Guzman y Gomez ASX pop won’t stop super funds from looking offshore

Australian super funds are increasingly investing in overseas assets to deliver returns, as the $3.5 trillion superannuation industry continues to outpace economic growth.

The funds have been forced to set their sights overseas because rising demand for ASX equities has created a shortage in the supply of shares on the market amid a drought of initial public offerings (IPOs).

As funds close in on the end of the financial year, with the typical fund expected to post a return of about 9 per cent, a recent report from Macquarie has underlined the shortage even as the nation’s super pool keeps getting larger.

guzman y gomez asx pop won’t stop super funds from looking offshore

Aware Super has a stake in Guzman y Gomez, which it bought in October 2022 – well before the recent IPO.

“Rising super demand along with reinvested dividends and buybacks, plus an IPO drought, is driving a shortage of ASX equities,” Macquarie analysts said, noting an increase in the super guarantee levy to 12 per cent in the 2026 financial year would further expand the pool of capital available to the funds.

In their note, the analysts warned that further delisting and privatisation of ASX companies could worsen the shortage, with the blockbuster debut of Mexican fast-food chain Guzman y Gomez not enough to bridge the gap.

While it could, potentially, open the door to more IPOs, the Macquarie analysts said, “even a strong IPO year would not generate enough supply to offset the rise in demand from super funds, reinvested dividends and buybacks”.

“Keep in mind there has been an IPO drought for the past two years, so there has been little new supply.”

The analysts added that more overseas companies choosing to list in Australia could help boost the supply of shares on the ASX.

“One alternative way to boost supply [on the Australian sharemarket] is to attract more global companies to add an ASX listing,” they said, “Due to the scarcity of opportunities, attractive equity stories often trade at a premium on the ASX.”

Australia’s superannuation industry is nearly 150 per cent of the size of the economy, with industry funds comprising nearly half of super assets, excluding self-managed super funds [SMSFs]. While SMSFs allocate nearly 35 per cent of their funds to ASX securities, industry funds have been gradually reducing their exposure to ASX securities.

Industry funds have instead opted to increase their allocations towards asset classes such as fixed income (as bond yields have risen and private credit has increased) and unlisted assets. About 22.7 per cent of their funds are allocated to ASX securities.

KPMG actuarial and financial risk partner Platon Chris said the proportion of superannuation funds invested in overseas assets (infrastructure, property and technology) had grown from about 40 per cent to 48 per cent over the past three years. And that proportion is expected to continue to increase.

“We anticipate the proportion of money going offshore will continue to grow, potentially hitting around 70 to 75 per cent of every dollar that comes into superannuation in the next five to 10 years,” he said.

Chris added the overseas focus could partly be driven by the super funds reducing their concentration risk as more money flows into the sector.

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