Australian institutions have won the case for alternatives, but governance is the next test. Manager valuation, liquidity and equitable investor treatment now matter more than the asset allocation decision that got them there.
Australian institutions settled the question of whether alternatives belong in their portfolios roughly a decade ago. Unlisted infrastructure, property, private equity and private credit now sit at the centre of most large fund strategies, and the scale involved makes that structurally significant. Total superannuation assets reached $4.4 trillion in March 2026, equivalent to roughly 160 per cent of GDP.
The questions that matter now sit downstream of the allocation decision. They concern how alternatives are held, priced, redeemed and governed, and who else is sitting in the fund alongside you.
The liability has changed
For most of the past decade, the case for alternatives rested on diversification and the illiquidity premium. That case still holds. What has shifted is the liability these assets are being asked to fund.
Australia’s largest funds are moving towards net drawdown as members enter the retirement phase.
AustralianSuper has framed its plan to lift private credit from just over 1 per cent of assets towards a long-term target near 5 per cent, pushing the portfolio to around $20 billion, around predictable member income rather than pure return-seeking.
That reframing carries consequences. Income-oriented alternatives behave differently to growth-oriented ones. Contractual cash yield is visible, but underlying credit quality is far less so.
A portfolio built to fund pension payments is more exposed to borrower stress, and to the accuracy of valuation marks, than one built for long-horizon capital growth.
It also compresses the tolerance for error. Consider that a growth allocation can absorb a bad vintage across a twenty-year horizon, but an income allocation supporting members already drawing down cannot.
The supply side is being rebuilt for a different client
The SILC Group’s white paper, The Future of Alternatives & Private Markets, identifies structural shifts on the manager side that allocators should read closely.
Two warrant particular institutional attention. The first is the growing influence of distribution teams on product design.
As alternative managers move beyond the institutional channel towards private wealth advisers, family offices and high net worth clients, distribution input is arriving far earlier in the product development process.
The second is tokenisation, where a distributed ledger records ownership as a digital token rather than as a unit in a managed investment scheme.
The paper is candid about the obstacle. Know your customer and anti-money laundering processes are difficult to run without a centralised framework for verifying wholesale investor status.
Institutions have a direct stake in both. When a manager launches an evergreen vehicle for the wealth channel beside its closed-end institutional fund, the institutional investor acquires co-investors with different liquidity expectations and a shared deal pipeline. The allocation policy now also has to hold across multiple structures with competing redemption profiles.
Tokenisation is best assessed as infrastructure rather than as product. Its near-term institutional value sits in registry, transfer and secondary mechanics, where private markets still run on manual processes and bespoke documentation. Cleaner ownership records would improve the secondaries market large funds will eventually need.
Equitable treatment cuts both ways
ASIC has made investor treatment and valuation the regulatory frontier. Report 814 identified conflicts of interest, fees and remuneration, and portfolio transparency as areas requiring improvement across the sector.
The follow-up surveillance in Report 820 reviewed 28 retail and wholesale funds. It found differential fees, preferential liquidity and selective disclosure operating across investor classes.
Institutional allocators should sit with that finding. Preferential liquidity and negotiated fee terms are usually theirs.
Regulators may push managers towards consistent treatment across an investor base that now spans super funds and retail unitholders. If that happens, some of the terms institutions currently take for granted will become harder to defend.
The compliance cost is worth watching. Independent quarterly valuations, loan-level reporting and genuinely independent governance are absorbable at scale. Smaller managers may not carry them. Expect consolidation, and expect it to narrow the universe available to institutional mandates.
Liquidity remains untested
The RBA’s March 2026 Financial Stability Review observed that strong growth in non-bank and private credit lending could translate into higher loan losses in coming years.
It also noted that as superannuation expands relative to domestic markets, reliance on unlisted assets, which are harder to liquidate under stress, is likely to increase.
Set that against declining net inflows and the picture sharpens. The system has yet to run a full cycle in which large funds meet redemptions and pension payments while unlisted valuations fall and secondary markets thin out. Valuation governance is the mechanism that determines whether that scenario is orderly.
Three questions for every manager
- Across every vehicle you operate, how are deals allocated, and who signs off?
- Who marks the assets, how often, and what independent input constrains your own view?
- Under a severe stress scenario, what is the liquidity path, and where do we sit in the queue?
Managers who can answer those in writing, quickly, will be the ones institutional capital consolidates around. The future of alternatives in Australia will be decided by which managers can demonstrate they run their vehicles properly, more than by which assets institutions choose to buy.
This article is credited to Investor Strategy News and was published on 24 September 2026.
