The merger of three portfolios into Brighter Super sparked some fundamental questions around diversification and liquidity for CIO Mark Rider. He explains why illiquid assets are still important in the context of periodic inflation spikes.
Following the merger of LGIAsuper and Energy Super and the acquisition of Suncorp Super between 2021 and 2023 to form Brighter Super, Chief Investment Officer Mark Rider faced the challenge of bringing three very different portfolios together.
Some of the issues that needed to be addressed required him to revisit fundamental investment beliefs around diversification and liquidity.
As a retail fund, Suncorp Super’s portfolio consisted almost entirely of liquid assets and since the investment environment had been very favourable to listed equities, the fund’s performance had been very strong.
When you look at the last 40 years, the real returns for an Australian and US 70/30 portfolio have been seven per cent on average, that's pretty extraordinary. But the question is: ‘Will it continue?'
Rider was asked whether it would not be better to significantly down weight all private market illiquid assets from Brighter Super’s portfolios.
But he stood firm in his belief that diversification into unlisted assets works, especially when inflation picks up and economic growth slows down.
“You had two combined funds with close to 30 per cent illiquidity and then you had Suncorp, which was pretty much all liquid. That liquidity injection was quite nicely timed,” Rider said during a presentation at the recent [i3] Asset Allocation Forum.
“[But] the environment we’ve had in the last few decades might not necessarily keep on going. When you look at the last 40 years, the real returns for an Australian and US 70:30 portfolio have been seven per cent on average; that’s pretty extraordinary. But the question is: ‘Will it continue?’
“The market conditions of the last 40 years may not persist. The last 40 years is pretty much my working experience – so that’s what I’ve seen – but if I look back a bit further, I can see that things are not always that way.”
Building Resilience and Inflation Protection
Rider has been working to make the merged $35 billion portfolio more resilient and better protected against inflationary pressures. For example, Brighter Super has lifted its allocation to infrastructure, which provides both a degree of inflation protection and growth opportunities when looking at assets such as data centres and renewable energy projects.
“We got to a point where we said we can’t rely just on the old Suncorp Super portfolio structure, which were just all listed. We think the macro environment and the risks have changed. We need to build greater diversification and so we decided to partially rebuild [the illiquid exposure] after we’ve had some dilution of real assets in our portfolio and continue down that line to build greater portfolio resilience,” Rider said.
As a former central banker, he places much emphasis on the macro environment and any potential regime change. Based on his analysis of the current situation, he believes inflation might come back periodically, which is why it is important to have inflation hedges in the portfolio.
We got to a point where we said: ‘We can't rely just on the old Suncorp Super portfolio structure, which were just all listed. We think the macro environment and the risks, have changed
This view seemed to be backed by data from the Australian Bureau of Statistics last week, which showed the monthly Consumer Price Index indicator rose 2.8 per cent in the 12 months to July 2025, a steep increase compared to the 1.9 per cent rise the month before.
“We think a macro perspective is very important. We have a situation where we have moved [away] from secular stagnation, to use the terminology of [former US Secretary of the Treasury] Larry Summers, in the period from 2010 up until COVID. Things have changed,” Rider said.
“The cat is out of the bag in terms of that inflation is not just low, it is cyclically coming back. There are waves of supply and demand shocks coming through and we need to consider the risks around this.”
Private Equity, the Home Bias and Cash
As a result of the focus on the diversification qualities of the portfolio, investment fees and illiquidity, Brighter Super’s allocation to private equity has been reduced or, more accurately, it has not been reweighted back to the old strategic asset allocation (SAA).
Out of the three funds that merged, it was mainly Energy Super that had substantial private equity holdings and so when they came together to form Brighter Super, the private equity percentage of the total portfolio was diluted.
Instead of bringing that back up to the old Energy Super SAA, Rider decided to have a higher allocation to listed equities, increased infrastructure and is now looking at the fund’s allocation to property.
Most asset classes have gone up, but property has gone down, and our view is it is a good time to start opportunistically moving in
“The property sector [allocation] has gone down, but we’re actually rebuilding that. Most asset classes have gone up, but property has gone down and our view is it is a good time to start opportunistically moving in,” he said.
He plans to retain the fund’s home bias in equities, since investing in Australian companies provides a degree of inflation hedging too.
“Australian equities tend to perform quite well in inflationary periods and therefore that was one consideration. We’ve got 24 per cent [Australian equities] in MySuper and 32.5 per cent in global [equities]. But we think that’s fine. We don’t want to decrease the home bias at the moment,” he said.
The team has also been increasing its cash allocations.
“When we started, the portfolio was geared up for zero interest rates and we had close to 14 per cent in credit and very little cash and investment-grade fixed income. Cash is reset. It’s an investable asset class and we increased the allocation,” Rider said.
Starting a Modest DAA Program
Rider is also looking to implement a dynamic asset allocation (DAA) program to help the fund through periods of increased volatility and make the portfolio more resilient. But he said it will be a relatively modest program, considering the constraints of the Your Future, Your Super legislation, the risk appetite of the fund and its funding profile.
“We have an SAA where we can make the decision to move Aussie equities down or up, or whether we put more in infrastructure, or whether we build, as we did, investment-grade fixed income from being two per cent back up to around 12 per cent. We made those decisions and we can do that quickly,” he said.
“We’re also working on a DAA program. We’re looking more at the extremes, given that with a moderate-sized team we don’t won’t have it switched on all the time and focus on when we see a better reward for risk. We’re going to be more selective and it’s done in the context of the constraints that we have.”
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