Oz vote raises $2.7 trln issue for buyout barons

Reuters

30-04-2025

MELBOURNE, May 1 (Reuters Breakingviews) - Jim Zelter immediately cut to the chase: 'There are 4.1 trillion reasons for me to be here so often', the New York-based Apollo Global Management (APO.N), opens new tab president told some of Australia's leading investors at a conference in Melbourne in March. He was referring to the now-A$4.2 trillion ($2.7 trillion) or so of assets managed by the country's compulsory pension savings system, known as superannuation.
That pool of retirement savings is the fourth largest in the world and will by 2030 jump to second place, opens new tab, according to Willis Towers Watson's Thinking Ahead Institute. It's pure nectar for investment managers with long-dated private investment strategies like Apollo and Blackstone (BX.N), opens new tab, whose second-in-command Jonathan Gray graced the Melbourne stage right before Zelter. The trouble is that the outcome of Saturday's federal election could let some wasps into the hive.
There are several reasons why buyout barons love the superannuation pension system and the 90-odd funds that manage it, including AustralianSuper, Aware Super and Hostplus, which organised the Melbourne event. Employers must contribute 11.5%, rising to 12% in July, of their staff's pre-tax wages and bonuses. Total assets in the system are growing so fast they dwarf the country's annual GDP and the value of its domestic stock market, explaining why the supers invest so heavily abroad.
Savers are relatively young and generally unable to tap their savings, a principle known as preservation. In other words, it's a long-term and internationally mobile pot of money, making it perfect for the buyout, real estate, private credit and infrastructure investment strategies hawked by Zelter and Gray's ilk.
That model, however, is under threat if the centre-right Liberal Party comes to power after Saturday's election and implements plans aimed at helping more people buy houses. Led by former policeman Peter Dutton, the right-wing opposition party has recently lost its polling lead but still has a chance of forming a minority government. It wants to let first-time homebuyers and older women raid their pension savings, to the tune of up to A$50,000 per person, to help make a downpayment on a property.
There's no doubt that buying a home is increasingly out of reach for many Australians: new builds have failed to keep pace with demand for years. In 2000, the median house cost around 6 times annual income. That has more than doubled to 13 times, per Saul Eslake's research for the Super Members Council. The same economist also points out that a mortgage repayment at standard interest rates rose from roughly half of average disposable income in 1991 to more than four-fifths in 2023. The homeownership rate has been on a downward trend, hitting 66% in 2021 compared with 73% in 1966.
The Liberals' plan is bad housing policy: subsidising demand without first constructing new homes will only push up prices. More pertinent for Zelter and Gray, though, are the implications for the pension system.
Start with the impact on individuals. The A$50,000 maximum withdrawal equates to around five years of retirement savings contributions for those earning the country's median salary, using data, opens new tab from the Australian Bureau of Statistics. That's a significant dent to long-term returns: over a decade, that cash would more than double in value to A$106,000, based on the 7.8% 10-year investment return on the standard superannuation products.
There's also the broader, systemic impact that would stem from undermining the long-cherished principle of preservation. True, the initial effects might seem small. There are roughly 120,000 first-time house purchases a year in the country, according to the Australian Bureau of Statistics. Assume that all buyers withdraw the maximum permissible amount, and that half of the transactions involve two co-buyers who both take out the upper limit. The total cash call on the superannuation system would come to A$9 billion, Breakingviews calculations show, equating to just 7% of employers' overall contributions last year.
While modest in size, that's money that would no longer be available for investing. Moreover, the policy risks creating a slippery slope, making it relevant even if the Liberals lose this time. It's hardly a stretch, for instance, to imagine a future administration returning to the idea, and potentially even increasing the amount that could be withdrawn as house prices rise. Other options would be to allow existing homeowners to tap their pensions to move up the housing ladder. And with the genie out of the bottle, anything could in theory be possible: if buying a house represents a valid exemption, why not make the same case for paying an unexpected medical bill or other potentially ruinous financial emergencies?
There's precedent. The Liberals were in power as the Covid pandemic erupted in March 2020, and only set up a government-funded safety net for lost wages after first letting Australians tap their pensions for emergency cash. The roughly A$40 billion that was quickly withdrawn prompted concerns from the Reserve Bank of Australia, opens new tab.
Of course, well-flagged policy changes ought to cause fewer such short-term fears. But the logical response from the supers, when faced with the possibility of future political raids, is to hold more cash and lower-yielding liquid assets like government bonds just in case. Doing so would, by necessity, come at the expense of longer dated and lumpier products offered by Apollo's Zelter and Blackstone's Gray. Ironically, it's even possible to imagine the supers investing less in funds that end up backing Australian residential real-estate construction projects because of the Liberals' plan – effectively making the local housing crisis worse.
The numbers at stake could be huge. The Super Members Council, for example, estimates that managers intend to invest around A$240 billion, opens new tab
Of course, private investments' general appeal will endure for the supers, given the promise of higher returns for locking up money for years. And it's possible that the Dutton-led Liberals' pension-withdrawal plan dies alongside its electoral hopes. Still, the policy puts an idea on the table that could one day cause Zelter and Gray to make fewer super-long-haul flights.