For much of the past few decades, super funds largely avoided corporate credit and other fixed-income segments, preferring long-duration assets such as toll roads, ports and private equity holdings. That stance is changing as funds increase exposure to high-yield bonds and private credit, chasing higher coupons in a world where many members are drawing down balances.
At a roundtable with the prime minister, hosted by a major financial publication and Visy’s leadership, top super funds argued that lending directly to riskier companies aligns with members’ long-term interests by boosting income streams. Internal portfolio design decisions are pushing funds to try to marry return targets with more predictable cash flows for retirees.
Moving into corporate debt means super funds are taking on credit risk that behaves differently from the equity and infrastructure risk they know well. High-yield bonds and private credit carry higher default and recovery risks, particularly in stressed economic conditions when weaker borrowers can fail quickly.
Bank executives caution that managing these exposures requires deep credit assessment skills, workout expertise and experience navigating distressed cycles. Super trustees maintain that building this capability is central to their strategy of balancing income, growth and a degree of capital stability.
Some large funds, including those overseeing hundreds of billions of dollars, now openly describe riskier corporate debt as a growing part of their solution for members seeking steady returns without wild balance swings. They argue that carefully constructed portfolios of corporate credit can smooth volatility compared with listed equities while still improving overall yield.
Critics counter that if a sharp downturn hits, the same assets could expose retirees to capital losses they do not fully anticipate, especially in opaque private markets.
