While internalizing investment functions continues to gain popularity, Morningstar’s latest research suggests that insourcing is “by no means the only way forward”, with funds still keeping the door open to external asset managers and advisers.

All funds regulated by the Australian Prudential Regulation Authority (APRA) use external managers, the research house noted, and the vast majority of with-profit funds to members – more than 90 per cent, representing more than $1.4 trillion in assets – continue to engage external asset advisers.

“In a sector with an inexorable trend towards fewer, larger super funds with increased investment provision, reliance on external asset advisers can be expected to decrease. So far, this trend has failed to materialize,” Morningstar said.

In terms of the use of external managers, Morningstar found that the most commonly used investment managers for Australian equities – for all funds over $20 billion in assets – were IFM Investors, Yarra Capital Management, Acadian Asset Management, Greencape Capital, State Street, Hyperion Asset Management and Alan Gray.

Meanwhile, the funds most often turn to global managers Baillie Gifford, State Street, Wellington Management, Macquarie Asset Management, BlackRock, Ninety One and T Rowe Price for their international equity mandates.

For fixed income exposure, the report identified giants such as BlackRock, State Street, PIMCO and Janus Henderson, along with Macquarie Asset Management, Wellington Management, TCW Group and Western Asset Management as the most commonly used.

Morningstar emphasized that many large for-profit funds manage at least some of their investment functions in-house, noting that among the large funds surveyed, the average team size has increased by about three-quarters over the past five years.

For the big funds that chose to source, according to the research house, private assets were a particular focus, with the majority of the Big Eight reporting that they had teams managing private equity, private debt, infrastructure and/or property.

Another emerging trend among larger for-profit member funds is setting up offshore offices, Morningstar said, adding that while four major funds - AustralianSuper, ART, Aware and Rest - had taken the plunge, only AustralianSuper had more than a handful of staff in abroad.

Looking at the advisers most often engaged by funds, the research house said two firms - JANA and Frontier Advisors - were dominant, with around two-thirds of the 30 for-profit member funds using asset advice, it said , that they use one of the two .

By funds under advice, these firms cover more than 85 percent of the asset advisory market sector.

“The extent of consultant involvement may vary; for smaller funds, they may essentially be an outsourced "full service" investment team, while larger funds may engage them for certain steps in the process, such as capital market assumptions, manager selection, or as an external controller of their investment recommendations," Morningstar said.