier Chris Minns this week called for reforms to allow more superannuation money to flow into venture capital, saying that despite breeding 20 unicorns in 20 years, “I don’t think we’re where we could be.”
National Reconstruction Fund chair Martijn Wilder also questioned why super funds are not shifting more capital into national renewal projects.
He said Australia needed to find ways to channel the superannuation pool into innovation and industrial transition, suggesting that mandatory contributions to domestic venture capital or innovation may need to be considered.
The issues paper makes clear that while Australia has significant capital resources, the challenge is creating the conditions to redirect more of those funds into supporting research, development and innovation at home.
Do you know more? Contact James Riley via Email.