How Super Funds are Rethinking Liquidity and Collateral Strategies

Liquidity is emerging as a strategic priority for Australian superannuation funds (also known as “super funds”) amid a convergence of market, regulatory, and operational pressures. The “perfect storm” includes falling interest rates, increased allocations to illiquid assets, growing use of derivatives, and heightened market volatility—all of which are reshaping how super funds think about liquidity. 

Data backs up this trend – according to Northern Trust’s 2025 Asset Owners in Focus study, which surveyed 180 asset owners across the globe, 63% of APAC-based asset owners say that liquidity had become more important to their investment strategy over the last year. 

As the scale and systemic importance of these funds grows, so does the need for integrated, forward-looking liquidity strategies that align short-term obligations with long-term investment goals. The Reserve Bank of Australia (RBA) and Australian Prudential Regulation Authority (APRA) are intensifying their focus on liquidity risk, and recently the RBA has flagged that the superannuation system may have structural challenges related to FX hedging that could have liquidity risk implications. 

Read on to learn more about the individual factors driving this trend and how this focus on liquidity is driving changes to the Australian super fund space. 

The growing importance of liquidity for super funds  

As super funds navigate an increasingly complex investment landscape, liquidity has emerged as a critical strategic focus. A combination of macroeconomic shifts, evolving portfolio allocations, and heightened regulatory scrutiny is compelling funds to reassess how they manage cash and collateral.   
 

• Interest rate environment: During periods of rising rates, holding idle cash becomes costly due to the opportunity cost and higher funding expenses. Now that rates are falling, super funds face a different challenge: lower investment returns, particularly in cash and fixed income assets. Fixed term deposits offer a way to lock in rates for fixed tenors, helping funds reduce exposure to market rate volatility and maintain predictable returns. 

• Alternative investments: super funds are allocating more capital to private equity, infrastructure, and real assets. According to our Asset Owners in Focus study, 87% of APAC asset owners invest in private markets and hold an average allocation of 12.5%. These investments typically involve long lock-up periods and limited redemption options, which can constrain liquidity. As allocations to these asset classes grow, funds must carefully balance long-term investment goals with short-term liquidity needs. 

• Derivatives usage: The increased use of FX, futures, and swaps for hedging and tactical exposure introduces real-time collateral and margin obligations. These instruments require super funds to maintain sufficient liquidity buffers to meet margin calls and avoid disruptions. Managing these obligations effectively is now a core component of liquidity strategy. 

• Market volatility: Sharp movements in asset prices can trigger margin calls and liquidity stress, requiring funds to maintain flexible buffers. Volatility also tends to increase the number of members switching out of riskier, generally less liquid investment options, which can further strain liquidity and necessitate more agile cash management. 

• Regulatory scrutiny: APRA’s liquidity stress testing and the RBA’s growing involvement in payments infrastructure reflect a broader concern about liquidity risk in the superannuation system. Regulators expect funds to demonstrate robust liquidity frameworks and readiness for adverse market conditions. 

• Member demographics: As members increasingly move from accumulation to pension or decumulation phases, super funds are shifting toward a net outflow environment. This demographic trend requires funds to plan for consistent and growing cash outflows, adding another layer of complexity to liquidity management. 

These pressures are compounded by the scale of the superannuation sector, which holds a significant share of Australia’s investable assets. As funds grow larger, their liquidity decisions have broader market implications, most notably for the market liquidity of the ASX. 

New trends emerging under a liquidity spotlight 

As liquidity becomes a central focus for super funds, a range of new trends is emerging that reflect both the complexity and urgency of modern cash and collateral management. These developments are reshaping how funds operate, invest, and interact with markets—driven by technological innovation, evolving regulatory expectations, and the growing influence of mega funds.  

1. Greater reliance on derivatives and, in turn, liquidity  

Super funds’ increasing use of derivatives introduces new dimensions to liquidity management. Active collateral management becomes essential, as margin requirements fluctuate with market conditions. Liquidity is at a premium during periods of stress, when collateral must be posted quickly to avoid forced unwinds. 

Securities finance and repo markets offer opportunities to generate liquidity from idle assets, but require sophisticated infrastructure and counterparty management. Pairing collateral management with securities lending creates a multiplier effect—enhancing liquidity while generating incremental returns. 

Funds that centralize these functions with a single service provider, such as a custodian, can benefit from streamlined operations, real-time visibility across exposures, integrated reporting and forecasting, and reduced operational risk.

2. Mega funds as liquidity providers 

Australia’s largest super funds—often referred to as “mega funds”—are increasingly acting as liquidity providers, not just consumers. Their scale allows them to negotiate favorable terms with service providers and counterparties, more easily access global liquidity pools including U.S. and European repo markets, and provide liquidity to smaller funds or market participants, especially in stressed conditions. 

However, the domestic market is fully invested, with super funds holding a significant percentage of available assets. This creates competition for limited liquidity and drives innovation in how funds source and deploy cash. 

3. Technology and integration for a modern liquidity framework 

To manage complexity, super funds are investing in technology platforms that offer real-time dashboards for cash and collateral positions, automated sweeps across accounts and geographies, forecasting tools for margin calls, redemptions, and settlement needs, and stress testing and scenario modeling to assess readiness under adverse conditions. 

According to our Asset Owners in Focus data, nearly a third of APAC asset owners plan to spend more on technology to support cash and liquidity management in the next year. Custodian partnerships that offer end-to-end liquidity solutions—from cash management to collateral optimization—are increasingly valuable. Integration reduces fragmentation and enables funds to respond quickly to market shifts. 

4. Time zones, T+1, and international exposure 

Australian investors face unique liquidity challenges due to their geographic location. Time zone constraints mean that U.S. markets close around 6 a.m. local time, leaving limited windows to fund U.S. or European settlements. T+1 settlement in global markets may further complicate trading and liquidity for Australian funds when it becomes standard. 

Higher cash allocations in APAC may reflect the need to pre-fund settlements due to timing mismatches. Growing international exposure—as funds diversify beyond a saturated domestic market—adds complexity to liquidity planning. These factors underscore the need for global liquidity access, flexible funding mechanisms, and custodians with cross-regional capabilities. 

5. Regulatory and systemic implications 

Liquidity risk is now a regulatory priority. The Australian Prudential Regulation Authority (APRA) is conducting more rigorous liquidity stress testing and expects funds to demonstrate robust frameworks. The Australian Securities and Investment Commission (ASIC) and the Reserve Bank of Australia (RBA) are increasingly involved in overseeing liquidity and payments infrastructure.

APAC asset owners generally agree with these regulators’ take on liquidity risk – according to our survey, 43% of APAC asset owners named liquidity risk as a top-three metric for assessing overall risk. Super funds must ensure they are prepared to report on liquidity positions and stress scenarios, engage with regulators on systemic risk mitigation, and demonstrate resilience across market cycles. 

How Northern Trust offers specialized cash management support to super funds 

Northern Trust offers a comprehensive suite of solutions tailored to the needs of Australian super funds, from managed services to technology solutions: 

• Collateral management and securities finance: Integrated platforms to optimize liquidity and reduce funding costs. 

• Cash segmentation: Strategies that align operational, reserve, and strategic liquidity needs. 

• Fixed term deposits: Designed to strive for stable returns with streamlined operational processes, available in a range of currencies and tenors. 

• FX and repo access: Deep liquidity via principal trading and FICC-sponsored repo, with regional support desks in APAC, EMEA and North America regions. 

• Technology platforms: Real-time visibility, automated workflows, and advanced analytics to support proactive liquidity management. 

Australian super funds are navigating a complex and evolving liquidity landscape. By embracing integrated strategies, leveraging technology, and partnering with experienced providers, they can transform liquidity from a constraint into a source of strength.