Jenny Newmarch is head of private markets at Aware Super, Australia’s third-largest profit-for-member superannuation fund. It has AUD 210bn (USD 147bn) in assets under management, including approximately AUD 10bn in private equity. Previously Aware’s global head of private equity, she is also a board member of the Institutional Limited Partners Association (ILPA).

Q: What is the top-of-mind issue for allocators to private markets?

A: Three things are top of mind. Firstly, performance versus listed equities, which has now turned negative over the past five years for the market as a whole. Secondly, the rise of retail capital and continuation funds as new areas of misalignment that need to be managed. Thirdly, and surprisingly, access to the best opportunities – and co-investment – is increasingly constrained despite a slow fundraising environment due to crowding into higher quality funds.

Q: Would an Australian allocator’s response to the performance versus listed equities issue be different to that of a peer in the US or Europe?

A: It’s an issue for all allocators, but it is less dominant in certain contexts. Firstly, offshore allocators have typically always had bigger allocations than us. Secondly, if you look at the old DB [defined benefit] plans in the UK, the US plans, and the sovereign wealth plans, they’ve historically looked at private equity as a diversifying exposure with an illiquidity premium. They haven’t focused as much on cost, so outperformance relative to listed markets is important, but it is not the only factor considered. The difficulty for Australians is you can’t pay 2/20 for diversification. When you are sensitive to cost and illiquidity, private equity must be alpha-seeking, so it’s challenging to navigate a period of underperformance relative to listed markets that has been getting longer in the tooth. As the recent correction starts to flow through, we will see some of that underperformance clawed back, but it’s been quite stark for the last three years.

Q: Regarding retail or private wealth capital, to what extent does it represent a threat to the interests of institutional investors?

A: There is no perfect data source right now as to the total amount of retail flows, but triangulating various sources suggests an estimated USD 30bn of the approximately USD 200bn of semi-liquid retail capital raised in 2025 will be allocated to PE. This compares to USD 600bn raised for closed-ended funds, largely from institutional sources. So, it’s material and growing at a rapid pace. ILPA has done well in highlighting the questions you need to ask managers to ensure these conflicts are managed properly: having clear allocation policies; disclosing when there is retail capital alongside co-investment; explaining how allocations to retail pools might impact co-investment allocations; disclosing how managers are remunerated on retail capital and whether that may create conflicts.

Q: What do you focus on in terms of remuneration?

A: The conflict areas are where fees are charged on NAV [net asset value], which can put pressure on valuations, and where carried interest is charged on unrealised gains. To the extent people are already worried about unlisted asset valuations, that could now get worse. However, the potential positive is that there’s more expectation of independent valuation oversight for retail funds to protect mom-and-pop investors. If that does emerge, it could provide a flow-through effect to institutional pockets as well. Overall, though, I would say this is a negative dynamic for institutional investors and caution will be important to avoid adverse outcomes.

Q: Are GPs looking to rewrite LPA language to allow greater retail capital participation in deals?

A: It’s very live. There’s an assumption that it’s only impactful for large-cap funds or secondaries funds, but a lot of mid-market GPs are thinking about it as well. ILPA’s view is that you need to be asking these questions of all GPs to ensure there are proper protections and disclosure. In our discussions and documentation, we’ve been asking that allocation policies be clearly laid out and negotiating for caps on allocations to retail buckets. In our due diligence, we’re making sure there aren’t risks of emerging lack of discipline. Retail capital gets called on day one, and it must be deployed quickly because managers can’t really sit on cash. If that leads to a lack of discipline around investing, that will flow through to the funds we are invested in, even though our capital is drawn over time and can be more patient.

Q: What do you make of the argument that there’s more than enough co-invest to go around, so institutional LPs shouldn’t be worried?

A: Getting a good read on the amount of shadow capital that sits in the private equity universe is an important question, but hard to answer. It’s certainly growing. And you must take that into account when you are building your programme – thinking about how shadow capital might influence manager discipline and the opportunities you get to see.

Competition for co-investment is the highest I have seen it in my 20-odd years as an allocator. It used to be the case that if you had a sophisticated team that could move quickly on co-invest, you would be at an advantage. Some asset owners couldn’t do co-invest because they didn’t have the processes or the delegation. Others didn’t believe in it – there was an academic view that co-invest was all adverse selection and you would be doomed to have worse returns if you did it. Finally, there was a group of large investors going direct. Now, the investors going direct have backtracked and are working with managers again. The academic argument against co-invest has softened its stance. And the likes of US pensions have figured out how to do co-invest, perhaps not by building big teams but through SMAs [separately managed accounts] and more programmatic structures. All this means there has been a real crowding into co-investment, and retail is another source competing for capital.

Q: This could be problematic for superannuation funds looking for 1:1 co-investment to fund commitments…

A: It’s a question we ask ourselves regularly – can we still achieve 1:1 in this market dynamic without driving down returns? We have a mid-market focus, and we want managers to concentrate on their sweet spot. If they are effectively doubling their fund size – or more – with shadow capital, that is a different strategy to the one you might think you are approving. Larger-cap funds sometimes find it easier to systematically allocate coinvest than the mid-market.

On top of that, we are seeing a real crowding into high-quality names in the mid-market. The stats on fundraising say the opposite – last year was a record year for large-cap fundraising, which accounted for nearly 50% of all capital raised – but it just doesn’t feel like that because of the bifurcation. We are seeing a lot of fast closes of oversubscribed mid-market funds as large allocators move into the space. This has caused us to pull out of some names where we like the story but can’t see a path to advantaged co-investment flow or where we see rapid fund size growth. Sometimes this means smaller funds. Sometimes this means leaning more deeply into existing relationships. We have always been comfortable with emerging managers, which tend to be less crowded. We like that as an entry point.

Q: To what extent are you also looking at geographic diversification?

A: We are looking more at Europe and developed Asia, at the margin. For the most part, we believe the dispersion of outcomes within a country or sector is so much greater than the dispersion of outcomes across countries and sectors. Our processes are still largely oriented towards finding the best managers with the most differentiated approach that can find idiosyncratic sources of risk, rather than trying to play too much of a top-down, macro allocation game. About 60% of our portfolio is in the US – a bit less than the global private equity average because we have a home market bias. We have a team of six in Europe, and we feel well placed to find more interesting ideas and differentiated managers there. However, we are still adding relationships in the US and maintaining those that we want to maintain.

Q: What’s the biggest advantage of having a team in Europe?

A: We have a private markets-focused origination office – covering property, infrastructure, and private equity – with about 20 people on the investment side and several support staff. Being on the ground makes a difference in terms of origination. In a manager-led portfolio, like we have in private equity, to some degree, you can manage and originate from overseas, but there are limitations. As the market becomes more competitive, and access to higher-quality managers becomes more constrained, a local presence has advantages in speed and access. Our property and infrastructure strategies mainly do direct investments, so historically, there has been more of a home market focus given the challenge of direct investing without being on the ground. The European presence has meaningfully expanded our actionable investment universe.

Q: The assumption was that recruitment and retention would be the biggest challenge for Australian LPs opening offices overseas. Has this been the case?

A: Not having a brand in Europe and what that would mean from a talent attraction point of view – that was the biggest risk for us. However, we were pleasantly surprised by the high-quality talent we’ve been able to attract. The kinds of people we want to hire know what the Australian superannuation system is, so the industry brand is strong. They know about the ecosystem, that it’s a sustainable and growing source of capital, and that it’s well governed. Having the London office also provides a growth opportunity for staff in Australia who have put their hand up to move. The biggest challenge is integration of the two offices and making sure you maintain cultural cohesion. When you are trying to be very disciplined around a whole fund perspective and a whole fund outcome, you don’t want an office operating as a silo or developing different behaviours or investment beliefs because you aren’t communicating as strongly as you should be and making sure everyone is aligned.

Q: Whole fund outcome and whole fund perspective – where are you in terms of the total portfolio approach (TPA)?

A: We are developing our version of it. There is no one version of TPA; you find that out quickly by talking to all the different groups that do it. Fourteen years ago, we were all passive, all liquid. We’ve gone from that to building out active risk, illiquid assets, and internalised capabilities in different areas of our portfolio. We have the portfolio, capabilities and investment processes we wanted, so now we must ask what the investment process looks like when we are in a more capital recycling mindset – how we make the right decisions at the total portfolio level and maintain a culture of continuous improvement. So, for us, TPA is about total portfolio optimisation now that we have a level of maturity in each of our asset classes.

Q: What does TPA mean for private markets allocations?

A: One of the important aspects for us is understanding the components of risk and the components of return in different areas and whether we are optimising our risk, fee and liquidity budgets. For example, in private equity, if all we did was pick sectors well, outperformance relative to listed markets over the last 2-3 years could be explained by managers doing more in IT and healthcare and less in financial services and consumer – compared to the listed market. That’s an expensive and illiquid way to generate outperformance that could have been achieved by reweighting sectors in a listed equity portfolio.

It is also important to be really sharp on thinking about return outlooks across private markets, acknowledging that rebalancing private markets allocations takes time, and you don’t want to force sell your private assets to reflect shifting outlooks. However, building in as much control over liquidity as you sensibly can – without trying to make something illiquid liquid – will be increasingly important.