Assets managed by the Australian superannuation sector reached A$4.5 trillion in December 2025, equivalent to around 160% of Australia’s GDP. Given its size, the sector has rapidly expanded its global footprint, with the share of offshore investments growing as a proportion of overall portfolios. To manage the risks associated with those investments and to enhance returns, Australian superannuation funds have been increasing their use of derivatives.

The greater use of derivatives, along with other factors like growing allocations to unlisted assets, increased offshore investments and volatility in financial markets, means Australian superannuation funds need to closely monitor and manage their liquidity needs and recognize that demands for liquidity can suddenly spike during periods of stress. Recent geopolitical and macroeconomic events, including conflict in the Middle East, pandemic-era disruptions, the Russia-Ukraine war and trade tensions, have shown how quickly market conditions can change, margin requirements can rise and calls for liquidity can materialize at short notice.

Liquidity demands for Australian superannuation funds are driven by a range of factors. These include daily member flows and switching, early-release-type policy changes, capital calls on unlisted assets, foreign exchange (FX) hedge rollovers and settlement, and margin calls on derivatives (exchange-traded, cleared and non-cleared) that require high-quality liquid assets (HQLA) to be posted at speed.

Funds should consider a range of strategies and tools to effectively manage liquidity demands and the associated risks. Strategies and tools may include arranging repo and committed liquidity facilities, building cash buffers, negotiating broader collateral eligibility where possible, deploying triparty infrastructure, optimizing FX hedging profiles and adopting risk-sensitive margin models, such as the ISDA Standard Initial Margin Model (ISDA SIMM) – in each case, in a manner compliant with the legislative and regulatory regime applicable to Australian superannuation funds.

Investing in operational readiness and resilience is critical. This requires superannuation funds to develop, maintain and implement effective frameworks, plans and procedures that reflect risk tolerance, portfolio composition and member needs, and put in place the systems and expertise to measure and manage liquidity needs under normal and stressed conditions. Diversifying trading relationships by spreading counterparty exposures, as well as avoiding single points of failure in banks, clearing members and custodians, should also be considered.

Taken as a whole, careful planning is needed to ensure an entity can access different products and funding structures across the cycle to meet demands for liquidity and achieve long-term investment objectives. Sound liquidity risk management and access to legally robust and compliant strategies and tools can help mitigate the risk of being forced to sell assets in stressed market conditions to meet sudden liquidity needs – a situation that could be detrimental to investors – and instead facilitate the opportunity for countercyclical investments and allow Australian superannuation funds to perform an important stabilizing role in the Australian financial system in times of stress. This will contribute to the resilience of Australian superannuation funds and the financial system more broadly, as the Australian superannuation sector continues to grow and play an increasingly important role on the world stage.

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