This article provides general information only and does not constitute personal financial advice. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on any information in this article, you should consider whether it is appropriate for you and seek advice from a licensed financial adviser if necessary.

A persistent question in Australian superannuation is whether funds should manage investments internally or outsource to external managers. Recent research and APRA data suggest that in-house investment teams at many super funds cost significantly more to operate without consistently delivering superior returns. For the 17 million Australians with superannuation, understanding how your fund manages investments matters because it directly affects your retirement balance.

How Super Funds Manage Investments

Australian super funds choose between two primary investment management models. The first is the fully outsourced model, where the fund engages external investment managers (domestic and international specialists) to handle portfolio construction, asset selection, and trading. The fund’s internal team focuses on manager selection, oversight, and strategic asset allocation.

The second is the in-house model, where the fund builds its own investment team to directly manage some or all of the portfolio. This typically requires hiring portfolio managers, analysts, traders, and risk specialists. Large industry funds such as AustralianSuper and Australian Retirement Trust have developed substantial in-house capabilities, managing tens of billions directly.

A hybrid approach is common, where funds manage some assets internally (often Australian equities, property, or infrastructure) while outsourcing specialist areas such as emerging markets, hedge funds, or complex derivatives.

The choice between these models turns on scale, expertise, cost, and performance. As covered in foundational investment texts such as Principles of Finance (OpenStax, 2022), institutional asset management involves trade-offs between control, specialisation, and operational efficiency.

The Cost Equation

Building an in-house investment team is expensive. A fund must hire experienced portfolio managers (often commanding salaries of $300,000 to $1 million or more), analysts, quantitative researchers, traders, compliance staff, and technology specialists. The fund also needs trading infrastructure, Bloomberg terminals, data feeds, risk management systems, and office space.

According to APRA superannuation statistics, larger funds with over $50 billion in assets under management can spread these fixed costs across a substantial asset base, potentially reducing the cost per member (APRA, 2024). A fund managing $100 billion might spend $50 million annually on an in-house team, equating to just 5 basis points (0.05%) of assets. For a $5 billion fund, the same team would represent 100 basis points (1%), an unsustainable cost disadvantage.

Outsourcing shifts the cost structure. External managers charge fees (typically 20 to 80 basis points depending on the asset class and strategy), but the fund avoids the fixed overhead of salaries, systems, and infrastructure. For smaller and mid-sized funds, outsourcing is almost always cheaper on a total cost basis.

The hidden cost of in-house teams is operational risk. Staff turnover, key-person dependency, and the challenge of attracting top talent in competition with boutique asset managers and investment banks can undermine performance. A fund that loses a star portfolio manager may see performance deteriorate until a replacement is found and bedded in.

The Performance Reality

The critical question is whether in-house teams deliver better returns that justify the higher cost. The evidence is mixed. Some large Australian industry funds with in-house teams have delivered strong long-term performance, particularly in unlisted assets such as infrastructure and property where patient capital and direct ownership create advantages.

However, research into institutional investment management globally shows that in-house teams do not systematically outperform external managers after adjusting for risk and fees. In liquid asset classes such as Australian equities and international shares, the performance difference between competent in-house teams and quality external managers is often negligible over a full market cycle.

APRA’s annual heatmaps, which compare super fund performance, show that some funds with predominantly outsourced models sit in the top performance quartile, while some funds with large in-house teams occupy the middle or lower quartiles. Performance depends more on investment process, discipline, and governance than on whether the team is employed directly by the fund or by an external manager.

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The underperformance risk is highest when funds build in-house teams without sufficient scale or expertise. A mid-sized fund that hires a small internal equities team to save on external management fees may end up with higher total costs and worse performance if the team lacks depth, experience, or access to proprietary research.

When In-House Works

In-house investment management makes economic and strategic sense for the largest funds. AustralianSuper, with over $300 billion in assets, can justify a team of 100-plus investment professionals because the cost per member remains low and the fund gains control over implementation, tax management, and liquidity.

In-house teams excel in areas where relationship access, deal flow, and patient capital create competitive advantage. Australian super funds have successfully managed domestic infrastructure, commercial property, and private equity internally, often co-investing with peers or taking direct stakes in airports, toll roads, and renewable energy projects. These unlisted assets reward scale, governance expertise, and a long investment horizon, all natural strengths of large super funds.

For listed equities and bonds, the case for in-house management is weaker. External managers offer specialisation (emerging markets, small-cap growth, credit strategies) that is expensive to replicate internally. A fund would need to hire multiple specialist teams to cover the same breadth, at a cost that erodes the fee saving.

What Members Should Consider

Super fund members should assess their fund’s investment approach as part of a broader evaluation of performance, fees, and service. Check your fund’s annual report or Product Disclosure Statement to understand whether investments are managed internally, outsourced, or a mix of both.

Compare your fund’s net returns (after all fees and costs) against industry benchmarks. APRA’s heatmaps and comparison tools at MoneySmart.gov.au allow you to see how your fund ranks over one, five, and ten years. A fund with an expensive in-house team that delivers below-median returns is a red flag.

Total fees matter more than the management model. A fund might have low administration fees but high investment costs if the in-house team is inefficient. Conversely, a fund that outsources might achieve lower total costs and better performance by selecting excellent external managers and negotiating competitive fees.

Ask questions at member meetings or via your fund’s enquiry line. How much does the fund spend on investment management? What proportion of assets are managed in-house? How does the fund ensure it attracts and retains investment talent? Funds governed by member-elected trustees (typical of industry funds) should be transparent about these decisions.

Conclusion

In-house investment teams at Australian super funds are not inherently better or worse than outsourced models. The evidence shows that in-house teams often cost more, and without sufficient scale, expertise, and governance, they can deliver lower returns than a well-constructed outsourced portfolio.

For members, the lesson is simple: judge your fund by its net performance and total cost, not by whether it employs portfolio managers directly. The best model is the one that delivers competitive long-term returns at a reasonable cost. According to ATO guidance, even small differences in fees and performance compound significantly over a 30 or 40-year working life, making fund selection one of the most important financial decisions you will make (ATO, 2024).

If your fund’s performance lags and its costs are high, consider whether a switch to a top-performing fund with lower fees might better serve your retirement goals. Use the comparison tools at MoneySmart.gov.au and consult a licensed financial adviser if you need help assessing your options.