Super funds had a stellar year last financial year, but investors expect the current financial year to provide lower returns to members.
Superannuation funds had a great year, driven by strong performance in international equities and listed infrastructure.
The median MySuper Balanced Fund, as defined by SuperRatings (70/30), returned 10.51 per cent over the 12 months to 30 June 2025, while these funds managed to produce a return of 9.51 per cent per annum over the past three years.
But delegates at the [i3] Asset Allocation Forum, which was held in Terrigal last week and attended by almost 100 people, were not so optimistic about funds’ ability to repeat this feat in the current financial year.
Asked what their return expectation was for FY2026 and 57 per cent answered between six and nine per cent.
Source: Investment Innovation Institute [i3]
Only 30 per cent of delegates expected to see a repeat of FY 2025 performance.
Drivers of Alpha – The Case for Private Markets
Delegates continued to see private markets as a strong driver of alpha, and 40 per cent of delegates expected to increase their exposure to this asset class.
Liquid alternatives and hedge funds were also viewed favourably by delegates and 31 per cent expected to increase their holdings here over the next three years.
Source: Investment Innovation Institute [i3]
Despite expectations of less bullish equity market conditions, no one planned to allocate more to active fixed-income strategies.
But one delegate warned not to read too much into the results of the polling questions, because return expectations have been muted for at least the last five years, while equity markets keep rallying.
The idea of a New Normal, where returns are lower and markets more volatile, has been bandied around ever since the global financial crisis took hold of markets in 2007. But markets have gone up by 10 per cent a year on average since then.
For example, if you invested in the S&P 500 at the beginning of 2007, you would have experienced a return of 10.4 per cent per year until the end of 2025.
“Everyone said equity returns were going to be moderate, but returns have been excellent. 99 per cent of us were wrong, so we have to be modest,” the delegate said.
Geopolitics Fears Fuel Muted Return Expectations
Geopolitical instability was a key source of concern for delegates and 31 per cent of them identified this as having the greatest impact on investment strategy over the next decade, just behind AI.
But one representative of a large fund argued there was too much focus on conflict and not enough on the financial aspects of geopolitics.
“I’ve often struggled with [geopolitics] and I think the focus is on the wrong things, such as conflicts and wars. The focus should be on the rules of the game. How does capital cross borders, et cetera?
Besides, this delegate argued that geopolitical drivers were not as impactful as advances in technology more generally, echoing economist Joseph Schumpeter’s ideas of creative destruction.
“Teams talk too much about geopolitics and not enough about innovation,” he said.
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[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.