Financial Standard vol19 n07

www.financialstandard.com.au

09

14

25

Matthew Gadsden JANA

Property

Freehold IM, GROW

08 News:

21

Executive appts:

32

Rest, Vanguard

MLC, Praemium, First Super

Nick Hamilton Challenger

Opinion:

Large client books to nab premium Annabelle Dickson

he market for the sale and purchase of finanT cial adviser client books has seen an uptick of activity following the increased regulatory burden financial advisers are faced with, but it’s not quite the buyer’s market one might assume.

Forte Asset Solutions director Steve Prendeville says advisers that come to him to sell their client books are doing so because they are working harder and earning less. And so are the buyers.

The buyers, Prendeville says, are typically looking to reap size and scale benefits in acquiring client books, as a result of increased operational costs.

“Demand has increased considerably because the cost of production has increased substantially with dealer fees, increasing PI insurance, increasing ASIC levies, and we’re starting to see increased labour costs as well,” he says.

Prendeville says the increase in supply of client books picked up in the December quarter 2020 and has flowed through to this year.

“It was low for three years as the market was artificially suppressed, mainly due to the unknowns of the Royal Commission, the educational criteria and also COVID-19,” he explains.

But now, it is one of the best seller’s markets that Prendeville has seen. After listing three new businesses, he received 50 individual enquiries when he normally would have received up to 20.

“The seller is getting to choose the best adviser for their clients,” he says.

Connect Financial Services brokers chief executive Paul Tynan agrees and says he is seeing a lot more buyer engagement.

“My normal business model is if someone wants to sell, they come to me, but I’ve got a lot more people that just want to engage me because they have a specific mandate which they are looking for,” Tynan says.

Tynan refers to himself as the eHarmony of the advice industry, placing 80% of his service on the matching process but the increased red tape is becoming a recurring theme for sellers.

“I’ve also started seeing more and more people panicking because they have failed [the] FASEA [exam]” he says.

“This is their whole livelihood and they have been working for 35 years they are really panicking about what to do, should they just sell or go back and do the exam again as they’ve only got two extra opportunities.”

Tynan expects between 5500 and 6000 advisers to leave the industry by March 2022 and more books to come on the market.

Moreover, the increase in both supply and demand led to Prendeville seeing an increase in client book valuations.

“Last year on average valuations were 2.5x recurring revenue and 6x earnings before interest and tax (EBIT),” he says.

Now, Prendeville is seeing 2.75x recurring revenue.

“We’re still at 6x EBIT but the profit levels have increased so purchase prices are increasing,” he says.

Meanwhile, Radar Results founder John Birt says his typical buyer is looking for client books with around 100 to 200 clients between the ages of 35 and 55 with a fee for service arrangement of about $5000 per annum.

“We probably have 30 or 40 boutique buyers with their own AFSL that are paying between 2.2x recurring revenue up to about 2.5x,” he says.

However, Tynan says the value of smaller books has decreased because the buyers are becoming more specific.

“A lot of people are needing to cull a lot of books. The bottom 20% to 30% is not sellable because they are too small,” he says.

“People in the industry won’t see a client list that has got $3000 in annual fees per year. The mum and dad type books are in trouble.”

As for why they’re selling, Prendeville says many advisers are doing so as a retirement strategy. While others are happy to stay in the business but no longer want the complete operational responsibility.

Tynan agrees. He recently dealt with an adviser that was able to sell the client book for $8 million while staying on board as an employee, which he says eliminated the stress of ownership.

“He received the payment and got a contract to stay on for three years to keep advising the same clients. It’s about lifestyle,” he says.

Looking forward, Prendeville, Tynan and Birt all agree the momentum is unlikely to slow anytime soon, with the final FASEA exam slated for November.

“A lot of the risk advisers that have been around for 30 years will likely not want to do the exam and so they’ll sell, either internally or through a broker like me,” Birt says. fs

19 April 2021 | Volume 19 Number 07 www.financialstandard.com.au 20 January 2020 | Volume 18 Number 01

Feature:

Between the lines:

Profile:

Super stapling logic subverted Karren Vergara

Steve Prendeville

director Forte Asset Solutions

Australia’s largest superannuation fund is taking issue with the proposed stapling regulations, arguing that the model is backwards and will not protect members from being stuck in dud funds.

AustralianSuper chief executive Ian Silk shot down media speculation that the $203 billion super fund is advocating for a top 10 best-in-show MySuper list to be embedded in the pending Your Future Your Super bill.

He told the Senate Economics Legislation Committee discussing the new legislation that members must be protected from being stapled to underperforming funds. He is not confident that the bill is able to do so.

The problem with the model is that it operates in the reverse way that the Productivity Commission envisaged, he said.

The Productivity Commission proposed a quality filter, which ultimately led to the top 10 best-in-show funds and got rid of poor-performing funds, and members therefore are only stapled to Continued on page 4

Wholesale funds recover losses Wholesale funds finished 2020 with funds under management (FUM) down just 0.1%, recovering almost all the losses experienced as a result of COVID-19, new research from Plan For Life shows.

The research revealed wholesale funds grew 5.4% in the December quarter to finish 2020 at $1.2 trillion.

Pendal and Challenger led the FUM growth with 39.5% and 20.5% respectively. On the other end of the spectrum NAB/MLC recorded a 15.6% loss and Vanguard fell 9.4%.

State Street Global Advisors recorded 4.9% FUM growth followed by Victoria Funds Management (2.4%) and First Sentier Investors recording a slight decrease (2.8%).

“While initially in 2020 stock markets worldwide experienced significant COVID-19 triggered corrections they subsequently recovered and have continued to climb higher into the first quarter of 2021,” Plan For Life analysis said.

“However, despite the start of vaccination Continued on page 4

News

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

EISS Super, TWUSUPER explore merger

Editorial

Kanika Sood

Jamie Williamson

T

Editor

Just last year, I suppose as a result of having very little else to do, I got back into the habit of reading books. Having not read a book cover to cover in some years to that point, in the last six or so months I’ve read about 10; some good, some bad, some awful.

Recently, I read a novel about an unhappily married woman who tells herself she will leave her husband in 12 months if things don’t change.

She sets little tasks and milestones for them as a couple and if they complete or achieve them, she stays. If they don’t, it’s all over.

The catch? He knows nothing of the plan, nor of the tasks and milestones. He can see that she’s unhappy, but she doesn’t communicate her plan, the degree of her discontent or what she feels needs to change exactly. And so, with nothing to go on, he is left to make blind attempts at making her happy, guessing if he’s doing the right thing the right way.

For some strange reason, watching the recent Senate Economics Legislation Committee hearings on the Your Future, Your Super reforms reminded me of this book. Then, reading through parliamentary submissions on the proposed changes, even more so.

Submission after submission, be it from super funds, asset consultants or other, recognised the importance of the reforms and supported them in theory. But those same submissions lamented the lack of detail provided and questioned how it is that stakeholders could possibly be expected to meet the requirements without knowing what they actually are.

Not only that, we are already over the halfway point in April and no draft legislation exists. Once the legislation is drafted, a consultation period will be required as well. If that commences in midMay and runs for a minimum of two weeks, that brings us to June and the legislation then needs to be passed.

If we look at the stapling measures, it’s still unclear as to how exactly it will work. Further, until 1 July 2022, payroll officers are required to manually input the superannuation information of new starters.

Assuming there is no delay, and everything goes ahead as planned on July 1, people with minimal, if any, training will be responsible for ensuring the safe passage of an individual’s nest egg to the correct super fund. Now imagine they work for a retail giant that employs thousands each month – the capacity for error is huge.

There’s also the performance test in which trustees have essentially been handed a treasure map with no ‘X’ marking the spot and told if they don’t find it then they’re done.

The intention of the reforms is to make the super system more efficient, but I think the government has made a very common mistake in thinking ‘efficient’ is synonymous with ‘speed’. This is not the case and, while important, the reforms can wait a couple more months – if we’re going to do something, we may as well do it right. fs

3

The quote

This merger can provide greater scale for both funds and has the potential to deliver cost savings to members across trustee services, administration and investments.

he two industry superannuation funds have signed a Memorandum of Understanding to weigh a potential merger.

If the merger proceeds, the combined fund will have about 130,000 members and $12 billion in funds under management.

In a joint statement, the two super funds said they will commence due diligence, and initial discussions have been “very positive”.

“We have an obligation to our members, to consider the benefits of a potential merger and to proceed with that merger if it is in their best interests. It’s early days, but we’re seeing a lot of potential benefits for members, so a merger looks promising,” EISS Super chief executive Alexander Hutchison said.

TWUSUPER chief executive Frank Sandy said: “Although early in the process, there appears to be a strong synergy between the funds operationally, which should translate to better member outcomes, as well as an alignment of our values and culture which is important for members.”

“This merger can provide greater scale for both funds and has the potential to deliver cost savings to members across trustee services,

administration and investments, while also providing members with better services, solid long-term investment returns and improved financial outcomes at retirement.”

EISS Super’s MySuper option has returned: 3.8% over the year to February, 5.6% p.a. over three years, 7.2% p.a. over five years, 6% p.a. over seven years and 6.7% p.a. over 10 years.

TWU’s MySuper has slightly better performance: 7.1% over 12 months to February end, 5.7% p.a. over three years, 7.9% p.a. over five years, 6.8% p.a. over seven years, and 7.4% p.a. over 10 years.

Both are below the median MySuper option’s annual returns of 8% plus over all time periods mentioned.

Last month, the Australia Post Superannuation Scheme (APSS) signed a non-binding heads of agreement to explore a merger with Sunsuper, which is committed to a merger with QSuper to create a $200 billion-plus fund.

Also last month, Aware Super signed a Memorandum of Understanding with the $855 million Victorian Independent Schools Superannuation Fund (VISSF). Aware last year, completed mergers with VicSuper and WA Super. fs

Super fund liquidity could be better: Reserve Bank of Australia Jamie Williamson

While the events of 2020 showed superannuation funds manage liquidity well, funds should consider the extent to which they rely on certain asset classes for liquidity, the Reserve Bank of Australia (RBA) has said.

In its Financial Stability Report for April, the RBA praised super funds’ management of liquidity pressures throughout 2020, particularly the impact of the early release of superannuation scheme.

However, the central bank said there is still room for improvement.

With APRA having already called on funds to reassess their liquidity management plans (LMPs) to ensure protection going forward, the RBA said funds should also be considering the extent to which they rely on liquidity from certain asset classes under stressed market conditions. Funds should also consider alternative ways to transact when market depth is reduced, the RBA said.

In the March 2020 quarter alone, super funds added $51 billion to their aggregate cash balances. Around half of this was the result of members switching to cash from riskier investments, and it was largely older members sitting outside of the default MySuper options.

“While this was equivalent to only around 1.5% of funds under management for the system as a whole, it was substantially larger for some super funds,” the RBA said.

“Data collected from 30 funds show that these flows were as high as 3-4% of FUM for several large funds and 8% for one medium-sized fund.”

This member behaviour also aligned with

the funds’ own expectations, enabling them to preemptively rebalance towards cash. Funds should consider updating their LMPs in line with this, the bank said.

“As the population ages and the superannuation system matures, it is reasonable to expect the scale of member switching activity to increase in the future as members become more alert to the performance of their investments,” the RBA wrote.

“This could add to the liquidity challenges associated with funds shifting from an accumulation phase – with total contributions exceeding benefit payments – to a drawdown phase as the superannuation system matures.”

However, super funds’ hedging strategies proved robust throughout the year, the RBA said.

During the first half of March 2020, the Australian dollar depreciated by 15%, meaning super funds were forced to pay more than $17 billion of margin to counterparties as they used currency derivatives to hedge foreign exchange rate risk on foreign-denominated investments.

“Fund-level data show that funds with larger hedging ratios going into the pandemic tended to sell larger shares of foreign equities than other funds,” the report reads.

“This illustrates that, in most circumstances, the liquidity risk involved with foreign currency hedging is at least partly mitigated by the depreciation of the Australian dollar also lifting the Australian dollar value of underlying foreign assets. This, in turn, supports funds’ ability to sell some of these foreign assets and close part of their hedging contracts.” fs

4

News

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

01: David Knox

Super stapling logic subverted

senior partner & national leader for research Mercer

Continued from page 1 a set of high-performing funds. In Silk’s mind, this is a “logical sequence”.

The proposed bill does not follow this sequence, he said, adding that members may be stapled to a poor-performing fund - which in a sense is a “life sentence”.

“This is because many are disengaged and won’t engage with their super fund and appreciate the ‘sentence’ they receive until they retire to find that they have been in a poor-performing fund all that time,” he said.

While a pool of 10 is a small number, Silk said getting rid of poor-performing funds so that members are stapled to high-performing funds is a critical improvement that would “do wonders for this bill and superannuation fund members”.

Silk also argued for the inclusion of administration fees in the new benchmark tests.

In the October 2020 federal budget, Treasurer Josh Frydenberg introduced a test for MySuper.

Such products that underperform their benchmark by 0.5 percentage points over an eight-year rolling period for two consecutive years will be barred from taking on new members. Critics in the industry pointed out why administration fees were excluded in accounting for total expenses.

Silk said: “Members are entitled to strong investment performance, but at the end of the day it is the net returns to members – that is, what they receive in their accounts after investment performance, fees and charges are all applied – that is most important to them.”

He also called for all APRA-regulated superannuation products to be subject to performance benchmarking and the annual performance test – not just MySuper products. fs

Wholesale funds recover losses

Mercer calls for delay to superannuation reforms Jamie Williamson

A

The quote

We would recommend delaying the whole new system until 1 July 22.

ppearing before the Senate Economics Legislation Committee, Mercer implored the government to consider a delay to the implementation of the super fund stapling mechanism slated to come into effect from July 1.

In opening, Mercer senior partner and national leader for research David Knox01 echoed the sentiments of the firm’s submission that the current draft bills are light on detail in many respects, including the stapled fund approach which will require Australian employers to be heavily involved in the onboarding process of every new employee.

Knox said the 1 July 2021 start date is “impractical” for employers, many of whom will simply not be ready.

As it stands, the mechanism through which payroll officers will need to register an individual employees’ information with the Australian Taxation Office (ATO) will be manual until 1 July 2022, at which time it will switch to a digital system.

“We would recommend delaying the whole new system until 1 July 22 when the ATO’s digital system can be made more efficient and we can eliminate that two-step process,” Knox said.

In discussing the impending performance test, as further reason for delay Knox highlighted that

a consultation period on draft legislation is still yet to occur, saying: “We hope that’s a reasonable period… three or four weeks… so we can think about how it would apply to a range of funds. Yes, we’re concentrating on MySuper but this is going to apply across the whole industry.”

When asked how the lack of detail offered so far has impacted Mercer’s ability to serve its clients, superannuation and insurance leader Richard Boyfield said any advice currently being dealt by Mercer comes with a caveat that its super fund clients’ investment strategies may have to be looked at and tested once the regulation is available.

“Obviously that acts as a constraint in providing advice and enabling trustees to develop their long-term investment strategies for which – potentially – if this is enacted from July 1, they’re already essentially being tested on the strategy they’re putting in place,” Boyfield said.

Returning to the discussion around stapling, Boyfield said it is likely superannuation funds will begin to target their advertising and marketing campaigns to young workers in a bid to nab new members.

To combat this, Boyfield said a framework that clearly outlines what marketing and communications materials should contain, namely transparency around members’ abilities to “potentially better terms they could obtain”. fs

Continued from page 1 programs, unprecedented government stimulus and money printing, uncertainty and the potential for market volatility remain as hopes for recoveries in the underlying real economies remain largely unrealised.”

The results were similar for gross wholesale inflows which were down 1.1% on 2019 at $278.9 billion.

Plan For Life noted the variation in inflow growth with QIC, BlackRock, Challenger, AMP, Macquarie, IOOF and DFA recorded triple and double digit percentage increases but were offset by large falls recorded by State Street and Vanguard.

In similar research, Rainmaker Information’s Wholesale Managed Funds Performance Report found the balanced funds with top five strategies were Macquarie Balanced Growth fund returning 8.2% over three years.

This was followed by Ausbil Balanced Fund (7.6%), IOOF Multimix Balanced Growth Trust (7.5%), Fiducian Balanced Fund (7.5%) and BlackRock Global Allocation Fund (7.3%).

Meanwhile, Rainmaker found that listed property is down 14% on pre-pandemic levels and dropped 4% over January.

In the combined property sector the Australian Unity Diversified Property fund returned 13.3% over three years followed by Lendlease Australian Prime Property Industrial Fund returning 12.1%. fs

MySuper fees could drop to 0.5% p.a.

Kanika Sood

Fees charged by MySuper products could halve over the next decade to 0.5% per year, says Rainmaker Information which analysed the fees of 457 super products over last six months.

The research found MySuper products charged members median fees of 1.1% for 2019-2020.

This is much higher than average fees charged by international pension fund counterparts. New Zealand’s KiwiSaver averaged 0.90% for the same period, US Public Sector retirement funds charged 0.55%, UK’s Nest charged 0.51% while Sweden AP National Funds charged 0.15%.

On the brighter side, nearly 164 superannuation products (choice as well as MySuper) available in Australia lowered their fees in the six months ending January 2021. A much smaller number (47) increased their fees.

Rainmaker executive director of research Alex Dunnin said the firm’s research continues to see evidence of concerted efforts by fund trustee boards to lower fees.

“Australia’s superannuation system has long been considered to be a well-priced system charging fees around the OECD median. This

has fuelled the view that superannuation fees in Australia are competitive and that we should be wary of the never-ending push for fees to keep going lower,” Dunnin said.

“But while the comparison is valid, it ignores the 2021 political reality that the debate around super fund fees in Australia has reset due relentless public pressure.

“Explaining why this pressure has gained traction is that if the comparison shifts to focusing on developed world countries with which Australia probably counts as its peers, Australia’s median superannuation fees in reality look expensive.”

Dunnin said it is not unrealistic to expect Australian super funds to go from charging 1.1% p.a. in median fees to 0.5% p.a. over the next decade.

“But this timeline could shorten if the APRA super fund performance test pushes more funds to put more of their assets into lower cost indexed investments…” Dunnin said.

He said a quarter of MySuper products already have fees under 1% p.a, adding that diversified superannuation products that only use indexed investments are already much cheaper. fs

News

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

Hostplus wins mandate

01: Sean McCormack

managing director and chief executive Integrity Life

Kanika Sood

Hostplus has been chosen as successor fund for about $210 million of member assets from AUSfund, as the latter closes its doors after 33 years.

AUSfund, which was set up as a fund for unclaimed or dormant superannuation funds, is owned by an Industry Fund Services subsidiary.

IFS employed a small team of investments staff who invested AUSfund’s roughly $1 billion in assets via external fund managers.

Effective May 21, AUSfund will cease to exist, after the federal government’s legislation made it mandatory for superannuation funds to transfer sub-$6000 or dormant accounts to the Australian Taxation Office.

AUSfund has decided to transfer member accounts with over $6000 to Hostplus after a tender process conducted pre-COVID. It will return the sub-$6000 accounts to the ATO. “We went through a competitive tender process pre-COVID but the SFT [successor fund transfer] was put on hold last year,” Industry Fund Services chief executive Cath Bowtell told Financial Standard.

“Hostplus was the most competitive in terms of performance, costs, net returns but also governance, the health of fund and the way it is run.

“We estimate (subject to earnings over next month or so) that to wind up AUSfund we will transfer just over $210 million to Hostplus, and $730 million to the ATO.” AUSFund acted as the eligible rollover fund (ERF) for over 40 superannuation funds including both industry funds like AustralianSuper and UniSuper, and corporate funds like Qantas Super and Westpac Staff Super.

Hostplus had $47.8 billion in funds under management as at 30 June 2020.

In February the government passed key legislation, including the Treasury Laws Amendment (Reuniting More Superannuation) Act 2021.

This requires funds from ERFs that are sent to the ATO to be proactively reunited with a member within 28 days.

“ERFs were intended to act as a temporary measure for the benefit of members who had lost their superannuation accounts. However, in practice, members’ money languished in ERFs for years,” Treasurer Josh Frydenberg and minister for superannuation Jane Hume said.

The Association of Superannuation Funds of Australia (ASFA) deputy chief executive and chief policy officer Glen McCrea said the legislation is extremely valuable especially where the trustee holds small residual account balances. fs

How advisers can attract young risk clients Karren Vergara

A

The quote

Even if you’re not doing proactive advertising per se, it is important that what you offer and why you offer it translates into the digital/social realm.

new report finds that it is possible for financial advisers to attract young clients and convince them about the benefits of advice and life insurance using new strategies.

Integrity Life’s The fight for future markets report upends the notion that Millennials completely oppose adopting professional financial advice and insurance.

In conjunction with CoreData, the report outlined several challenges advisers face when catering to the younger generation in regard to taking up life insurance. Many of the issues range from relevance to perceived cost and complexity.

Using a focus group of 10, the Millennials cited low debt and being single as reasons they don’t purchase life insurance.

“Even when they do have children, many young Australians are concerned about competing financial priorities, feeling preoccupied with day-to-day family expenses and paying their bills.

“Additionally, the sheer volume of policies available, their complexity and their lengthy application processes act as a deterrent for many would-be customers,” the report read.

The Association of Superannuation Funds of Australia (ASFA) claims that most retirees run out of super well before the end of their lives, pointing to the Australian Tax Office, APRA and unpublished data from the Household, Income and Labour Dynamics in Australia (HILDA).

Some 80% of those aged 60 and over who died between 2014 to 2018 had no super at all four years before their death, ASFA said.

Only 15% of females aged 60 years old and over at death had any superannuation compared to around 25% of men.

The Retirement Income Review found that the majority of Australians die with the bulk of their wealth at retirement intact – thanks to the prioritisation of savings during accumulation phase and the ability to live off the return on their capital.

“If this does not change, as the superannuation system matures, superannuation balances will be larger when people die, as will inheritances. Superannuation is intended to fund living standards of retirees, not to accumulate wealth to pass to future generations,” the report read.

By 2059, the review estimated that about $130 billion in superannuation death benefits will be paid out – a whopping increase from the $17 billion in 2019.

While inheritances can help the receiver prepare for retirement, they are distributed unequally. The wealthy tend to receive substantially more thus increasing intragenerational inequity, the review found.

In 2018, the ATO estimated around over 1.7 million Australians aged 70 and over do not have super at all. fs

Outstanding performance through the economic cycle Independently rated

In capturing the Millennial market, the first step is using different channels like social media, podcasts, review sites and YouTube is much more likely to generate leads. The key, however, is authenticity.

“Even if you’re not doing proactive advertising per se, it is important that what you offer and why you offer it translates into the digital/social realm. One example of this is finding ways to do visual testimonials that can be shared, liked and commented on – as the predominant social media networks largely favour visuals over text.”

The research also suggested that advisers talk to Millennials in clear terms and product descriptions written in plain English and that cuts straight to the point. Advisers must therefore ditch industry jargon where possible.

Integrity Life managing director and chief executive Sean McCormack01 said risk advice has never been more challenged. For advisers, that leads to many questions.

“Two of them are: How can I attract insurance clients in the millennial demographic?

And how can I do it profitably? Efficiency of risk advice and attracting new clients must be intertwined,” he said. fs

Super runs out before death: ASFA

Market leading investment solutions $12 billion AUM

5

1800 818 818 | latrobefinancial.com

6

News

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

Warakirri launches farmland fund

01: King Loong Choi

associate research director Investment Trends

Jamie Williamson

Warakirri Asset Management has launched a new fund, seeded by a European pension fund, providing domestic and offshore institutional investors with exposure to Australian agricultural property.

The new Warakirri Farmland Fund will buy, develop and own a portfolio of agricultural property and lease the assets to agricultural businesses. Assets will include horticulture, viticulture, water entitlement and selected row crop assets.

Several acquisitions have already been made with tenant partners, with rental yields of 7% and above, the asset manager said.

The fund is designed specifically for institutional investors and has been seeded by an unnamed European pension fund.

“The fund is expected to deliver a strong return profile with over half the forecast returns to be delivered through regular income payments, and the balance via long-term capital growth of the underlying assets,” Warakirri said.

“The fund will utilise Warakirri’s Sustainable Best Practice framework, including strategies to reduce energy use and carbon emissions and improve water efficiency and biodiversity.”

Portfolio manager Steve Jarrott said there is a compelling case for investors to consider agricultural exposure, given its low volatility and low correlation to traditional asset classes.

“The launch of this fund follows the success we have had with a similar strategy we developed for wholesale investors, including family offices, charities and advisory groups,” he said.

“That fund has recently completed deployment of its initial capital raising, establishing a foundation portfolio that will provide secure long-term income return of 8-9% per annum, with strong long-term capital growth potential.” fs

Long-time WTW executive resigns Karren Vergara

A long-serving Willis Towers Watson executive has left after more than 12 years with the firm.

Head of strategic advisory for investments Jessica Melville confirmed that she has resigned from WTW. Her most recent responsibilities were advising asset owners on governance and strategic issues. She joined WTW as an investment consultant in December 2008 and prior to that was an investment analyst at Pengana Capital for two years.

Sydney-based Melville did not confirm her next job opportunity.

In WTW’s most recent research about Australia’s superannuation industry becoming the most successful in the world, Melville commented that super funds have shown considerable resilience and will continue to play a significant role in the nation’s recovery.

Melville said the year ahead will be interesting for funds, following the Australian government becoming a signatory to the Coalition for Climate Resilient Investment. fs

HNWs change views on financial advice Elizabeth McArthur

N

The quote

The disjoint between the positive views towards advice providers and the current muted uptake of advice highlights how advice providers need to rethink their value proposition.

ew research from Investment Trends has revealed that high-net-worth investors in Australia have changed their view of professional financial advice since the pandemic.

Investment Trends found that there are 485,000 HNW investors in Australia as of September 2020, defined as those with over $1 million in investable assets outside their home, business and non-SMSF super.

Among this group, there has been a sharp increase in the number of HNWs that are open to receiving professional financial advice. More than half of HNWs, 56%, are now open to receiving advice while 12 months ago only 40% were.

“The size of the Australian HNW population remains resilient despite tough market conditions at home and abroad. While the uncertain investing climate had minimal impact on market size, it has profoundly impacted the attitudes and preferences of HNW investors towards investing and advice,” Investment Trends associate research director King Loong Choi01 said.

“The last 12 months saw a large shift in the

perceptions of advice among HNW investors, with a sharp increase in ‘validators’ who are open to receiving financial advice (56%, up from 40% in 2019) and a corresponding fall in ‘self-directed’ HNWs who prefer making decisions on their own (34%, down from 49%).”

However, the research found that this shift in attitude has not led to greater uptake of advice.

Over the last 12 months, the use of financial advisers (19%) full-service stockbrokers (15%), wealth managers (7%) and private banks (5%) among HNWs has largely remained static.

“The disjoint between the positive views towards advice providers and the current muted uptake of advice highlights how advice providers need to rethink their value proposition and delivery model,” Choi said.

“The uncertainties caused by the pandemic has prompted many HNWs to reconsider how they view professional financial advice, which presents a unique opportunity for advice providers to demonstrate their value-add – through their technical expertise, guidance and proactive communications.” fs

Sunsuper, QSuper members ask for better climate disclosures Kanika Sood

About 200 members from Sunsuper and QSuper have written to the funds, asking them to disclose holdings in thermal coal, among other climate change risks.

The two funds are set to merge this year, creating a $200 billon fund with over 600,000 members.

The $120 billion QSuper has committed to “net zero” emissions by 2050. Sunsuper has conducted climate scenario analysis since 2015, and last year approved a Climate Action Plan for its investment portfolio.

One hundred and forty-one QSuper members, who also support the Australian Conservation Foundation, sent a letter to QSuper chief of member experience Jason Murray on March 26 asking the fund what actions it is taking towards the net zero promise.

In particular, they want to know: the timeline in which QSuper will complete the promised carbon exposure analysis of its portfolio, a detailed list of stocks the fund holds and will analyse, the strategy for achieving net zero by 2050, and the fund’s base case scenario for a low carbon world.

The 141 members are also seeking a copy of QSuper’s ESG policy, and the details of their risk

management framework for material investment risks such as climate change.

“QSuper states that its approach to climate change risks is developing this year. The delayed action to understand and manage climate change risks by the trustee is of particular concern,” the QSuper members wrote in the letter.

“As QSuper members, we are entitled to documents and information about how the fund is investing our money, the fund’s investments, and how the fund is being managed, including the management of financial risks.”

A QSuper spokesperson pointed to the December statement and said the fund had no further comment to add.

The Sunsuper letter, which was sent to chief member officer Steven Travis by 65 members said the fund is seeking more information on the climate scenario analysis it had conducted since 2015.

They want copies of all the scenario analysis, advice received in relation to them, the board and the investment committees’ responses to the scenarios among other documents.

Both letters have asked for a response in 28 days from the two funds. fs

Nominations now open Recognise industry leaders and innovators in financial services marketing, advertising and sales by nominating them in the 2021 MAX Awards.

Winners announced Thursday 10 June

Voted by their industry peers, the annual MAX Awards continues to recognise the best-of-the-best in financial services across 23 categories, including: Community Initiative of the Year, Financial Literacy Campaign of the Year and Marketing Team of the Year.

www.financialstandard.com.au/max Nominations close: Wednesday 28 April 2021 | Voting opens Wednesday 5 May 2021

8

News

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

ETFs crack $100bn

01: Andrew Lill

Kanika Sood

Nearly 20 years after ETFs started trading in Australia, their total assets crossed $102 billion at the end of March.

There are now 220 ETFs listed on the ASX. In March, their investors made roughly 18,685 ETF trades a day with average daily trading volume of $355.4 million.

March end FUM of $102 billion is 80% higher than $56.6 billion 12 months ago.

In the year ending March, the average 12-month transactions grew by 75% to 390,534.

The 12-month average traded value was up about 27% to $7.49 billion.

“The Australian ETF industry has come a long way since the first ETF was listed in August 2001. We’ve seen impressive market growth over the last few years in particular, evidenced by the industry surpassing A$100 billion in assets across the now 220 and growing ETFs listed on the ASX when just 10 years ago we had only 50,” Vanguard head of capital markets Minh Tieu said.

“Investor confidence has greatly improved since this time last year when markets were first rocked by COVID-19.

“While domestic equity, niche and leveraged ETFs were favoured in the first half of 2020 as investors sought to navigate market volatility, a year on we are seeing better diversification across both asset classes and ETF types, with a notable increase in flows to international equity and actively managed ETFs.” fs

Impax AM, Fidante in partnership Challenger’s multi-boutique business will distribute the $54 billion Impax Asset Management’s sustainability strategies in Australia and New Zealand.

UK-based Impax manages environmentally focused investment strategies in listed and private markets.

Impax last month won a $240 million mandate from Cbus for the Impact Climate Strategy, which invests in companies providing climate change solutions.

It currently also manages the BNP Paribas Environmental Equity Trust, based on Impax Leaders strategy which invests in new energy, eater, waste and resource discovery and sustainable food.

Fidante will take over the distribution from BNP Paribas and rebrand it to Impax.

“Fidante is very well-positioned to support Impax’s future growth aspirations among institutional and wholesale clients in Australia and New Zealand. As a significant player in the market, Fidante’s focus on partnering with specialist asset managers matches our own position as a specialist manager focusing on the transition to a more sustainable economy,” Impax Founder and chief executive Ian Simm said.

Fidante ended 2020 with $71 billion in total funds under management. Its other recent partnerships include Japan’s Nomura Asset Management, and agribusiness-focused private equity manager Proterra Investment Partners, for its Asian food strategy to European investors. fs

chief investment officer Rest

Rest makes anti-slavery and trafficking commitment Elizabeth McArthur

T

The quote

We believe that being a responsible investor is critical to providing long-term returns to our members.

he $60 billion industry fund for the retail sector Rest has made an ESG investing commitment that will see it specifically fight slavery and trafficking.

The fund has joined the Investors Against Slavery and Trafficking (IAST) APAC coalition, signing the investor statement on modern slavery, human trafficking and labour exploitation issues.

The statement urges companies, particularly those within the ASX 100, to combat modern slavery, human trafficking and labour exploitation in their operations and supply chains.

“Rest has more than $60 billion invested in Australia and overseas, as well as more than 300 active service providers. Organisations of our scale and reach must proactively take steps that can reduce modern slavery and trafficking,” Rest chief investment officer Andrew Lill01 said.

“We believe that being a responsible investor is critical to providing long-term returns to our members. What’s more, our members have told us they expect us to invest responsibly.”

By becoming a members of IAST APAC, Rest joins 32 other institutional investors and superannuation funds in the Asia Pacific region

in making an ongoing commitment to engage with companies and address this issue.

The fund also published its first statement on modern slavery, detailing the efforts it has taken so far to ensure its investments do not support companies that exploit workers rights through slavery and trafficking.

The statement revealed that Rest integrated its slavery assessment framework within its overall risk management strategy.

During financial year 2019/2020 Rest assessed all its investment managers to review potential exposures to slavery and trafficking. It did not reveal whether any mandates were altered as a result of this review.

“Addressing potential modern slavery exposures in your investments, operations and supply chain, and engaging with businesses to ensure they’re also taking similar action, is a core component of being a responsible investor,” Lill said.

“Our contributions to responsible and sustainable investing are aligned with five of the UN Sustainable Development Goals, one of which is ‘Decent work and economic growth’.

Becoming a signatory to the investor statement against slavery is demonstration of how were aligning with this goal.” fs

No premium delivered by unlisted assets: Research Karren Vergara

MySuper products with high weightings to unlisted assets provide modest returns but contribute lower volatility and higher autocorrelation.

Rainmaker’s latest RMetric report sought to find out if the performance of MySuper products with high weightings to unlisted assets is distorted and ultimately lowers volatility. The research house found that MySuper funds invested in unlisted assets did not deliver a performance premium.

“This is demonstrated by the correlation matrix that shows that MySuper investment returns across the group to have very little relationship with their volatility, the proportion of unlisted assets, autocorrelation, skewness and kurtosis,” the report read.

The analysis covered five years of monthly returns data to the end of January 2021 for 46 MySuper products. Of the sample, six had no exposure to unlisted assets, while nearly half had unlisted exposure between 20% and 30%.

One area of focus was the relationship between unlisted assets and volatility. Rainmaker found this to be “highly significant”, registering a correlation of -0.56, which in practical terms meant that the more unlisted assets in a portfolio, the lower its volatility.

Overall, the proportion of unlisted assets in MySuper portfolios delivered “mild impact on returns”.

The research also ranked the performance of super funds’ property allocation based on a combined risk-adjusted basis.

It found that Tasplan, CareSuper, TelstraSuper and Prime Super came out on top in the three years to September 2020.

Looking at returns alone, Prime Super (7.9%), TelstraSuper (7.1%), AMP Signature Super (6.6%) and CareSuper (6.6%) were the top performers for the period.

In February, Aware Super chief investment officer Damian Graham said the fund plans to build out its unlisted infrastructure portfolio before it puts any more cash into stocks.

Following the COVID crash in the first quarter last year, Graham said Aware was able to bounce back, finishing the year around 5% above the benchmark.

“As a fund we feel we’re in pretty good shape.

We did a lot of work to figure out what risk exposures and liquidities were,” he said.

“We really wanted to define as much as possible how much liquidity we had to be able to take advantage of opportunities.” fs

Opinion

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

9

The Bitcoin phenomena reveals the risks and rewards of cryptocurrencies Despite the hype surrounding digital currencies, there’s much for investors to consider before diving in. JANA senior consultant Matthew Gadsden writes.

he astonishing upheavals across the globe T over the past 12 months saw dramatic developments in investment markets, including the fastest equity market correction and subsequent recovery on record, radical changes to fiscal policy and regulation, the continued outperformance of ‘unicorns’ and the resurgence of cryptocurrencies, in particular Bitcoin.

Elon Musk’s Twitter announcement that Tesla has made a $US1.5 billion investment in Bitcoin drove a further price spike. The cryptocurrency’s price has surged more than 400% in the past year – and there is wide speculation that many traditional investors will add cryptocurrency to their portfolios.

The resurgence of cryptocurrencies is certainly a manifestation of increasing fears that current fiscal and monetary policies will lead to the devaluation of ‘fiat’ currencies, principally the USD. Cryptocurrency advocates believe that these assets have the same utility as more traditional stores of wealth such as art, gold or even a negatively yielding inflation linked bond.

The case for cryptocurrencies at this time is very similar to the case for gold and other hard commodities – it is believed that its scarcity should maintain its value against fiat currencies that are at risk from current fiscal and monetary policies.

The explosion of social media sees investment influencer demagogues capturing hearts and minds, especially among younger generations who gravitate to tech solutions and the chance to show up ‘baby boomers’.

Meanwhile, greater institutional support has brought legitimacy, which builds confidence in the stability of the ecosystem. Bitcoin as a ‘store of wealth’ has undeniably gained credibility (even legendary investor Stanley Drunkenmiller is an advocate), although it’s role as a currency may be limited.

Tesla, PayPal, Square and numerous other large corporates are either offering Bitcoin as payment for product or remuneration. And, unsurprisingly, major credit card companies Visa

and Mastercard have crypto products and projects in development.

But how can investors value an ‘asset’ that has no cashflow, exists because of a collective belief by sufficient people that it has value, that has become a favoured speculative target in late cycle excess and has contingent regulatory risk?

Concerningly, ‘crypto’ is largely unregulated and is at risk of sovereign intervention. The response of sovereigns to the emergence of competitor currencies is unclear.

It is highly likely cryptocurrencies will face regulation. Stable coins (those that have more of role as a currency) may be first, and later adapted for Bitcoin and others. In 2020, the Stable Act draft legislation was released in the US, that has potential implications for stable coin operators to be regulated akin to banks.

Given the existential risk, there may be continued enormous volatility in the price of cryptocurrencies for some time. However, perhaps there is some legitimacy with well-regarded entities launching cryptocurrency ETFs, futures and other investment products.

Though the crypto space is better serviced by more reputable exchanges and service providers, there is still a ‘wild west’ element to the industry players and very careful due diligence is required.

The total number of Bitcoins is limited (at 21 million), but the number of cryptocurrencies is unlimited and extreme volatility is both a function of hype and illiquidity.

While institutional support has increased, blockchain analytics firm Glassnode estimates that “around 2% of network entities control 71.5% of all Bitcoin.” While the pathway supports a broader more diversified holder base, there are still a small number of large holders that dominate holdings.

Such a tightly held market means that price manipulation is still a risk, and investors need to be discerning towards liquidity, especially in a highly speculative environment.

If you are intending to invest in Bitcoin for diversification, although it is suffering from the

The quote

Investors concerned with environmental impacts will need to weigh the carbon footprint and environmental implications with the perceived positive social impact and value created.

same excess as other asset classes, it does currently have some diversification benefits (as seen against S&P500, the USD Index and Gold). Although given its short history, one must be circumspect with the stability of correlations.

As far as its use as a transactable currency, Bitcoin is not a widely accepted medium, but it is becoming more common. If its volatility persists longer term, perhaps it is less likely to be suitable as a currency.

With investors increasingly conscious of sustainability issues, the resources needed to grow the Bitcoin blockchain through mining are considerable. Bitcoin mining (through its ‘proof of work’ construct) uses more annual energy than most countries and if Bitcoin itself was a country, it would be among the top thirty energy users in the world, using more energy than Argentina.

Of course, the carbon footprint associated with Bitcoin’s energy consumption will be dependent on the source and type of energy used, but with around 64% of the world’s electricity still generated by fossil fuels its carbon footprint is likely to be meaningful.

Investors concerned with environmental impacts will need to weigh the carbon footprint and environmental implications with the perceived positive social impact and value created through decentralising trust and enabling more people to enter the digital economy.

Beware of viewing recent institutional investments as financial industry broad-based acceptance – many recent notable investors will be basing their investment on fear of missing out and marketing, or tail risk hedges.

For institutional investors, our views towards Bitcoin have moderated incrementally.

However, at 12 years of age, our observation would be that cryptocurrencies are nascent peripheral alternative assets or potential derivatives of currency.

There is a high probability that stable coins (more akin to currencies), which function as an interface between the crypto and fiat worlds, may be regulated. The risk also applies to Bitcoin and the thousands of ‘altcoins’, but at this point it looks more like ‘a store of wealth’ for those that consider it’s a store of wealth.

It is not for us to speculate on price, and while Bitcoin may trade considerably higher given its finite nature, it is bound to be volatile for the foreseeable future.

In the big picture, there is a lot of hype, polarisation and misinformation. Vested interests are rife; this is the type of environment that has tended to bring out the worst risks for investors.

Cryptocurrency and blockchain technology may have some amazing, potentially worldchanging applications, but it doesn’t have to be an investment you have to choose. We are operating in a highly speculative environment; investors must consider if it is the right time to make a reasoned judgement. fs

10

News

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

BlackRock hires from AMP Capital

01: Scott Donald

director for centre of law, markets and regulation University of New South Wales

Elizabeth McArthur

BlackRock has announced two co-heads of BlackRock Sustainable Investing for Asia Pacific, hiring from AMP Capital.

Emily Woodland and Geir Espeskog have been appointed to share the position, both based in Hong Kong.

Woodland was previously head of sustainable investment at AMP Capital, heading up the firm’s ESG public market fund range.

Prior to joining AMP Capital, Woodland held various senior positions at UBS and was an impact investment advisor at ADM Capital.

Woodland resigned from AMP Capital in August of last year amid the group’s sexual harassment allegations.

Espeskog is currently head of iShares Asia Pacific distribution and has been with BlackRock for more than a decade. Prior to this he was a director at Barclays Capital and also spent time at Merrill Lynch and Goldman Sachs.

BlackRock said his knowledge of the APAC client base and regional markets will be leveraged to spearhead opportunities in his new role.

“We are thrilled to put this team in place and set the pace for our sustainable investment offerings in Asia,” BlackRock head of Asia Susan Chan said.

“Geir’s proven track record as a strong business builder combined with Emily’s sophisticated command of sustainable strategies signals the high priority we place on this effort. This is a great pairing as we start to roll out our sustainable investing team in the region.” fs

Goldsky director charged The founder of Goldsky Investments has been charged with engaging in dishonest conduct and operating a financial services business without a licence.

Kenneth Charles Grace was charged with eight counts of dishonest conduct and one of operating a financial services business without a licence in Tweed Heads local court on April 12.

Grace was director of Goldsky Asset Management Australia, Goldsky Global Access Fund, Goldsky Investments and the US-based Goldsky Assset Management.

He raised money from high-profile Australian sports people, among other victims, and represented to them that their money would be invested in a managed fund.

However, ASIC alleges Grace did not allocate investor money to investments and trading and did not generate the profits that he pretended investors could expect.

Rather than being invested in a managed fund, ASIC alleges investor funds were used to pay for the lifestyle expenses of Grace and his immediate family.

The charges laid against Grace carry maximum penalties of 10 years in prison for the eight counts of dishonest conduct and two years in prison for operating a financial services business without a licence.

ASIC froze bank accounts associated with Goldsky in 2018 and receivers were appointed to wind up the Goldsky companies. fs

‘Financial’ in BFID is no big deal: Academic Kanika Sood

A

The quote

I think any trustee in the country asking a legal adviser, ‘What does best interest mean’ would be told instantly that it means best financial interest.

UNSW academic says subjecting superannuation funds to “best financial interest duty” instead of just “best interest duty” is not material, but BFID’s flow-on effects will be material for trustees.

University of New South Wales director for centre of law, markets and regulation Scott Donald01 made the point at public hearings held by the Senate Economics Legislation Committee.

The hearings relate to Your Future, Your Super reforms currently before the parliament.

The bill includes a proposal for superannuation trustees to be subjected to “best financial interest”, which funds have almost unanimously rejected.

“I don’t believe that change [including the word ‘financial’] will fundamentally change the substance of the law, substance of the duties, [and] what actually is required of the trustees in respect of that,” Donald said.

“It does change the salience of that financial aspect. I think any trustee in the country asking a legal adviser, ‘What does best interest mean’ would be told instantly that it means best financial interest.

“That is the way the case law is there but it’s not written in the statute. So by having it in the

statute it is impossible to ignore that. Those without a deep understanding of the trust law would not miss the reference, [and] would not misunderstand it. That said, I don’t think that particular insertion changes the substance of the law.”

However, BFID would hold super trustees responsible for keeping records of their decisions and proving the decisions they make are in member’s best financial interests.

These two are much more substantiative issues, than the inclusion of the word “financial”, Donald said.

When asked by the committee if the legislation gave the Treasurer room to stop a fund from investing in coal or windfarms, Donald said it was hard to tell without seeing the legislation.

“Without seeing the regulation, I would be surprised if that was an outcome that was possible. This is the problem that we haven’t seen the regulation and the way they will be framed,” he said.

Donald worked in funds management research, including at Russell Investments prior to joining UNSW. He has consulted for retail and industry funds, and a law firm while working as an academic. fs

Commonwealth Bank to pay $7m for overcharged interest Annabelle Dickson

The Federal Court has imposed a $7 million penalty on Commonwealth Bank for charging higher interest rates on business overdraft accounts than what it advised its customers over a four-year period.

Following an investigation by ASIC, CBA admitted to false or misleading representations and engaged in misleading and deceptive conduct over to 12,119 occasions from 1 December 2014 to 31 March 2018.

The bank advised customers with certain credit facilities they would be charged a 16% interest rate and were sent account statements showing this interest rate.

However, due to a system error more than 1500 customers were charged a 34% interest rate on their overdraft accounts totalling $2.2 million.

In 2013, CBA allegedly tried to manually fix the overcharging but was unsuccessful and customers continued to be incorrectly charged.

CBA has remediated $3.74 million to the customers impacted in this case.

In the hearing CBA said an appropriate penalty

was between $4 million and $5 million yet ASIC submitted a penalty of $7 million.

Justice Lee rejected the submission that CBA tried to quickly remedy the error and found the delay “particularly troubling”.

As such, ASIC commissioner Sean Hughes said when financial institutions discover overcharging, they must take immediate action to remediate impacted consumers.

“Financial services institutions need to have appropriate systems, governance and controls in place to ensure they deliver on promises made to their customers,” he said.

ASIC first commenced proceedings in November 2020 and noted in its statement of claim the average amount customers were overcharged was about $1476.90 in relation to the CBA Simple Business Overdraft products and $3965.30 in relation to CBA Business Overdraft products, per customer.

Last week ASIC commenced civil proceedings against the bank over allegations it incorrectly charged $55 million in monthly access fees to nearly one million customers who met criteria that entitled them to fee waivers. fs

News

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

BUSSQ appoints exec managers The $5 billion industry fund has appointed two executive managers.

Camille Magee moved to executive manager, relationships, growth and advice, Financial Standard’s sister publication Industry Moves confirmed.

Magee has previously worked at Equipsuper as executive officer, member engagement and director for the Equipsuper Financial Planning business.

With a background in financial advice, Magee has also served as a financial planner at Telstra Super, Westpac and Citi.

In another appointment, BUSSQ appointed Trevor Govender as executive manager, operations, product and finance.

Govender joined from IQ Group where he was a principal consultant and has previously worked as Sunsuper’s head of customer service.

BUSSQ chief executive Damian Wills said the appointments “bring considerable industry experience and position BUSSQ well to further improve our overall service proposition to our members”.

Both appointments were effective in February. fs

BGL expands product range Accounting and self-managed superannuation fund software provider BGL is launching one of its products in Singapore.

BGL’s CAS 360, a company compliance and trust management software solution, has launched a beta version for Singapore-based clients.

CAS 360 supports users prepare forms and documents required for company addresses, company officers and shareholder changes in Singapore.

The software also supports the preparation and lodgement of eXtensible Business Reporting Language (XBRL) filings, which are documents submitted to the Accounting and Corporate Regulatory Authority (ACRA).

BGL managing director Ron Lesh said the team has been working tirelessly to build CAS 360 Singapore, adding that the firm is the first business approved by ACRA to lodge company annual returns electronically.

BGL has been operating in Singapore for over 20 years.

It recently connected its QR code-driven GuestTrack with the Victorian government’s COVID-19 check-in system.

BGL launched GuestTrack in mid-2020 as a free QR code check-in app for businesses.

Since then, about 20,000 businesses in Australia and overseas have used GuestTrack as their check-in solution.

BGL’s Simple Fund 360 and Simple Fund Desktop solutions are used to administer over 60% of Australia’s 600,000 self-managed super funds.

Meanwhile, CAS 360 is used to administer over 45% of Australian companies.

In March, BGL Corporate Solutions, announced it has received ISO 27001 recertification for the 2021 year.

“Being recertified confirms BGL’s commitment to provide our clients with the highest level of security and data integrity” Lesh said. fs

11

01: Leanne Turner

chief executive Spirit Super

Spirit Super drops fees after merger completion Kanika Sood

T The quote

The purpose of the merger is to provide better service, products and value to members, now and well into the future.

asplan and MTAA Super’s $23 billion merged fund Spirit Super has reduced the weekly administration fees the combined fund charges members by 13.4%.

Effective today, the administration fees are reducing from $1.50 per week to $1.30 per week.

The merged fund has also reduced the total admin fee cap from $528 per year to $517.60 per year.

“The purpose of the merger is to provide better service, products and value to members, now and well into the future. I am proud to say we’re off to a good start,” said Spirit Super chief executive Leanne Turner01.

“We’re currently in a transition period as we move to a single administration system,” Turner said.

“For members, this will mean some transactions will be limited or delayed for the next

month. That said, our call centres are always on hand to help members with any queries they may have.”

The combined fund has about $23 billion in total assets and 326,000 members.

In the lead up to the merger, Tasplan switched its MySuper from lifecycle to singlestrategy, and both funds raised their insurance premiums.

MTAA increased its group insurance premiums twice; and Tasplan increased its income protection premiums in September 2020 by 7% ahead of the merger.

MTAA attributed its February 2021 premium hike to COVID-19 and government reforms, and the February 2020 hike to Putting Members Interests First and Protecting Your Super.

Tasplan attributed its 7% fee hike in September 2020 to PYSP and PMIF. fs

Very few members contribute extra superannuation: Survey Karren Vergara

Only 8% of Australians made additional contributions to their superannuation in 2020, a Finder survey reveals.

In late 2020, Finder found that only a small cohort beefed up their retirement savings. Earlier that year, when the global pandemic hit, 12% we considering changing their super fund in light of market volatility.

Nearly a third (29%) would consider switching funds if their provider was investing in companies they deem unethical.

“Ethical investing is becoming increasingly important to Australians, especially the younger generations who aren’t afraid to boycott a brand if it clashes with their values,” Finder’s inaugural State of Investing report shows.

“Even beyond the ethics, the majority of Aussies think ethical superfunds perform better in general – and they’re not wrong. Australian Ethical, for instance, has achieved a five-year annualised growth rate of 6.88% on its balanced fund, outperforming the industry average of 5.9%.”

The survey also found that micro-investing and digital investment platforms will prosper.

This form of investing has become popular among the younger generation. However, they are worse off than their parents when it comes to student debt, property ownership and are now bearing the brunt of the economic recession.

“For the generation that has been criticised for choosing smashed avocado over superannuation, micro-investment apps help to reignite a culture of savings without making consumers feel like they are missing out on anything,” the report read.

The proliferation of digital investment platforms has also made financial management more accessible. Consumers have an average of 2.5 finance apps downloaded on their phones, while nearly three-quarters of users (73%) regularly use an app to manage their finances, Finder said citing Google insights.

When it comes to property, more than a third (34%) believe the pandemic has made property ownership more achievable for first time buyers.

“ABS data shows owner occupier home loans reached a record $18.2 billion in December, with 26% growth over the previous year. In all capital cities the number of sales in October was up yearon-year, with Brisbane leading the way with 69% year-on-year growth.

“Demand in the Melbourne market is showing signs of recovery, with the number of sales up 357% between September and October,” the report read.

Finder compiled the report using its Consumer Sentiment Tracker, together with Qualtrics which conducted the surveys.

About 44% of Australians have simply left their money in a savings account, despite dismal interest rates. Shares are the preferred vehicle for 27% of respondents, while term deposits and ETFs were the choice of 13% and 10% respectively.

A further 34% aren’t investing at all.

“With the cash rate expected to remain unchanged for the next few years, the best places to keep your money depend on your goals and appetite for risk,” the report reads. fs

12

News

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

ASIC cracks down on binary options

01: Brett Evans

managing director, EMEA Atlas Wealth Management

Elizabeth McArthur

ASIC has banned the sale of binary options to retail clients, effective from 3 May 2021.

The decision comes after ASIC found that binary options have resulted in significant losses for retail clients.

In 2018, ASIC estimated that net losses from retail investors trading binary options were $490 million. The regulator issued a warning in response and the losses for 2019 shrunk to $6.7 million.

Reviews by the regulator conducted in 2017 and 2019 found that 80% of retail clients who traded binary options lost money.

Binary options have an “all or nothing” pay structure, the investor either loses the entire investment amount or makes money.

They also operate on short contracts. ASIC even found one provider of binary options traded them with a contract duration of less than six minutes.

And, often the expected payoff for a binary option contract is lower than the initial investment.

“Binary options’ product characteristics make them incompatible with investment or risk management use by retail clients,” ASIC commissioner Cathie Armour said.

“ASIC’s product intervention order will protect retail investors from these harmful products at a time of heightened vulnerability.”

A binary option is a cash-settled, over-thecounter (OTC) derivative entered into by two counterparties – the binary option issuer and the client.

The “all-or-nothing” payout under a binary option contract is determined by the occurrence or non-occurrence of a specified event in a defined timeframe. For example, a binary option might pay out if a central bank lowers interest rates or the price of goal hits a certain level within a certain timeframe.

There is also counterparty risk in binary option trading, with ASIC’s MoneySmart noting in instances where the provider becomes insolvent the investor might not get their money back. fs

ESG think tank eyes Australia Kanika Sood

Pensions for Purpose is looking to expand into Australia via a partnership with Melbourne thirdparty distributor AFM Investment Partners.

AFM’s founder and managing director John Donovan will join Pensions for Purpose’s board as a director.

He will work on expanding membership among Australian superannuation funds.

“With two Australian superannuation funds already signed up as affiliate members of Pensions for Purpose, we have made a strong start and have great ambitions to grow the network in Australia. ESG and impact investing are fundamental and global investment concepts that require an international approach,” Donovan said.

“We are excited to be expanding the network internationally so that pension funds can share their views and experiences on ESG, sustainable and impact investing in a peer-to-peer environment,” Pensions for Purpose chief executive Charlotte Tyrwhitt-Drake said. fs

Atlas Wealth launches mortgage brokerage Karren Vergara

A

The quote

Whilst there have been a number of lending policy changes made by the banks over the last couple of year this does not mean than an Australian expat can’t secure a mortgage.

tlas Wealth Management has launched a mortgage-broking business to help expatriates buy property in Australia.

Atlas Mortgages is headed by director Jeremy Harper, a mortgage broker whose work experience includes accounting and taxation.

Harper joined hfinance as a director in May 2015, a firm that also provides mortgage-broking services that works with local and Australian expat clients.

Australian migrants can use the new brokerage service that will guide them through new regulation and shop for the right lender. Atlas has some 30 lenders on its panel.

Atlas managing director for the EMEA region Brett Evans 01 said: “Over the past five years we have seen ANZ, Westpac and NAB, who have been the traditional expat mortgage and home loan providers, reduce their offering to Australian expats but that doesn’t mean you

shouldn’t be able to secure a home loan if you earn a foreign income.”

Evans said some banks have decided to completely avoid providing mortgages to Australian expats which can sometimes discourage them from obtaining a loan, but the good news is that there are others that are willing to lend.

Harper commented: “Whilst there have been a number of lending policy changes made by the banks over the last couple of year this does not mean that an Australian expat can’t secure a mortgage, it just means you need to work with a professional who knows which bank to work with that suits your circumstances.”

On his new role, he said: “I am very excited to be leading the Atlas Mortgages team as I have a complete understanding of the financial challenges that Australia expats face when trying to secure a mortgage having lived that life myself.”

Atlas advises Australian clients who have migrated to about 30 countries. fs

Aussie ETP demand soars: Morningstar The Australian exchange-traded product market surged 70% to $96 billion (US$73.1bn) in 2020, according to Morningstar.

The research house found that VanEck consolidated its position as the dominant player in the strategic-beta ETP market.

As of December 2020, VanEck had 46% market share with US$3.1 billion of assets under management across 11 products. VanEck’s market share has risen 37% from 2019.

Looking at strategic-beta ETP products specially, demand across the Asia Pacific region outpaced the rest of the world.

Strategic-beta ETP’s total assets under management in the region grew 34% to US$46.1 billion, boosted by the stock market’s rally in the second half of 2020.

Japan is the largest strategic-beta ETP market in the region with $37.3 billion (US$28.4bn) in AUM, growing 24% year on year.

Japan’s growth is largely supported by the Bank of Japan’s ongoing ETF purchase program directed toward fighting prolonged deflation in the Japanese economy.

Morningstar director of ETF research Asia Jackie Choy said: “In 2020, assets in AsiaPacific strategic-beta ETPs grew marginally slower than the overall regional ETP market.

While net inflows also decelerated marginally in 2020 to US$6 billion, it nonetheless raises the question of whether it reflects waning interest among investors.”

“The proliferation of these strategies and their complexity have created a significant duediligence burden for investors. This has been part of the natural evolution of the market and one that has already played out in the slicing and dicing of traditional market-cap-weighted exposures along the lines of region, country, sector, industry, and so on,” she said.

With the research being to December end, the Australian ETP market has now reached $100 billion.

It’s now forecast to hit $125 billion by the end of this year.

BetaShares chief executive Alex Vynokur said the Australian ETF industry has emerged from a year of uncertainty in a strong position.

“While we have recently seen some retail traders overseas caught up in speculative activity in particularly volatile stocks, investors more broadly continue to recognise the benefits of ETFs in establishing a resilient long-term portfolio,” he said.

“We are excited to see what the rest of 2021 brings.” fs

Keep up to date with Financial Standard’s latest news and events on LinkedIn

News

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

Fidante opens Singapore office

01: Michael Perry

head of global client group Nuveen

Kanika Sood

Challenger’s $72 billion multi-boutique business Fidante Partners has hired from AMP Capital’s Asian business to set up a Singapore office.

Beng Neoh worked at AMP Capital for about 22 years, ending as managing director, North Asia in 2019. He will now lead Fidante’s efforts in Singapore.

Challenger’s chief executive of funds management Nick Hamilton said the firm sees opportunity for fixed-income strategies in the region.

This includes Ardea Investment Management, CIP Asset Management and Whitehelm Partners.

Fidante’s current overseas presence includes Europe and Japan.

The move is similar to other Australian fund managers, who have increasingly looked to add overseas clients, for reasons including superannuation funds’ in-housing of investments.

This includes Magellan, which was getting most of its institutional flows from overseas investors as at February 2020; Pinnacle Investment Management which last year added New Yorkbased distribution staff; and Channel Capital which recently partnered with the former chief executive of the US$613 billion Mellon Investments to start a new funds management incubator based in New York.

Fidante Partners ended 2020 with $66.1 billion in funds under management, after $5.7 billion in net inflows in the last half. About 49% of this is from fixed income strategies.

In March Fidante partnered with Nomura Asset Management. Nomura will support Fidante’s efforts in Japan and Fidante will do the same for Nomura in Australia. fs

FASEA chair reappointed Annabelle Dickson

The chair of the Financial Adviser Standards and Ethics Authority (FASEA) has been reappointed and will continue in the role on a part-time basis until the organisation is wound up.

Minister for superannuation, financial services and the digital economy, minister for women’s economic security Jane Hume announced Catherine Walter will continue to work with the board to refine the Standards for Financial Advisers.

As previously announced, the standard-setting aspect of FASEA will transition to Treasury while the administrative duties for exams will move to the Financial Services and Credit Panel (FSCP) within ASIC. Walter was first appointed as chair of FASEA following its establishment in 2017 and is currently a director of the Reserve Bank of Australia’s Payments System Board and Australian Foundation Investment Company.

She is also chair of Melbourne Genomics Health Alliance and trustee of the Helen Macpherson Smith Trust.

Walter was previously managing partner of Clayton Utz in Melbourne and a director at NAB, QIC, ASX and chair of Equipsuper. fs

13

Instos seek unique alternatives Karren Vergara

A The numbers

55%

The number of institutional investors expecting to shift from public to private markets over next 12 months.

ustralian institutional investors are actively increasing their allocations to alternatives, particularly those that deliver idiosyncratic values and opportunities.

According to the inaugural Nuveen and CoreData survey, more than half (55%) of asset owners will shift away from public to private markets in the next 12 months.

The head of Nuveen’s global client group Michael Perry01 said that in a low-return environment, the shift to private asset classes and other alternatives has accelerated as more investors search for sources of alpha that are “idiosyncratic” – that is, not strongly correlated with other assets.

“Rather than tapping private markets opportunistically and tactically to boost returns, investors are making private investments a more strategic and critical part of their investment approach,” he said.

However, 53% of instos believe it is difficult to find true, idiosyncratic alternatives.

Many are looking for more specialised,

off-market alternatives opportunities, while others seek new strategic partnerships for coinvestment.

One superannuation fund chief investment officer said: “We like to be a first mover… It works often, but not all the time. Once you get the reputation as someone who’s willing to seed new funds and take cornerstone arrangements, then you get known for that, and everyone who wants to launch something new gives you the first chance.”

Eighty-six percent of the 700 global instos surveyed invest in alternatives. Some two thirds of these intend to increase their exposure in 2021 and many are doing so on their own accord by buying real estate or securing their own private equity deals.

Participants said that many of their allocation decisions are driven largely by the macroeconomic environment and the effect of the global pandemic.

Monitoring market volatility and interest rate changes are important factors, cited by 42% of investors. fs

Junk insurance lands Westpac in Federal Court Karren Vergara

ASIC is taking Westpac to the Federal Court, alleging it sold junk credit insurance to 384 customers that did not want it and whose accounts were unlawfully debited to pay for the premiums.

The corporate regulator has exposed dodgy sales of add-on insurance products promoted with credit cards and lines of credit to customers, under the bank’s Credit Card Repayment Protection and Flexi-Loan Repayment Protection policies Between 7 April 2015 to 28 July 2015, ASIC claims the bank sold the products under false and misleading pretenses, asserting its right to charge consumer credit insurance (CCI) premiums customers were not liable to pay.

“The supply of the CCI and the debiting of amounts for premiums in those circumstances was a failure by Westpac to do all things necessary to ensure that the financial services covered by its AFSL were provided efficiently, honestly and fairly,” court documents read.

The action follows ASIC’s investigation of 11 major banks and other lenders selling junk insurance.

ASIC deputy chair Karen Chester said the investigations in late 2018 and 2019 found lenders had disappointingly not changed policies and conduct to stem harms from the design and sale of CCI.

“As a result, we’ve commenced civil proceedings against Westpac,” she said.

Financial institutions and lenders have paid about $250 million in remediation to affected consumers, which is a payment of $430 on average to 580,000 consumers.

In addition to Westpac, ASIC announced last year that $160 million of the remediation pool came from NZ, Australian Central Credit Union, Bank of Queensland, Bendigo and Adelaide Bank, Citigroup, Commonwealth Bank, Credit Union Australia, Latitude Finance Australia, NAB and Suncorp.

ASIC’s Report 622, Consumer credit insurance: Poor value products and harmful sales practices, published in July 2019, revealed that the design and sale of CCI had consistently failed consumers. ASIC found that CCI was poor value, CCI sales practices and product design caused consumer harm and consumers were being incorrectly charged for CCI. ASIC is seeking declarations and pecuniary penalties from the Federal Court, which will shortly announce the date for the first case management hearing.

Westpac hasn’t had an easy time of late. In March the Reserve Bank of New Zealand told the bank it needed to hold additional liquid assets and commission independent reports into its risk governance and liquidity risk management.

The RBNZ said the action was taken following years of compliance issues. fs

14

Feature | Property

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

A LEAGUE OF ITS OWN No other asset class is part of the national identity.

Gripped by cheap money and a slew of incentives, the fascination with property for a gamut of investors further deepens. Karren Vergara reports.

Property | Feature

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

01: Tim Verrender

02: Vicki Peters

03: Tiffany Hutcheson

head of design and production Rainmaker Information

licensed real estate agent Elders Inner West

finance lecturer University of Technology Sydney

I

n late March, the Great Australian Dream became a reality for Tim Verrender01.

In the five months that led to scoring a two-bedroom apartment in Sydney’s south Cronulla perched close to the beach, his weekends were consumed by open inspections, elbowing hordes of other buyers, who like Verrender, were in the same frame of mind – with interest rates so low, immigration almost at a halt and international holidays written off – now felt like the right time to finally own a piece of Australia.

One night, he attended a sprawling conference room with 300 people and one auctioneer who sold off 10 properties as if rolling off a conveyor belt. During the weekdays, he was ensnared in Dutch auctions, making between 10 to 20 offers per week.

At his fifth and final auction, the head of design and production at Rainmaker Information says he lucked out.

“I was competing against two bidders. One guy dropped out right after my first bid. The other, I knew he ran out of money because he bid in increments of $1000,” he says.

The auction was over in less than five minutes. He didn’t even make reserve.

“It has been an insane experience because I have never seen such a frenzy of people throwing money at houses,” he says.

Australia’s housing market has hit febrile pitch. According to CoreLogic, home values rose 2.8% in March – the fastest rate in 32 years (see Figure 1). Sydney recorded the biggest jump (3.7%), followed by Hobart (3.3%) and Canberra (2.8%).

Over her 26-year career in property, this is the strongest market Elders real estate agent Vicki Peters02 has seen, pointing to clearance rates of about 88% that have skyrocketed nearly 40%.

For Peters, who specialises in Sydney’ inner west, the ‘fear of missing out’, cash-back incentives offered by banks, and the lack of stock are driving the phenomenon.

“Banks are taking two to four weeks to put pre-approvals through – it used to take 48 hours. Now it takes weeks,” she says.

Potential sellers and buyers of houses and units have to be prepared for the emotional and psychological toll that is part and parcel of the process. Residential real estate evokes an emotional connection tied to space, memories and life events like death and divorce, numerous researchers reveal, making it markedly distinct from other asset classes.

As the dream of buying a home continues to tug at the heartstrings of Australians, it begs the question why is residential property so unloved by institutional investors?

Property types and geography Research by academics Graeme Newell and Tiffany Hutcheson03 from 2018 found several reasons why residential property is out of favour with superannuation funds.

Small size considerations; the challenges in establishing a substantive portfolio and its inability to deliver sufficient yield or income compared to the office, retail and industrial sectors are top reasons why residentials are left to the mum and dads.

After canvassing 20 super fund chief investment officers and property fund managers, the paper also unearthed why the decision-making process behind property investments are different to other asset classes.

Institutional investors, they found, prioritise property type and geographical location.

Secondly, they invest more in office and retail than any other property sub-sectors and have become reliant on sophisticated quantitative measures to calculate return and risk, such as internal rate of return (IRR), net present value, and scenario and sensitivity analysis, when deciding whether or not to invest in property.

Compared to global counterparts, Australia’s super funds are among the most active investors in alternatives, especially in real estate and infrastructure, Preqin head of research and data operations Ee Fai Kam04 says.

Preqin data from 2018 shows just over half of super funds had a 5%-10% allocation to real estate. On the infrastructure side, 55% of super funds had 5%-10% allocation and only 17% of global pension funds had the same weighting.

Figure 1. CoreLogic’s national home value index as at 31 March 2021

Quarter

Annual

Total return

Median Value

Sydney

3.7%

6.7%

5.4%

7.9% $928,028

Melbourne

2.4%

4.9%

0.7%

3.6% $736,620

Brisbane

2.4%

4.8%

6.8%

11.3% $548,260

Adelaide

1.5%

3.2%

8.6%

13.1% $486,555

Perth

1.8%

5.0%

6.0%

10.8% $505,850

Hobart

3.3%

7.6%

12.5% 18.0% $548,686

Canberra

2.8%

6.0%

12.1% 16.7% $727,032

Combined capitals

2.8%

5.6%

4.8%

8.1%

$693,936

Combined regional

2.5%

6.3%

11.4%

16.6%

$448,819

National

2.8%

5.8%

6.2%

9.7% $614,768

Source: CoreLogic

Steven Bennett

Interestingly, super funds tend to have lower asset allocations to relatively newer asset classes like venture capital.

“Part of the reason is the good returns super funds have found from real estate and infrastructure, so there is less propensity to go into venture capital (which is riskier) compared to their peers in other countries,” he says.

“Another reason is that the super industry is dominated by investment consultants.

They form a key gatekeeper and advisory role, advising super funds how they should allocate their portfolio.”

At the investment manager end or what the infrastructure industry refers to as ‘general partners’, Macquarie has raised US$45 billion in capital over the last 10 years, which is comparable to the largest players in the world like Brookfield. AMP Capital has raised US$14 billion.

In real estate, Goodman Group clocked up over US$15 billion, followed by Dexus (US$6.8bn) and Charter Hall (US$3.7bn), Preqin data shows.

Two thirds of the capital Charter Hall manages is on behalf of super funds, sovereign wealth funds and global pension funds. The $45 billion fund manager’s direct chief executive Steven Bennett 05 says the global pandemic has super-charged what was already a strong trend, being the demand for industrial, logistics and e-commerce-related assets.

“The pandemic has moved Australian online purchases five years ahead of where most people forecast they would be,” he says.

While demand for large regional shopping malls has sunk, Bennett says non-discretionary retail like Bunnings, and neighbourhood Woolworths and Coles surrounded by half a dozen specialty stores, proved their strength during the pandemic and are in high demand.

“With the return to office premises, there will be more demand for higher-quality properties.

With workers coming back, there has to be a reason to be in the office. Secondary assets and older stock will be at more risk of obsolescence,” Bennett says.

Bagging a bargain

Change in dwelling values Month

Unlisted assets are an area advisers did not need to update clients regularly on because income kept coming in.

15

The Property Council of Australia grades properties into Premium, A, B and C, with Premium and A being the highest quality, says Bennett, who sits on the New South Wales division of the council.

“Lower-quality assets wouldn’t have large floor plates; have less air circulation and natural light and may require greater capital expenditure to keep them modern,” he explains.

Several other factors make property unique and distinct from other asset classes - it’s tangible and requires fostering good relationships with tenants, agents and maintenance providers - all of which contribute to performance.

Currently around 6% income yield p.a.

Commercial Property.

Powering Advisers.

Asset of DIF4 | Prestons, NSW

How do you unlock more value for your clients?

Charter Hall is the largest manager of third-party capital invested in Australian commercial property. Our market leading funds deliver sustainable and stable income, and strong risk adjusted total returns.

Uncover the basics of commercial property investing at our new Adviser Resource Centre, explore funds open for investment, download brochures, earn CPD hours and hear client success stories. To learn more, contact our team.

Why Charter Hall?

Diversified property portfolios Sustainable and stable income Potential for capital growth Properties with long weighted average lease expiries Industrial, office and social infrastructure properties Six funds currently open for investment Asset of DOF | Sydney, NSW

charterhall.com.au/advisercentre

18

Feature | Property

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

04: Ee Fai Kam

05: Steven Bennett

06: Peter Koulizos

senior vice president and head of research and data operations Preqin

chief executive Charter Hall, direct

program director – master of property The University of Adelaide

In commercial property however, University of Adelaide program director Peter Koulizos 06 , foresees challenges unfolding.

“As people don’t need to come into the office every day, employers don’t need to lease as much office space and will look for smaller offices,” he says.

“As a result, co-working hubs in the suburbs that provide a powerpoint, space, use the photocopier and printer and scanner and fast internet for a small fee. It’s a lot cheaper for the boss to have employees at these hubs than pay for space in the CBD.” Even major banks and corporations are giving employees the option to stay at home and save the commute into the CBD. Incidentally, Koulizos makes a bold prediction: that rents will be lower next year and in 2023 than they are today.

“For traditional office space, lessors must either lower rents or offer a compelling incentive like a 50% discount for the first year,” he says.

On the other hand, Kam sees developers take advantage of ultra-low interest rates.

“In a general sense, we are expecting to see more developments increase particularly in the office and industrial sectors,” Kam says.

“As for office space, fears that this sector will be obsolete have dissipated. In Singapore, as soon as the government lifted the lockdown, many companies jumped on that and asked workers to return to the office. Demand for office space will be there but for certain locations, the make-up of tenants will change. In some CBDs, banks are giving up their space and tech companies are moving in.”

The listed real estate investment trusts (REITs) subsector, Koulizos says, will take a “hammering” because it invests in large office blocks.

“If they are earning less rent it means lower dividends.”

According to UBS investment officer Gavin Peacock07, it has never been a better time to invest in listed infrastructure, which is offering a triple discount against equities, bonds and direct infrastructure.

The global listed infrastructure sector has underperformed over the last six months, partly on the back of a knee-jerk reaction to bond yields and is offering attractive valuation metrics, he says.

Historically, the sector traded on a price-toearnings premium to the broader equity market.

“Today it is trading at a 12% discount. Almost a two standard deviation discount, compared to where it traded historically,” he says.

A basket of transactions for direct infrastructure assets shows multiples at 15.9x, Peacock says. Listed assets meanwhile are trading at 12.2x – a 23% discount (see Figure 2).

“What that means is that an investor is getting the same assets as those invested in listed infrastructure but 23% cheaper and the added benefit of liquidity,” Peacock says.

“This is not lost on unlisted infrastructure funds. As a result, we’ve seen around $60 billion of privatisations in the last couple of years – that is unlisted funds taking listed companies private. On average, those deals have been done with a 25% premium to the listed share price.”

Volatility buffers Super funds have one thing in mind: to ensure their members enjoy financial security when they retire.

Newell and Hutcheson found that this objective is a driving force when investing in property. They were motivated by “strategic decision making” – meaning they strive to maximise long-term investment returns without exposure to inappropriate levels of risk – well above selecting external fund managers, investment styles and property type.

Figure 2. UBS, CBRE Clarion and Preqin data as at 31 December 2020 Private infrastructure dry powder

$220

Listed vs. Private market valuation gap $230

23% discount

$177 $145

$159

15.9x

12.2x

$106 $101 $105 $74

2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: UBS

Listed Market Multiple

Private Market Deal Multiple

An apple-toapple comparison is difficult for investors who invest in listed and unlisted assets. This is a bugbear we commonly hear from investors.

Ee Fai Kam

Rainmaker analysis of 46 MySuper products shows the relationship between unlisted assets and volatility is highly significant, calculating a correlation of -0.56, which in practical terms means the more unlisted assets in a portfolio, the lower its volatility.

“Throughout the pandemic we saw stock markets go rapidly down and then up, and even markets moving from growth to value over the last quarter,” Bennett says.

“Because unlisted assets aren’t as highly correlated with other asset classes like bonds and equities, allocating 10% to 15% of unlisted assets in a portfolio can significantly reduce volatility, which is used as a measure of risk.”

Many financial advisers expressed to Bennett their satisfaction with the resilience and stability of the returns unlisted funds provided.

“Unlisted assets are an area advisers did not need to update clients as regularly because income kept coming in. For our funds, the capital value went up, which was a positive outcome for clients,” Bennett says.

“Many advisers do not need to have their clients invested 100% in liquid assets. Bringing a portion of unlisted, lowly correlated investments into a portfolio not only generates strong and regular income, it also decreases risk.”

The ramifications of the proposed Your Future Your Super benchmarks won’t materialise until after the July 1 implementation date, but has drawn immediate concerns about how asset class performance will be assessed against a listed index.

MySuper products that underperform their benchmark by 0.5 percentage points over an eightyear rolling period for two consecutive years will be barred from taking on new members.

Even though the terms listed infrastructure and unlisted infrastructure have ‘infrastructure’ in their names they are substantially different, says Frontier director of sector research Paul Newfield08 , highlighting concerns over the benchmark constituents.

“What the government is proposing is comparing a listed benchmark with an unlisted benchmark, when in reality that is an apple being compared to an orange,” he says.

“Looking at the proposed benchmark and its geographical breakdown, over 75% has exposure to North American assets in the listed space.

Less than 40% of the exposure in the unlisted space for most clients is in North America.”

The sectorial constituents within infrastructure also vary. In the listed space, about half the constituents are energy companies, majority of which are North American. The unlisted space has 15% in energy companies.

Additionally, Newfield says the unlisted sector is far more diversified with a higher allocation to Australia, which is a “good thing because the capital goes towards nation building”.

Some stakeholders posit that super funds will ratchet up weightings to listed assets as

Property | Feature

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

07: Gavin Peacock

08: Paul Newfield

09: Chris Carlin

investment officer UBS

director of sector research Frontier

founder and financial planner Master Your Money Now

an unintended consequence of the proposed regulations, pandering to passive benchmarks and curbing their chances of failing the performance test. Australia may also suffer from the pull back in capital channelled to build the country.

When COVID-19 upended global economies in the first quarter of 2020, the super industry copped criticism for how it valued unlisted assets and the credibility of their metrics.

AustralianSuper for example, cut the value of its unlisted assets to 7.5% on average. UniSuper’s unlisted property took a 10% hit and unlisted infrastructure fell by 6%. Hostplus revised down its assets between 7.5%-10%.

Despite the flak, industry funds’ appetite for property and infrastructure shows no sign of abating. Rainmaker data shows that the largest players in local and overseas infrastructure are AustralianSuper ($21.2bn), Aware Super($8.5bn) and Cbus ($6.1bn).

Some $50 billion is a boon to the local economy, which according to Industry Super Australia, created 46,000 in one year alone.

Kam says REITs and privately owned assets have the same valuation methodology: independent valuers are called upon.

“This is a practice that’s regulated by local authorities,” he says.

“The key difference between the two is the opaqueness, meaning that the information for privately owned assets is not found anywhere else and not available to anyone except for the participants within a fund.”

Preqin keeps its own database of performance metrics for private funds that the industry would be familiar with.

“We track net IRR and net multiples and how much capital has been deployed or what the industry usually refers to as ‘capital called’. Other metrics we track are capital distributed (DPI) and remaining value (RVPI),” he says.

In private investments, net IRR and net multiples are used as indicators of returns, while in the listed world, the cap rate and stock prices are common measures.

“An apple-to-apple comparison is difficult for investors who invest in listed and unlisted assets.

This is a bugbear we commonly hear from investors,” Kam adds.

All or nothing It’s been over a decade and bottom-of-the-ocean floor interest rates may stick around for a while yet.

Lower interest rates are generally a positive for real estate, says Bennett.

“Charter Hall and most managers in this space have remained disciplined, which you must do when debt has been cheap for an extended period of time,” he says.

Whether it’s 0.8% for 10-year Australian government bonds or 1.8%, he says by way of example, money is still cheap in a historical context.

“As a result, institutional managers have resisted the temptation to increase gearing materially, that is increase debt to boost returns. Managers have stuck to their gearing targets and we believe gearing levels above 40% are generally not ideal – particularly for retail investors.”

For Master Your Money Now financial adviser and mortgage broker Chris Carlin 09 , who helps many young first-home buyers, the last 12 months have been busy.

“Since COVID-19 hit, a lot of Millennials who saved $20,000, $30,000 or $50,000 for a holiday realised they couldn’t go overseas.

Many did the ‘adult thing’ and decided to buy their first property,” he says.

Leverage is a pull factor for Millennial clients he works with, who mostly want to buy directly and aren’t fully aware of the alternatives to investing directly such as REITs. “For those starting to build their wealth, leverage is very attractive,” he says.

Victoria-based Carlin is seeing migration out of Melbourne to regional areas such as Geelong, as well as north of the country. He recently helped one client who moved from Melbourne to Brisbane buy a first home outbidding 32 others.

“With the ability to work from home, many are not only realising that they can live away from the cities, but they can enjoy a better lifestyle as well. It will be interesting when COVID lifts if people will go back to the offices or if employers will be more open to WFH at least a couple of days per week,” he says.

During the height of the pandamic, he was bombarded with questions from clients about incentives available to them: HomeBuilder, the First Home Loan Deposit Scheme and First Home Owner Grant.

Commercial Property.

Powering Advisers.

Unlock more value for your clients. Commercial property funds with Charter Hall currently deliver around 6% income yield p.a.

For fund details and property insights, head to charterhall.com.au/advisercentre

This property boom we are seeing for many parts of the country is the best one we have seen in the last 20 years.

Peter Koulizos

19

They know that such incentives are available but are unsure how they apply to their situation or how they could be accessed and maximised, he says.

The First Home Super Saver Scheme (FHSS) flies under the radar for a lot of firsthome buyers.

“A lot of them do not realise it exists and are missing out on up to $4500 of potential tax savings (available to a couple),” Carlin says.

“The FHSS is something I talk about constantly with Millennials, not only for the tax benefits but as a way for them to engage with their super and personal insurance cover.”

There is one interesting sentiment Carlin comes across: while buyers appreciate the low interest rates, some are of the opinion they will go up.

“If rates do increase, clients are considering their options, like having a good buffer, whether they should fix rates, make extra repayments, or have an offset account,” he says.

Last September, in a bid to stimulate economic activity dampened by COVID-19, the federal government announced it will relax responsible lending laws, paving the way for less due diligence and ultimately enabling borrowers to access loans faster.

While politicians won’t revisit the proposed changes until May, talks that the influx of credit will further kite house prices and lure more buyers in an already overheated market.

Real estate agent Peters advises serious buyers to obtain pre-approval and “get in now” as the market is skyrocketing and won’t calm until November or December.

“Don’t delay, do it now rather than later. If you can’t afford the area that you want, change location,” she says.

For first-time buyers like Verrender, the property-buying process has been a nerve-wracking experience filled with emotions, leaving many in a state of psychological warfare.

“I gave up on the Great Australian Dream a long time ago. But I think the pandemic was a blessing in disguise because if it didn’t happen, first-home buyers like me wouldn’t be able to get a foot in,” he says.

“The Great Australian Dream is still there.

Wages just need to rise.” fs

20

News

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

Link Group inks partnership

01: Andrew Boal

chief executive Rice Warner

Elizabeth McArthur

Link Group has partnered with a retirement specialist to expand its advisory offering for superannuation clients.

The new partnership with SuperEd’s Retirement Essentials is designed to allow Link to advise super clients on ways to make sure their members are retirement ready.

The partnership provides access to affordable personal financial advice so that super fund members can seek advice specifically on retirement issues.

The Retirement Essentials service is aimed at getting people ready for retirement by incorporating affordable financial advice on government Age Pension eligibility with assistance and lodgement of a super fund member’s Age Pension application via Retirement Essentials service.

“At Link Group we continue to invest in market leading technology that connects members to their funds while augmenting the information they receive on performance with tools to assist in achieving their super savings goals. One of the most important steps is for members to understand how to transition to retirement with the best outcomes financially,” Link chief executive, retirement and superannuation solutions Dee McGrath said.

“Our partnership with Retirement Essentials provides an important piece of the puzzle for an all-encompassing retirement solution offering.

Researching and preparing for retirement can be a daunting process. Our clients’ members can now be confident that they have both the systems and advice they need to manage the transition.”

SuperEd managing director Hugh Morrow also welcomed the partnership. fs

Time running out for claims licences ASIC says it has only received 15 applications for insurance claims handling and settling licences, with some so sloppy they will have to be resubmitted.

The regulator has issued a reminder that, as per recent reforms, insurance claims handling and settling is now a service which requires an Australian financial services licence.

Licences have been required since the start of 2021, but firms have until May 7 at the very latest to get their applications in. That is the latest date that ASIC can process applications to meet the June 30 legislative deadline.

“Time is running out for firms to lodge their applications with ASIC. To date we’ve received fewer than 15 applications for the new claims handling and settling service. Some applications received have also needed to be re-submitted because of their poor quality,” ASIC deputy chair Karen Chester said.

“We are concerned that firms are running the risk of not submitting a complete application in time to get the benefit of the legislated transition period. Firms need to submit an application no later than 7 May 2021. Failing to do so poses a real risk that these firms will have to stop providing claims handling and settling services after 30 June 2021.” fs

Rice Warner acquired by Deloitte Kanika Sood

A

The quote

We are looking forward to further enhancing offerings, working with our new colleagues at Deloitte.

ctuarial firm Rice Warner has been acquired by Deloitte.

Rice Warner’s chief executive Andrew Boal 01, head of superannuation Stephen Freeborn, and executive general manager of insurance Jennifer Baxter will become Deloitte consulting partners.

Michael Rice, who founded the firm in 1987, will also join Deloitte in a consulting capacity.

The change is effective May 1. Terms of the transaction were confidential.

“Rice Warner has built an unrivalled reputation as a leading Australian superannuation consultancy and research firm. Over the last three decades, our incredibly talented team across the business has helped our clients navigate an increasingly challenging environment,” Rice said.

“We have facilitated numerous successful fund mergers, and are a versatile business with strengths in areas as diverse as group insurance, financial advice and retirement. I am proud of what we have all achieved, and am pleased that the team will stay together and flourish as part of Deloitte.”

Boal said: “We are looking forward to further enhancing offerings, working with our new col-

leagues at Deloitte, with our existing clients as well as the exciting opportunity to work with new clients.”

Deloitte’s existing advisory services include: superannuation services like benchmarking, tenders, merger assistance and actuarial (financial modelling and defined benefits); life insurance (benchmarking, tenders, product design, compliance and reporting).

Rice Warner was the only consultant used by the panel for federal government’s review of the retirement income systems.

The acquisition follows Rice Warner selling its Galaxy Insurance Comparators business to Chant West in March.

The 16-year-old business is an insurance comparison tool for desktop software providers to the financial advice industry, institutional clients and super funds.

Chant West will integrate the tools into its business after a transition period.

“I’m looking forward to working with our new team joining us from Rice Warner to integrate these valuable tools into Chant West in a way that delivers a great experience for subscribers,” Chant West general manager Ian Fryer said.

Boal said the firm believes Chant West is best placed to continue to develop the Galaxy tools. fs

ASIC sues CBA over monthly fees Annabelle Dickson

The corporate regulator has commenced civil proceedings against Commonwealth Bank over allegations it wrongly charged monthly fees to customers over a nine-year period.

ASIC alleges CBA incorrectly charged $55 million in monthly access fees to nearly one million customers who met criteria that entitled them to fee waivers throughout June 1010 and September 2019.

The court can impose a penalty for the period between 1 April 2015 and 11 September 2019 and ASIC alleges CBA incorrectly charged monthly access fees on approximately 2.4 million occasions, totaling around $11.5 million.

The alleged incorrect fee charges occurred due to systems and processes that were inadequate or improperly configured in 30 different ways, as well as manual errors made by staff.

The corporate regulator alleges CBA made false representations that it was contractually entitled to charge the fees when it was not.

Furthermore, it is alleged the bank told new customers eligible for the fee waiver that it had systems in place to provide the waiver when it didn’t.

The bank received around 14,000 complaints from customers about the fees overcharging from June 2010 to May 2019 and first identified problems with its systems which caused the overcharging in January 2011.

It was only in December 2018 that CBA notified ASIC and lodged its first breach reports in May 2019.

“ASIC commenced this proceeding because financial institutions need to have robust compliance systems to meet their obligations to customers,” the regulator said.

“Financial institutions need to put customers first, and customers should have confidence that the banks they deal with charge fees correctly.”

CBA paid $66 million in remediation to most of the effected customers by December 2020.

However, there are still some customers who have yet to be remediated.

The penalty proceedings come after CBA was forced to pay a $5 million penalty last year for charging fees to customers entitled to fee waivers under its AgriAdvantage Plus package.

NAB was also sued by ASIC in February over the incorrect charging of fees and ANZ was forced to pay $10 million in October for charging fees to customers in relation to periodic payments. fs

News

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

21

Executive appointments 01: Emily O’Brien

MLC boosts managed accounts MLC Asset Management has made two appointments to its managed accounts team, hiring from Xplore Wealth and Mercer.

Neil Gellett has been named head of managed accounts and joins from Xplore Wealth where he was head of product.

Prior to this, he was head of product at Perpetual for over four years and head of business design and development – retail & corporate super at BT. Brent Bevan has also joined, taking on the role of head of investment consulting, managed accounts. He joins from Mercer where he was an asset consultant.

Bevan was previously executive manager, head of research for Commonwealth Bank’s wealth business and was senior manager, advice & investment research. Prior to that he was a senior financial adviser at WMS Chartered Accountants.

MLC director of managed accounts Jason Komadina said he is pleased to welcome both Gellett and Bevan to the team.

“Both bring a wealth of industry experience which will further strengthen our managed accounts proposition and help us deliver the best of MLC to clients and advisers,” he said.

“The growth of the team reflects the continued uptake of managed accounts among advisers, and increasing demand for access to MLC’s professionally managed, portfolio construction services.”

The appointments come after MLC appointed former Clime head of investments Anthony Golowenko as a portfolio manager in the multiasset capital markets research team.

BetaShares adds to board ETF manager BetaShares has added a new non-executive director to its board with previous experience at competitor BlackRock.

Blake Grossman has been appointed nonexecutive director at BetaShares.

He was previously global chief executive of Barclays Global Investors/iShares from 2002 until its sale to BlackRock in 2009.

Grossman then continued at BlackRock as vice chairman until 2011.

“We are excited to welcome Blake to the board of BetaShares. Blake’s extraordinary experience across the industry globally will provide us with invaluable expertise as we enter the next phase of our development,” BetaShares chief executive Alex Vynokur said.

Grossman said he has admired BetaShares’ business for years.

“I have admired the outstanding innovation, investor-centric focus, and strong culture at BetaShares for many years, and I’m delighted at the opportunity to join its board,” he said.

“I’m very excited to help support BetaShares’ next stage of growth and look forward to helping the firm further develop into a leading,

Mercer names chief financial officer Mercer Pacific has appointed former Australian Unity manager Emily O’Brien 01 as chief financial officer, taking over from David McKeown.

O’Brien was general manager of commercial and structured finance at Australian Unity for over two years. She was previously group financial controller at Vicinity Centres.

Prior to this, O’Brien was an associate director at Macquarie Group in Macquarie Capital Funds for over four years.

She takes over from McKeown who was in the role for over three years and at Mercer for over a decade.

The appointment comes after Mercer made appointments for two roles in the Pacific leadership team.

Helen Murdoch joined as sales and commercial acceleration leader from MLC and Saranne Brodrick as chief strategy officer, joining from Deloitte.

independent Australian financial services business.”

The appointment of Grossman follows BetaShares’ recent announcement that it has received a significant investment from TA Associates, a leading global growth private equity firm, to fuel a major expansion of its business activities.

Praemium expands distribution footprint Praemium has appointed two to its distribution team as it continues to build momentum on the back of acquiring Powerwrap.

Shane Muscat was appointed head of strategic sales in March, while Dale Wright joins as senior business development manager.

Muscat had a similar role at HUB24, where he headed strategic sales for nearly three years.

Prior to that, he was at Colonial First State as head of institutional sales for more than 15 years.

He will work closely with head of distribution Martin Morris and chief commercial officer Mat Walker.

Wright joined from Centrepoint Alliance where he worked across the firm’s Ventura Managed Accounts Portfolios. He was at Centrepoint for almost seven years, starting out as a national sales manager and then moving on to become the head of dealer relationships. Prior to that, he was at Aviva.

Walker said: “We are very pleased to have Shane and Dale join the Praemium sales team and add further experience to the team which has steadily attracted experienced, senior talent as part of a strategic investment in sales over the last two years to support the growing base of advice firms.”

HESTA hires investment manager Industry super fund HESTA has made a key appointment in its equities and liquid alternatives team.

The $58 billion fund has appointed Chris Lye to the position of investment manager - Australian equities and liquid alternatives.

Lye has a strong pedigree in industry fund investments, joining HESTA from IFM Investors where she was a senior associate.

Prior to that, Lye was a senior investment manager at LUCRF Super.

Earlier in her career, Lye spent more than a decade in various investment analyst roles with The Gandel Group.

She got her start in the industry through the Commonwealth Bank graduate program, according to her LinkedIn profile.

HESTA confirmed to Financial Standard sister publication Industry Moves that Lye joined the fund on March 29.

“Chris brings strong investment and superannuation experience to HESTA through her previous roles at IFM Investors, LUCRF and The Gandel Group,” a spokesperson for the fund said.

02: Jonathan Howie

VGI appoints chief executive The Sydney hedge fund has hired a former head of BlackRock’s Australian ETF business as its chief executive.

Jonathan Howie 02 was appointed to the role by the board of VGI Partners, which is chaired by Robert Luciano.

The appointment is effective April 12.

Howie headed BlackRock’s Australian business from 2011 to 2018 and left for the role of head of index equity, Asia Pacific. His old role was filled by Christian Obrist.

“We are delighted to have Jonathan join VGI at such an important time in our company’s growth.

Jonathan is well suited to take our company strategy forward, with the skills and experience needed to drive long-term value for all our shareholders,” Luciano said.

“Jonathan’s appointment is part of our focus to further build out VGI’s investor relations, operational and risk management capabilities.

“This will allow VGI to further enhance our existing capabilities and continue to grow the business while ensuring the senior investment team and I remain focused on managing the Global and Asian portfolios,” he said.

Howie’s appointment comes days after the Australian Financial Review reported VGI was facing backlash from David Kingston and Malcolm McComas over the discount to NTA in VGI’s listed funds.

“I’m excited to work with Robert and the team to further enhance VGI’s investor communications and operational capabilities, and in due course, drive the next phase of growth as we leverage VGI’s platform to develop existing and additional strategies,” Howie said of the appointment.

First Super hires from Cbus Industry fund for the pulp and paper sector First Super, which has $3.5 billion in funds under management, has appointed a deputy chief executive from Cbus.

Michelle Boucher has stepped into the deputy chief executive role at First Super, where she will be responsible for business development, marketing and communications functions.

Boucher joins from Cbus where she was most recently group executive - people, technology and enablement.

She was with Cbus for more than seven years.

Prior to that, Boucher was executive manager, organisational performance at ESSSuper.

Earlier in her career, Boucher was a senior manager at State Super.

“Michelle Boucher is a highly accomplished and experienced leader of the superannuation industry in Australia,” First Super chief executive Bill Watson said.

“We welcome Michelle to First Super, with great confidence that she will be a significant contributor to our fund.”

First Super added representatives for the paper and timber industries, Dean Brakell and Anthony Pavey, to its board at the start of 2021. fs

22

News

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

Yarra completes acquisition

01: Larissa Evans

assistant commissioner Australian Taxation Office

Karren Vergara

Yarra Capital Management has completed the acquisition of Nikko Asset Management’s Australian business, which was announced on March 2.

Yarra will soon revive Nikko AM’s former name Tyndall Investment Management, which was removed in September 2014 to reflect its Tokyobased parent company’s ownership. The name change is due to take place in June 2021.

Tyndall is led by head of equities Brad Potter and will remain separate to Yarra’s Australian equities business.

In late 2018, Nikko shut two of its actively managed Australian equity funds following a review.

The Nikko AM Australian Share Value Fund and Nikko AM Australian Share Fund were terminated in an effort to “consolidate the product range into a more efficient structure”, the fund manager said at the time.

This month, former Nikko AM managing director Sam Hallinan, became the chief executive of Schroders.

He led the Schorders Aussie business for six years, managing a team of about 53 working across equities and fixed income.

Yarra interim managing director Garvin Louie said: “We are delighted to have completed the acquisition of Nikko’s Australian business. The combination, which has received very strong support from internal and external stakeholder groups, enables us to strengthen our relationship with clients and provides the scale to support further investment in talent, research, leading technology and operational excellence to continue to serve our clients.” fs

Superior takeover bid for admin The investment administration firm has received a superior offer to Vistra’s proposed $170 million acquisition and has notified the firm to either match or offer more favourable terms.

SS&C Technologies Holdings has now entered a conditional scheme implementation deed with Mainstream to acquire 100% of the company at $2 per share, valuing Mainstream at $285.7 million.

The valuation is 25.8x Mainstream’s EBDITDA guidance and is an 87.2% premium to its equity of $152.6 million.

SS&C’s offer is at a 67% premium to Vistra’s offer. As such, Mainstream has notified Vistra to either match or make a better offer by April 16.

The scheme implantation deed is conditional upon Vistra not exercising the Vistra matching right, Mainstream terminating the Vistra scheme implementation deed and paying Vistra a break fee of $1.7 million.

Upon these conditions and if the acquisition proceeds, Mainstream’s board will recommend it to shareholders.

“Mainstream Group’s fund and superannuation services complement SS&C’s extensive administration offerings in Australia and throughout the world and demonstrate great revenue growth potential,” said SS&C chief executive Bill Stone. fs

ATO readiness for stapling reforms quizzed Kanika Sood

T

The quote

If you had the information that you needed to successfully submit a request and get a response, it would be something in the space of minutes to complete that per employee.

he Australian Taxation Office couldn’t answer exactly how many stapling-triggered employer checks it expects, but maintained its readiness for a July 1 go-live.

Appearing before the Senate Economics Legislation Committee, ATO assistant commissioner Larissa Evans 01 said the manual checks with ATO for an employee’s old account would take “minutes”.

The implementation of the stapling reforms is proposed to be split into two phases. For one year starting 1 July 2021, employers will have to manually login to ATO website to individually check a non-choosing employee’s old super fund details. From 1 July 2022, the Treasury hopes payroll companies will integrate the checking process.

“So, an employer would effectively authenticate and log in [to the ATO website], they would submit a request for their employee which would include details of the employee like their name, date of birth and address. They would submit that request and if there was sufficient information for [ATO] to be able to match the vault for a stapled fund account, that could happen very, very quickly in seconds,” Evans said of how stapling checks would work from July 1.

“If you had the information that you needed

to successfully submit a request and get a response, it would be something in the space of minutes to complete that per employee.”

However, when questioned on how many such manual checks ATO expected in the one year until the process is automated, Evans said ATO has no modelling.

“We don’t have an estimate in terms of volume but there are a number of factors that contribute to the volume of the users. Obviously the first is what – as my Treasury colleagues have explained – not all new employees will be subject to the request from their employer because they may make the choice when they are offered that by the employer when they commence their employment,” she said.

“Also, there will be a period of transition when the employers are becoming familiar with the obligations and requirements [in] utilising the service. So, we don’t have an anticipated volume because there are variables in [how] the service might be used.”

When asked Evans could the ATO still provide the service from July 1, if it did not have an idea of the volume of checks employers will make.

“Yes, we are confident that we are able to provide the information because the way that the service has been created,” she said, adding it was effectively an on-demand service. fs

Tax concessions failing women: Australia Institute Annabelle Dickson

The tax concession system is a contributing factor to gender inequality with most of the benefits flowing onto men, new research from the Australia Institute shows.

Economic modelling commissioned by the Australia Institute from the Centre for Social Research and Methods revealed tax concessions cost the federal budget $60 billion per year with the majority benefiting men.

The four tax concessions consist of negative gearing, superannuation tax concessions, capital gain tax discount and franking credits and, of the annual spend, $42 billion of the benefit goes to men and $18 billion goes to women.

“Gender pay gap, childcare, superannuation, and our research shows even Australia’s system of tax concessions are stacked against women,” Australia Institute research economist Eliza Littleton said.

From super tax concessions, 72% flow onto men and for every dollar of super tax concession going to women, men get $2.52 and for CGT 61%

of the discount flows to men, getting $1.54 for every dollar going to women.

The statistics are similar for excess franking credits with 72% of the benefit going to men who are receiving $2.57 for every dollar women receive, and $2.35 going to men per dollar for negative gearing benefits.

“Even accounting for the proportion of tax paid by men compared to women, our analysis shows that men receive an oversized benefit from these tax concessions,” Littleton said.

“Just from these four tax concessions, every year wealthy men receive an extra $24 billion dollars more than women – further entrenching inequality.”

The report noted that winding back the tax concessions will raise revenue which could go towards childcare and boosting retirement incomes for those in poverty.

“Scrapping or curtailing these tax concessions would not only reduce inequality but it would also raise billions of dollars that the government could use to further reduce inequality,” the report said. fs

News

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

Evans and Dixon takeover shelved

01: Sinead Schaffer

ETF model portfolio strategist State Street

Kanika Sood

360 Capital has dropped its plan to acquire ASXlisted E&P Financial Group.

TGP’s offer to acquire 78.78% ordinary shares of E&P Financial Group closed on March 31.

In ASX filings, 360 Capital said its board has decided to let the offer lapse, and has not extended it.

It attributed the change in its position to E&P Financial Group’s co-investments, and the opportunity cost of restricting $60 million of TGP’s cash to the Evans acquisition.

“Post 31 December 2020 reporting, some of EP1’s co-investments have suffered significant falls in share price which, if they do not correct, will have to be accounted for in its 30 June 2021 results,” TGP said in April 1 ASX filings.

“In making this decision, the board took into consideration the opportunity cost of restricting approximately $60 million of group cash in extending the offer verses [sic] other growth opportunities available immediately.”

360 Capital group managing director Tony Pitt said some of group’s cash can now be deployed into alternative asset opportunities across real assets, public and private equity, and credit.

The ASX-listed 360 Capital first appeared on Evans Dixon’s shareholder register after the FY20 results (statutory loss of $30.5 million), and co-founder Alan Dixon’s departure.

TGP has since built a 20.22% shareholding in EP1 (which it still owns after today’s announcement).

Tony Pitt was first endorsed for election to EP1’s board who reversed their recommendation after the initial October 27 bid. fs

Increase to super contribution cap Elizabeth McArthur

Just before the Easter long weekend the Australian Tax Office confirmed an increase to superannuation contribution caps.

From 1 July 2021, the annual concessional contribution cap will increase from $25,000 to $27,500.

“Australians will be able to put more into their super as the concessional and non-concessional contribution caps and the general transfer balance cap are set to increase due to indexation for the first time since July 2017,” minister for women’s economic security, superannuation, financial services and the digital economy Jane Hume said.

Concessional contributions are made to super funds before tax and taxed at a rate of 15% inside super funds.

The cap for non-concessional contributions, which are made to super funds after tax has been paid, will also increase from July.

From 1 July 2021, the non-concessional contribution cap will increase from $100,000 to $110,000.

The ATO has also increased the transfer balance cap, the limit on how much super can be transferred to a tax-free retirement account, from $1.6 million to $1.7 million.

No other contribution caps have been changed as a consequence. fs

23

ESG-focused managed accounts on the rise Annabelle Dickson

F

The quote

We will likely see large allocations towards ESG managed accounts and also growth in the type of managed accounts that are ESG in the market.

inancial advisers are turning to managed accounts when looking to implement responsible investment solutions for their clients, new research shows.

The latest SPDR ETFs/Investment Trends Managed Accounts Report showed 72% of advisers prefer to use managed accounts for ESG while 60% are already using managed accounts to implement it.

The use of managed accounts for ESG exposure is higher among younger advisers, with 41% of those under 40 years old compared to 22% of advisers over 55 years old.

Further to this, over one fifth of advisers using managed accounts for ESG investments are selecting multi-assets with high ESG ratings.

State Street ETF Model Portfolio strategist Sinead Schaffer 01 said the events of 2020 were a catalyst for the increase in flows to ESG investments.

“Going forward in the future, we will likely see large allocations towards ESG managed accounts and also growth in the type of managed accounts that are ESG in the market,” Schaffer

said. The report also found that 70% of advisers are either using managed accounts or intend to, up from 44% in 2012.

As such, new client inflows into managed accounts have grown 42% over the last 12 months.

“The benefits of managed accounts are being seen by advisers and how they are able to the client and provide better outcomes,” Investment Trends chief executive Sarah Brennan said.

From the advisers that did use managed account throughout COVID-19, 88% said it both freed up their time and sped up the execution of transactions while 83% said it strengthened their value proposition.

“By using managed accounts, it actually massively supported advisers through market volatility and periods of uncertainty. We also found those who are using them for longer on average, realise more benefits in the COVID-19 pandemic,” Schaffer said.

Over 80% of advisers that use managed accounts believe it is easier to demonstrate client best interest duty through managed accounts compared to managed funds (73%) and a portfolio of direct shares or listed investments (69%). fs

APRA takes action against Macquarie Following multiple breaches to prudential and reporting standards, the Australian Prudential Regulation Authority (APRA) has hit Macquarie Bank with increased liquidity and operational risk capital requirements.

Macquarie Bank breached APRA’s reporting standards on liquidity “multiple times” between 2018 and 2020 and incorrectly treated specific intra-group funding arrangements for calculating capital and related entity exposure metrics.

“These resulted from deficiencies in Macquarie Bank’s ability to manage the operational risk inherent in the complex intra-group structure, within which it transacts with its related entities,” APRA said.

Macquarie Bank is now required to hold an operational capital overlay of $500 million which reflects the deficiencies in its management of operational risk inherent in the bank’s intragroup structure.

In addition, it will require a 15% add-on to the net cash outflow component of its liquidity coverage ratio calculation and a 1% cent adjustment to the available stable funding component of its net stable funding ratio calculation.

“Alongside the enforcement actions, APRA will subject Macquarie Bank to intensified supervision to address the bank’s persistent difficulties in complying with its prudential obligations. We cannot rule out further action as more information comes to light about the root causes of these breaches,” APRA deputy chair John Lonsdale said.

Macquarie acknowledged the new requirements and said it has a number of programs in place to strengthen capital and liquidity reporting.

“We note the actions announced by APRA and share their disappointment,” Macquarie Group chief executive Shemara Wikramanayake said.

“We recognise that while specific historical matters leading to these actions have been addressed, we have continued work to strengthen our operating platform and risk governance. We will work with APRA through a period of intensified supervision to advance this work as quickly as possible.”

APRA noted the breaches are historical and do not impact Macquarie’s current capital or liquidity positions. fs

Like Financial Standard on Facebook to be kept up to date with the latest news

24

International

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

NZ Super Fund appoints two GMs

01: Charles Counsell

chief executive The Pensions Regulator

Karren Vergara

The NZ$55 billion New Zealand Super Fund has appointed two senior leads to its executive team, who will join the Guardians on July 5.

Paula Steed was appointed general manager of finance and investment operations, responsible for the finance, tax, internal audit and investment operations teams.

Steed is the current chief internal auditor at ASB Bank, and previously worked as chief financial officer at UDC Finance and division financial controller at ANZ. She also held senior finance roles at AMP and Deloitte.

Mark Fennell, currently the NZSF’s general manager of portfolio completion, is now the general manager of risk, responsible for the risk, data services and records management teams.

He joined the board as chief operating officer in 2007 and went on to become general manager of portfolio completion in 2012. Prior to this, he held senior treasury or risk management roles at The Warehouse Group, Forestry Corporation, Ministry of Foreign Affairs and Trade, and NZ Railways Corporation.

The NZSF will shortly begin recruiting for Fennell’s vacated role of general manager of portfolio completion.

Steed and Fennell report to chief executive Matt Whineray, who said the appointments follow a robust search process. fs

Natixis IM appoints chief executive Annabelle Dickson

Natixis Investment Managers appointed a former Generali chief investment officer as chief executive and leader of asset and wealth management.

Tim Ryan was at Generali for four years as group chief investment officer for insurance assets and global chief executive of asset & wealth management.

He was previously chair and chief executive of AllianceBernstein for Europe, the Middle East and Africa and in the same role for Japan.

Prior to this, Ryan was chief investment officer for AXA Japan and head of quantitative asset management.

He started his asset management career in 1992 in quantitative research and equity portfolio management at HSBC subsidiary, Sinopia Asset Management.

He succeeds Raby who is pursuing another professional opportunity after four years with Natixis. He will remain in the business for the next few weeks to ensure an efficient transition.

Natixis chief executive Nicolas Namias thanked Raby for his time with the firm.

“Under his leadership, Natixis Investment Managers has asserted its position as a world leader in asset management with assets under management of more than €1.1 trillion and has built out its commercial offer with new affiliate asset managers and new areas of expertise,” Namias said.

Namias added that the firm is preparing to launch its new strategic plan for the period up to 2020 and Ryan’s appointment will boost the asset and wealth management business and ESG strategy. fs

Climate change worse than COVID-19: Regulator Jamie Williamson

T The quote

Climate change could be – no, it will be – more catastrophic to our way of life than the pandemic if left unchecked.

he chief executive of the UK’s Pensions Regulator said he believes climate change will be more catastrophic to populations’ way of life than the COVID-19 pandemic if no action is taken.

The comments came as The Pensions Regulator chief executive Charles Counsell01 introduced the regulator’s new climate strategy, providing pension funds with a framework for disclosing climate information and achieving net zero emissions by 2050.

Counsell said: “In recent times we’ve faced a crisis caused by a pandemic. We’ve all taken urgent action to protect ourselves, our loved ones, our friends and our colleagues. We’ve looked after each other. We need to treat climate change in the same way, and it is the planet this time that we also need to look after.”

“Climate change could be – no, it will be – more catastrophic to our way of life than the pandemic if left unchecked. There is no vaccine, it is much more complex than that. It is equally urgent.”

The regulator warned that those trustees that fail to comply with the required disclosures will face action which may also be publicised, with the strategy saying the disclosures represent compliance with the basics on climate change.

“As the regulator for occupational pension schemes, we are uniquely placed to help the

pensions industry to change behaviours to meet the profound challenges of climate change and to advocate on its behalf within government,” the strategy reads.

The regulator itself is reviewing its own carbon footprint and has set itself the challenge of achieving net zero greenhouse gas emissions by 2030. In doing so, it will also report in line with the Taskforce on Climate-related Financial Disclosures (TCFD).

Large asset owners are already expected to disclose in line with the TCFD. Meanwhile, proposed new regulations for occupational pension schemes will see the TCFD guidelines adapted to be made relevant to trustee decisionmaking.

Further, funds with 100 or more members have been required since 2019 to include their policies for investment stewardship and ESG, including climate change, in their statement of investment principles (SIPs). These SIPs must be published online one or before October 1 this year.

“A core part of our work on climate change is to regulate on and, if necessary, enforce against, these requirements. Trustees must clearly evidence that words and intentions translate into action,” the regulator said.

“This includes reporting on their stewardship activities, which in some cases may be the most effective way to follow through on intentions regarding climate change.” fs

Credit Suisse confirms multibillion-dollar loss Credit Suisse announced the departure of several senior staff members while confirming a $6.13 billion loss, reportedly linked to the collapse of family office Archegos Capital.

Credit Suisse said it expects to incur a pre-tax Q1 loss of $1.25 billion including a charge of $6.13 billion in respect to “the failure of a US-based hedge fund” which international media outlets are reporting to be Archegos Capital.

Archegos Capital defaulted on margin calls from several global investment banks, including Credit Suisse, on March 26.

“This will negate the very strong performance that had otherwise been achieved by our investment banking businesses and the increase in the year-on-year profits in all three of our wealth management businesses, as well as in asset management, with particular strength in our Asia Pacific division,” Credit Suisse said.

In announcing the hit, Credit Suisse also confirmed investment bank chief executive Brian Chin and chief risk and compliance officer Lara Warner stepped down. Warner’s departure was immediate, while Chin will remain in his role until the end of April.

Chin is to be replaced with Christian Meissner, currently Credit Suisse’s co-head of international wealth management (IWM) and investment banking advisory.

Former chief risk officer and current senior advisor and chief of staff to the chief executive of Credit Suisse Group Joachim Oechslin has been appointed interim chief risk officer.

Credit Suisse general counsel Thomas Grotzer has taken on the role of global head of compliance for the group on an interim basis, effective immediately.

At its annual general meeting on April 30 Credit Suisse will propose a revised dividend and amended compensation report, with the executive team having waived its bonuses for the 2020 financial year.

Credit Suisse has launched an investigation into the hedge fund matter and another into Greensill Capital. Both investigations are to be undertaken by third parties.

Archegos Capital was a family office run by Bill Hwang.

Other investment giants reportedly caught up in the collapse are Nomura Holdings and Mitsubishi UFJ Financial Group.

Deutsche Bank also had a relationship with the family office but has confirmed it incurred no losses. fs

Between the lines

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

Vanguard names super admin

25

01: Grant Atchison

managing director Freehold Investment Management

Kanika Sood

GROW Inc (formerly Grow Super) was appointed Vanguard’s administrator for its superannuation offering last month, taking the contract from the likes of Link and Mercer that service existing super funds.

“Vanguard is pleased to confirm the appointment of GROW Inc. to provide fund administration services to Vanguard Super, due to launch later this year. GROW’s flexible technology solutions and member focus will assist Vanguard in its plans to deliver a high-value, low-cost fund, and continue to evolve our member offer over time,” a spokesperson for Vanguard in Australia said.

Vanguard has not announced a launch date for the superannuation products but expects it to be this year. In the lead up to it, Vanguard wound back its institutional client book in Australia.

Grow Super began as a startup superannuation fund in 2016 and developing an administration platform for other superannuation funds.

At end of 2019, its then chief executive Josh Wilson said the company was looking to divest its superannuation fund business to focus on the admin platform.

Last month, Grow Super rebranded to GROW Inc, offering business and data intelligence software to growing companies, underpinned by distributed ledger technology.

The first client GROW Inc. signed as an administration client was GigSuper in February of last year. fs

Alceon real estate unit, fund manager merge Karren Vergara

A The quote

We are very excited about the combination of our businesses.

lceon and Freehold Investment Management will combine their real estate funds management businesses. The firms did not disclose the terms of the merger.

The flagship Freehold Australian Property Fund will continue to operate under the Freehold brand, while all debt strategies will be consolidated under the Alceon brand.

The move comes off the back of Alceon acquiring a 40% stake in the Freehold business 18 months ago. They then jointly launched the Freehold Debt Income Fund.

Freehold managing director Grant Atchison01 was appointed head of real estate funds management, leading the development of the institutional and wholesale real estate funds management for the combined group.

Omar Khan, executive director and portfolio manager for the Freehold Debt Income Fund,

is now head of wholesale capital, responsible for wholesale capital raising efforts and working with Atchison and the existing Alceon team to further develop and grow the business.

Senior portfolio manager Grant Mackenzie and portfolio manager Simon Karlsson, will continue to manage and grow Freehold’s listed property and infrastructure capabilities.

Alceon managing director Trevor Loewensohn and Atchison said in a joint statement: “We are very excited about the combination of our businesses. We have had an excellent working relationship for many years, which has been further developed over the past 18 months and combining the businesses provides us with a wonderful opportunity to further expand and enhance our investment capabilities and solutions for our clients.”

The combined group continues to be 100% owned by its staff. fs

Rainmaker Mandate top 20

Latest cash & bond investment mandate appointments

Appointed by

Asset consultant

Investment manager

Mandate type

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Revolution Asset Management Pty Ltd

Alternative Fixed Interest

15

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

HarbourVest Partners, LLC

Fixed Interest

16

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Other

Alternative Fixed Interest

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Ninety One Australia Pty Limited

Global Fixed Interest Credit

10

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

IFM Investors Pty Ltd

Alternative Fixed Interest

10

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Kapstream Capital Pty Limited

Alternative Fixed Interest

25

AvSuper Fund

Frontier Advisors

Macquarie Investment Management Australia Limited

Global Fixed Interest

62

Christian Super

JANA Investment Advisers

Self

Enhanced Cash

Citibank Australia Staff Superannuation Fund

Willis Towers Watson

Macquarie Investment Management Australia Limited

Enhanced Australian Fixed Interest

8

Citibank Australia Staff Superannuation Fund

Willis Towers Watson

Ardea Investment Management Pty Limited

Inflation Linked Bonds

5

Citibank Australia Staff Superannuation Fund

Willis Towers Watson

Macquarie Investment Management Australia Limited

Cash

3

Citibank Australia Staff Superannuation Fund

Willis Towers Watson

Macquarie Investment Management Australia Limited

Australian Fixed Interest - Diversified

1

Energy Super

JANA Investment Advisers

Robeco

Australian Fixed Interest

200

Energy Super

JANA Investment Advisers

IFM Investors Pty Ltd

Australian Fixed Interest

199

Health Employees Superannuation Trust Australia

Frontier Advisors

Macquarie Investment Management Australia Limited

Indexed Global Bonds

141

Health Employees Superannuation Trust Australia

Frontier Advisors

Macquarie Investment Management Australia Limited

Global Fixed Interest

44

Labour Union Co-operative Retirement Fund

Frontier Advisors

Macquarie Investment Management Australia Limited

International Fixed Interest

Retail Employees Superannuation Trust

JANA Investment Advisers

Wellington Management Australia Pty Ltd

International Fixed Interest

SuperTrace Eligible Rollover Fund

Internal

Robeco

Global Fixed Interest Credit

TWU Superannuation Fund

JANA Investment Advisers

Macquarie Investment Management Australia Limited

Australian Fixed Interest

Amount ($m)

154

1,101

Source: Rainmaker Information

26

Managed funds

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07 PERIOD ENDING – 31 JANUARY 2021

Size 1 year 3 years 5 years

Size 1 year 3 years 5 years

Fund name

Fund name

Managed Funds

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

GROWTH

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

CAPITAL STABLE

Vanguard Diversified High Growth Index ETF

660

2.4

7

10.4

1

Macquarie Capital Stable Fund

28

8.0

1

7.0

1

6.8

3

Vanguard Diversified Growth Index ETF

344

2.6

4

9.0

2

IOOF MultiMix Moderate Trust

584

2.2

8

6.2

2

6.9

2

MLC Horizon 7 Accelerated Growth

109

1.4

12

8.7

3

149

2.4

5

5.7

3

Fiducian Ultra Growth Fund

13.3

1

Vanguard Diversified Conservative Index ETF

233

6.9

1

8.3

4

10.7

2

Vanguard Conservative Index Fund

2837

2.4

6

5.7

4

3575

2.4

8

8.1

5

10.2

4

MLC Index Plus Conservative Growth

210

1.8

11

5.3

5

IOOF MultiMix Growth Trust

652

3.0

2

8.0

6

9.7

6

IOOF MultiMix Conservative Trust

650

2.9

2

5.2

6

5.6

7

Fiducian Growth Fund

176

2.8

3

7.9

7

9.9

5

Dimensional World Allocation 50/50 Trust

608

2.1

9

5.1

7

7.1

1

6148

2.6

5

7.4

8

8.9

9

Fiducian Capital Stable Fund

352

2.4

7

5.1

8

5.4

9

MLC Wholesale Horizon 6 Share

287

1.0

14

7.2

9

10.4

3

UBS Tactical Beta Fund - Conservative

84

2.7

4

4.9

9

5.5

8

MLC Wholesale Index Plus Growth

126

1.0

13

7.1

BlackRock Diversified ESG Stable Fund

59

-0.1

22

4.7

10

5.3

10

Sector average

541

0.5

5.0

Vanguard High Growth Index Fund

Vanguard Growth Index Fund

10

6.0

8.3

Sector average

BALANCED

413

1.2

4.2

5.9

6

CREDIT

Macquarie Balanced Growth Fund

774

6.6

3

8.2

1

9.6

1

MCP Real Estate Debt Fund

697

7.8

2

8.7

1

Ausbil Balanced Fund

127

1.1

21

7.6

2

9.5

2

MCP Secured Private Debt Fund II

597

7.7

3

8.5

2

1841

3.3

6

7.5

3

8.6

6

Legg Mason Brandywine Global Inc. Opt. Fund

104

12.5

1

6.9

3

Fiducian Balanced Fund

446

3.0

7

7.5

4

9.0

4

VanEck Vectors Aust. Corp. Bond Plus ETF

169

3.7

9

6.1

4

BlackRock Global Allocation Fund (Aust)

574

14.2

1

7.3

5

9.1

3

Pendal Enhanced Credit Fund

410

3.4

10

5.4

5

4.8

8

BlackRock Tactical Growth Fund

516

1.9

17

7.2

6

7.7

13

Vanguard Australian Corp Fixed Interest Index

234

3.1

13

5.4

6

4.9

6

88

-1.1

36

7.0

7

8.2

9

Vanguard International Credit Securities Index

738

2.7

17

5.2

7

5.2

3

342

2.6

11

6.8

8

Vanguard Aust Corp. Fixed Interest Index ETF

474

3.2

11

5.1

8

6060

2.6

12

6.8

9

Responsible Investment Leaders Bal

437

2.8

9

6.6

Sector average

689

1.7

IOOF MultiMix Balanced Growth Trust

SSGA Passive Balanced Trust Vanguard Diversified Balanced Index ETF Vanguard Balanced Index Fund

7.5

16

Metrics Credit Div. Aust. Sen. Loan Fund

543

4.5

6

5.1

9

4.9

4

10

15

Vanguard Int. Credit Sec. Index (H) ETF

544

2.7

16

4.9

10

4.9

5

Sector average

682

3.3

4.2

4.1

5.2

7.2

Note: The performance figures for diversified funds are net of fees, performance figures for sector specific funds are adjusted for fees.

Source: Rainmaker Information

The future of managed funds distribution friend of mine works in business developA ment. His role means he visits a lot of different funds managers.

Dial tones

By John Dyall john.dyall@ financialstandard .com.au www.twitter.com /JohnDyall

Fully one third of these fund managers said they were seriously looking at launching exchange traded products. And that’s just the ones that said it.

Firstly, why would they want to get into the world of ETPs? There is a large cost associated with setting up an ETP. If they don’t hit a certain size, they will be a drain on company revenues.

The move by Magellan last year to consolidate its main retail offering was a massive signal to the market that the future belonged to ETPs and a fascinating real-world experiment. One of the funds is a closed end listed investment trust and the other an open hybrid of an ETP and an unlisted unit trust.

It boosted the size of the Australian ETP market by around $13 billion and created the largest ETP in Australia. Some people have queried whether its funds should be counted in the ETP basket or the unlisted unit trust basket, or what proportion should be put in each. This is a great question that cannot be answered.

Eventually the answer will be known. If future transactions take place on the stock market, then they are ETPs, if off-market, they are unlisted unit trusts.

While Magellan might not have intended it as such, it is conducting a real-world experiment, the results of which every retail investor, funds manager, platform and financial adviser, should be paying extremely close attention to.

But Magellan and other major fund managers, like Vanguard, know the answer already.

Once you take out market movements raising the tide on all financial assets, unlisted unit trusts are stagnant for the most part while ETPs are growing somewhere between 30 and 50% per annum.

Take Vanguard as an example. At 2020 end it had around $26 billion of assets in ETPs and $92 billion in unlisted unit trusts, so that’s 22% in ETPs. Total 12-month growth based on net flows was 9%. In ETPs the growth was 29% while for unlisted unit trusts it was 5%. Breaking down the numbers, more than half of the growth in total assets (58%) came from ETPs. And this is increasing. Over three years 45% of growth came from ETPs and 55% from unlisted unit trusts.

Looking at the world of diversified investment options, the results are stark. By my calculations, the total market of these funds dropped 1% in the 12 months to December and increased by 8% over three years. But, if you remove Vanguard from those calculations the market declined

5% over 12 months and 11% over three years.

Why are diversified options doing so badly from a funds flow perspective? Diversified options were usually products aligned with the licensee in some way. While their marketing was all about being “best of breed” and harnessing the power of investment experts, their real purpose from an investment perspective was (at best) index performance at active fees with the manager capturing the difference between what they were charged by the underlying manager (through mandates) and what they could sell the product at.

With the decline of the super licensees and the rise of independent financial advisers, the incentive to sell these products to clients was lessened. Instead, advisers often used Vanguard products as the core of a model portfolio (at low cost) while adding on satellite funds (at higher cost). This increased the adviser value proposition while not increasing overall costs to clients.

Platforms have always been the choice of advisers. With ETPs clients can go direct and investors have enough experience with CommSec to be able to manage their own investments.

This is another big drawcard for managers looking for growth in their future.

The world is going to look very different in five years. It’s time fund managers change with it. fs

Super funds

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07 PERIOD ENDING – 31 JANUARY 2021

Workplace Super Products

1 year

3 years

% p.a. Rank

5 years

SS

% p.a. Rank % p.a. Rank Quality*

GROWTH INVESTMENT OPTIONS

* SelectingSuper [SS] quality assessment

Retirement Products

27

1 year

3 years

% p.a. Rank

5 years

SS

% p.a. Rank % p.a. Rank Quality*

GROWTH INVESTMENT OPTIONS

UniSuper - Sustainable High Growth

5.1

7

11.2

1

11.5

3

AAA

UniSuper Pension - Sustainable High Growth

5.8

8

12.4

1

12.8

2

AAA

UniSuper - High Growth

6.6

3

9.6

2

11.9

1

AAA

UniSuper Pension - High Growth

6.9

2

10.7

2

13.2

1

AAA

Catholic Super - PositiveIMPACT

6.8

2

8.9

3

AAA

MyLife MyPension - PositiveIMPACT

8.3

1

10.3

3

AAA

HESTA - Sustainable Growth

5.7

4

8.8

4

10.3

8

AAA

HESTA Income Stream - Sustainable Growth

6.5

4

9.7

4

11.2

11

AAA

UniSuper - Growth

5.4

5

8.6

5

10.3

9

AAA

UniSuper Pension - Growth

5.9

7

9.6

5

11.5

8

AAA

ANZ Staff Super Employee Section - Aggressive Growth

4.4

13

8.5

6

11.6

2

AAA

Cbus Super Income Stream - High Growth

5.6

9

9.0

6

12.2

5

AAA

Equip MyFuture - Growth Plus

4.5

11

8.1

7

11.2

4

AAA

Vision Income Streams - Growth

5.4

11

8.9

7

11.3

9

AAA

Cbus Industry Super - High Growth

5.2

6

8.0

8

10.8

6

AAA

Equip Pensions - Growth Plus

4.6

15

8.9

8

12.2

3

AAA

HOSTPLUS - Shares Plus

4.9

8

7.9

9

11.0

5

AAA

HOSTPLUS Pension - Shares Plus

5.6

10

8.7

9

12.2

4

AAA

Vision Super Saver - Growth

4.8

9

7.8

10

10.2

11

AAA

Australian Ethical Super Pension - Growth

2.2

55

8.6

10

9.4

54

AAA

Rainmaker Growth Index

1.1

Rainmaker Growth Index

1.6

6.1

8.4

BALANCED INVESTMENT OPTIONS

6.7

9.2

BALANCED INVESTMENT OPTIONS

UniSuper - Sustainable Balanced

4.2

2

9.1

1

9.2

3

AAA

UniSuper Pension - Sustainable Balanced

5.0

3

10.4

1

10.4

1

AAA

Australian Catholic Super Employer - Socially Responsible

4.4

1

8.0

2

7.8

33

AAA

Future Super - Balanced Growth Pension

5.2

2

9.2

2

8.3

36

AAA

Australian Ethical Super Employer - Balanced (accumulation)

4.0

4

8.0

3

8.2

18

AAA

Australian Catholic Super RetireChoice - Socially Responsible

4.6

4

9.1

3

8.9

20

AAA

UniSuper - Balanced

3.2

15

7.7

4

8.8

6

AAA

UniSuper Pension - Balanced

3.6

12

8.7

4

10.0

5

AAA

CareSuper - Sustainable Balanced

3.9

5

7.4

5

8.1

23

AAA

CareSuper Pension - Sustainable Balanced

3.7

11

8.1

5

8.8

25

AAA

Sunsuper Super Savings - Balanced Index

3.0

17

7.0

6

7.9

26

AAA

Sunsuper Income Account - Balanced Index

3.5

15

7.9

6

9.0

17

AAA

ANZ Staff Super - Balanced Growth

3.4

12

7.0

7

9.4

1

AAA

Cbus Super Income Stream - Growth (Cbus Choice)

4.2

7

7.9

7

10.1

2

AAA

QSuper Accumulation - Lifetime Aspire 1

2.3

32

6.9

8

8.2

20

AAA

TASPLAN Tasplan Pension - Balanced

1.5

60

7.7

8

9.0

15

AAA

AustralianSuper - Balanced

2.9

19

6.9

9

9.2

2

AAA

Australian Ethical Super Pension - Balanced (pension)

3.9

9

7.7

9

7.8

61

AAA

TASPLAN - Balanced

1.6

52

6.8

10

7.9

27

AAA

AustralianSuper Choice Income - Balanced

3.2

20

7.6

10

10.1

4

AAA

Rainmaker Balanced Index

1.1

Rainmaker Balanced Index

1.4

5.3

7.0

CAPITAL STABLE INVESTMENT OPTIONS

6.0

7.6

CAPITAL STABLE INVESTMENT OPTIONS

QSuper Accumulation - Lifetime Aspire 2

1.6

36

7.0

1

7.5

3

AAA

VicSuper Flexible Income - Socially Conscious

2.9

12

7.2

1

9.2

1

AAA

QSuper Accumulation - Lifetime Focus 1

2.4

13

6.7

2

7.4

5

AAA

Cbus Super Income Stream - Conservative Growth

3.9

3

7.0

2

8.4

3

AAA

VicSuper FutureSaver - Socially Conscious

3.6

1

6.6

3

8.7

1

AAA

Vision Income Streams - Balanced

4.1

2

6.9

3

8.7

2

AAA

QSuper Accumulation - Lifetime Focus 2

2.2

16

6.5

4

6.8

8

AAA

QSuper Income - QSuper Balanced

1.4

53

6.7

4

8.2

5

AAA

QSuper Accumulation - Lifetime Focus 3

1.8

28

6.2

5

6.2

14

AAA

AustralianSuper Choice Income - Conservative Balanced

3.1

7

6.5

5

8.3

4

AAA

Vision Super Saver - Balanced

3.6

2

6.0

6

7.8

2

AAA

LUCRF Pensions - Moderate

3.7

4

6.1

6

7.3

8

AAA

QSuper Accumulation - QSuper Balanced

1.3

45

6.0

7

7.4

4

AAA

VicSuper Flexible Income - Balanced

1.4

52

6.0

7

8.0

6

AAA

TASPLAN - OnTrack Control

0.7

65

5.9

8

AAA

TASPLAN Tasplan Pension - Moderate

0.6

81

5.9

8

6.6

19

AAA

Cbus Industry Super - Conservative Growth

3.0

4

5.8

9

AAA

Bendigo SSP - Bendigo Conservative Index Fund

2.4

23

5.8

9

6.0

36

AAA

AustralianSuper - Conservative Balanced

2.6

9

5.7

AAA

Prime Super Superannuation Income Stream - Income Focused

2.0

32

5.7

10

AAA

Rainmaker Capital Stable Index

0.8

Rainmaker Capital Stable Index

1.0

10

4.0

7.3

6

4.8

4.3

5.1 Source: Rainmaker Information www.rainmakerlive.com.au

Note: Please note that all figures reflect net investment performance, i.e. net of investment tax, investment management fees and the maximum applicable ongoing management and membership fees.

2021 Rainmaker Information AAA Quality Ratings announced View the full list of AAA rated superannuation products at www.rainmaker.com.au

28

Economics

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

Australia’s virtuous cycle keeps on turning Ben Ong

D

espite some delays and hiccups in the rollout of the coronavirus vaccine in Australia, cases of infections are virtually next to nil and life is slowly been returning to pre-pandemic normal.

So much so, that in its Economic Outlook March 2020 quarter interim report, the OECD upgraded Australia’s 2021 GDP growth forecast by 1.3 percentage points to 4.5%.

With the Reserve Bank of Australia (RBA) maintaining its guidance to provide continued policy support, the AztraZeneca COVID-19 vaccine being produced locally by CSL, and the flow on from stronger overseas growth, chances are Australia’s GDP growth could be revised even higher.

The latest Australian Bureau of Statistics (ABS) Labour Force report shows total employment is 1800 scalps short of the tally recorded last year before the pandemic and the unemployment rate dropped to 5.8% – the lowest level since March 2020.

This is good news for the Morrison government which just ended its JobKeeper programme and coronavirus supplements. It’s still early days, but recent indications are that negative repercussions – particularly, on the labour market – would be limited.

This is because workers’ reliance on the subsidy has already been declining. The Australian Taxation Office (ATO) reported that the number of employees availing of JobKeeper dropped by 57.2% in the December 2020 quarter from the second and third quarters of last year.

If correct, Australia’s virtuous cycle would keep on turning. For not only is the strong re-

covery in Australia’s job markets boosting consumer and business confidence, it’s also providing a positive impact on the government budget in terms of higher income taxes – personal and business – and reduced welfare payments.

The persistent increase in iron ore prices also provides a positive underpinning to Australia’s budget balance. Iron ore prices have risen by 7.4% to US$167.34/metric tonne this year to date adding to last year’s 70.3% surge.

Needless to mention, the rise and rise in iron ore prices is due to China’s strong growth – the world’s biggest importer of iron ore.

In its Mid-Year Economic and Fiscal Outlook (MYEFO) handed down in December 2020, the Treasury forecast that iron ore prices will drop to US$55.0 per tonne by the end of September 2021 quarter. Iron ore prices are now more than three times that.

Sensitivity analysis conducted by the Australian Treasury in the 2020-21 Budget shows that for every US$10/tonne increase in the price of iron ore from the forecast US$55/tonne, improves the budget bottom line by A$3.7 billion.

However, the Budget may not be able to reap the full benefits of elevated iron ore prices because of the on-going diplomatic and trade tensions between Canberra and Beijing, which has already prompted China to impose import restrictions on Australian products.

The latest international merchandise trade data show that Australia’s total exports to China dropped by 8.0% in February 2021 from a year ago, with iron ore exports dropping by 12.0% worse, China’s reportedly been exploring alternative suppliers for its iron ore needs. fs

Monthly Indicators

Mar-21

Feb-21

Jan-21

Dec-20

Nov-20

Consumption Retail Sales (%m/m)

-

-0.78

0.29

-3.55

6.65

Retail Sales (%y/y)

-

9.09

10.61

9.74

13.18

Sales of New Motor Vehicles (%y/y)

-

5.05

11.06

13.55

12.39

Employment Employed, Persons (Chg, 000’s, sa)

-

88.67

29.47

46.35

86.20

Job Advertisements (%m/m, sa)

-

7.24

2.63

8.74

14.30

Unemployment Rate (sa)

-

5.83

6.34

6.59

6.82

Housing & Construction Dwellings approved, Tot, (%m/m, sa)

-

15.09

-11.77

16.44

6.15

Dwellings approved, Private Sector, (%m/m, sa)

-

21.65

-19.37

12.17

2.23

Survey Data Consumer Sentiment Index

111.80

109.06

107.00

112.00

107.66

AiG Manufacturing PMI Index

59.90

58.80

55.30

-

52.10

NAB Business Conditions Index

-

15.42

9.05

15.29

9.11

NAB Business Confidence Index

-

16.40

11.95

5.96

11.45

Trade Trade Balance (Mil. AUD)

-

7529.00

9616.00

7577.00

Exports (%y/y)

-

9.10

1.64

-6.49

-9.96

Imports (%y/y)

-

-3.64

-12.23

-14.03

-11.04

Mar-21

Dec-20

Sep-20

Jun-20

Mar-20

Quarterly Indicators

5849.00

Balance of Payments Current Account Balance (Bil. AUD, sa)

-

14.52

10.71

16.38

7.48

% of GDP

-

2.86

2.20

3.50

1.48

Corporate Profits Company Gross Operating Profits (%q/q)

-

-6.55

3.22

15.84

3.02

Employment Wages Total All Industries (%q/q, sa)

-

0.67

0.08

0.08

0.53

Wages Total Private Industries (%q/q, sa)

-

0.52

0.53

-0.08

0.38

Wages Total Public Industries (%q/q, sa)

-

0.52

0.45

0.00

0.45

Inflation CPI (%y/y) headline

-

0.86

0.69

-0.35

2.19

CPI (%y/y) trimmed mean

-

1.20

1.20

1.30

1.70

CPI (%y/y) weighted median

-

1.40

1.20

1.30

1.60

Output

News bites

Japan PMI Fourteen months on and Japan’s composite PMI remains below the 50 mark. However, it has slightly improved to 48.3 in March from 48.2 in the previous month. The services PMI rose to 46.5 in March but remained in contraction for the 14th consecutive month, hit by coronavirus restrictions.

The manufacturing PMI improved to a reading of 52.0 for its second month of expansion. There are also signs of stirring inflation in Japan. Increases in input and output prices accelerated in the manufacturing sector in March. In the service sector, input prices increased at a faster rate and output charges declined by less.

US PMI The flash US composite output index eased to a reading of 59.1 in March (from the final reading of 59.5 in February) but remains the second fastest

expansion in private sector activity in six years.

The services PMI rocketed to an 80-month high of 60.0 points boosted by “stronger client demand and looser coronavirus disease 2019 restrictions”.

The manufacturing PMI rose to a two-month high reading of 59.0 due to higher client demand. But as Markit notes: “Producers were increasingly unable to keep pace with demand, however, due mainly to supply chain disruptions and delays. Higher prices have ensued, with rates of both input cost and selling price inflation running far above anything previously seen in the survey’s history.”

Eurozone PMI Eurozone business activity returned to expansion in March as indicated by the rise in composite index to 52.5 (from 48.8 in the previous month) – the highest reading in eight months.

The manufacturing PMI rose to a record high (since June 1997) of 63.0 in March (from 57.6 in February) and despite remaining in contraction for the seventh straight month – due to renewed coronavirus restrictions, the services PMI improved to 48.8 from 45.7 in February. Here’s Markit’s findings on the region’s inflation: “The surge in demand for manufactured goods is meanwhile stretching supply chains to an unprecedented extent, in turn pushing costs up at the fastest rate for a decade. These cost pressures will likely feed through to higher consumer price inflation in coming months.” fs

Real GDP Growth (%q/q, sa)

-

3.13

3.40

-7.00

-0.30

Real GDP Growth (%y/y, sa)

-

-1.12

-3.70

-6.31

1.40

Industrial Production (%q/q, sa)

-

-0.30

0.20

-3.01

0.10

Survey Data Private New Capex, Total, Chain, Vol, (%q/q, sa) Financial Indicators

- 02-Apr

3.03

-3.08

-5.51

Mth ago 3mths ago 1yr ago

-1.91 3yrs ago

Interest rates RBA Cash Rate

0.10

0.10

0.10

0.25

1.50

Australian 10Y Government Bond Yield

1.78

1.72

0.97

0.76

2.61

Australian 10Y Corporate Bond Yield

1.96

1.52

1.27

2.12

3.23

Stockmarket All Ordinaries Index

7064.2

0.77%

3.12%

36.15%

20.37%

S&P/ASX 300 Index

6814.2

0.98%

3.65%

33.45%

19.02%

S&P/ASX 200 Index

6828.7

0.98%

3.67%

32.49%

18.57%

S&P/ASX 100 Index

5634.3

0.97%

3.80%

31.72%

19.01%

Small Ordinaries

3171.7

1.15%

2.66%

48.43%

18.99%

Exchange rates A$ trade weighted index

63.90

A$/US$

0.7603 0.7813 0.7717 0.6045 0.7666

64.50

63.40

54.70

62.50

A$/Euro

0.6465 0.6477 0.6307 0.5565 0.6227

A$/Yen

84.09 83.38 79.67 65.27 81.43

Commodity Prices S&P GSCI - commodity index

474.02

471.96

409.46

263.95

445.07

Iron ore

163.68

173.16

163.93

81.73

65.40

Gold

1726.05 1723.85 1887.60 1616.80 1323.85

WTI oil

61.45

59.70

48.35

25.18

Source: Rainmaker Information /

63.05

Sector reviews

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

Figure 1. Employment growth

Australian equities

8.0 RATE %

ACTUAL MONTHLY CHANGE '000S

200

7.5

100

7.0

0

6.5

-100

6.0

-200

Prepared by: Rainmaker Information Source:

CPD Program Instructions

Figure 2. Unemployment rate

300

-300

Part-time

-400

Total

-500

Full-time

5.5 5.0 4.5

-600 -700

4.0

JAN19

MAY19

SEP19

JAN20

MAY20

SEP20

JAN21

2004

2006

2008

2010

2012

2014

2016

2018

2020

Employment back to pre-recession levels Ben Ong

W

hat a difference a year makes. The year 2020 started out disastrous (literally) for the country with Prime Minister Scott Morrison copping flak for “hanging loose” in Hawaii while Australia burns. The bushfires that devastated much of southeastern Australia and the on-going drought prompted downgrades to Australia’s economic outlook and its thwart towards its seemingly assured path towards a budget surplus.

That was the coronavirus got its first bite at Australia, sending the economy falling to its first-ever recession in 29 years, sending the unemployment rate up to 7.5% – the highest level in two years and two months.

The economic contraction would have been worse and the rate of joblessness higher had it not been for the Morrison government and the Reserve Bank of Australia’s (RBA) swift and forceful responses.

International equities Prepared by: Rainmaker Information Source: Rainmaker /

So much so that, in the prime minister’s words, “In less than 12 months from when the recession began, caused by the COVID-19 pandemic, there are now more jobs in the Australian economy than there were before the pandemic”.

True that. The latest Australian Bureau of Statistics (ABS) Labour Force report shows total employment increased by 88,700 heads to 13,006,900 workers in February 2021. While this is 1800 scalps short of the tally recorded last year, it’s more than the 13,003,310 total number of employed Australians in March 2020.

Even better, additions in full-time employment had been outpacing part-timers since October last year. In February 2021, full-time jobs increased by 89,100 while part-time employment decreased by 500 people.

The unemployment rate dropped sharply to 5.8% in February from 6.3% in the previous month despite the participation rate remaining steady at an elevated 66.1%.

Figure 1. Conference Board consumer confidence

Sure, Australia have had some delays in the vaccine roll-out but with cases of infections virtually next to nil, life had been returning to normality.

Having said that, the RBA is taking no chances. On March 15 RBA governor Philip Lowe, stressed that: “The RBA is doing what it can to support the recovery from the pandemic and will maintain that support until we have achieved our goals for full employment and inflation.”

Employment also has almost fully recovered. However, he stressed there is still a long way to go with the unemployment rate too high and the economy operating well short of capacity. Inflation and wages are also lower than they would like. He cited business investment as a lagging segment and reiterated RBA will maintain support for the economic recovery until full employment and inflation goals achieved. fs

INDEX

180

Present situation

4.0

160

Consumer confidence

3.5

Expectations

140

2.5

100

2.0

80

1.5

60

1.0

40

0.5

20 2000

0.0 2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

10

11

12

13

14

15

16

17

18

19

20

21

Too much of a good thing Ben Ong

U

S consumer confidence has rebounded to its highest level since the onset of the pandemic in America in March last year.

This is hardly surprising with cases of coronavirus infections dropping, vaccine distribution running on full steam, a strengthening labour market, generous government handouts and pledges of continued low borrowing costs.

The Conference Board’s consumer confidence index jumped by 19.3 points – the biggest monthly increase since April 2003 – to a reading of 109.7 in March.

“The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – climbed from 89.6 to 110.0,” according to the index.

The Expectations Index – based on consumers’ short-term outlook for income, business, and labor market conditions – also improved, from 90.9 last month to 109.6 in March.”

Consumers’ assessment of current and future labour market conditions also improved.

According to Lynn Franco, senior director of Economic Indicators at The Conference Board, “Consumers’ renewed optimism boosted their purchasing intentions for homes, autos and several big-ticket items”.

And why the heck not? US consumers’ fear of catching the bug is diminishing.

So much so that the rate of joblessness among Americans have fallen steadily in recent months since hitting a record high of 14.8% in April last year. The unemployment rate dropped to 6.0% in March – the lowest level in 12 months – from 6.2% in February and 6.3% in January this year.

The Conference Board’s latest survey shows increased optimism over the jobs outlook. “The proportion expecting more jobs in the months ahead increased from 27.4 percent to 36.1 percent, while those anticipating fewer jobs declined from 21.3 percent to 13.4 percent.”

Australian equities CPD Questions 1–3

1. Which contributed to the increase in total employment in February? a) Full-time jobs b) Part-time jobs c) Both a and b d) Neither a nor b 2. What was the unemployment rate in February? a) 5.5% b) 5.8% c) 6.1% d) 6.3% 3. The RBA thinks unemployment remains too high. a) True b) False

CPD Questions 4–6

YIELD (%)

3.0

120

The Financial Standard CPD Program has been developed for professionals governed by the Corporations Act 2001 and hold an AFS Licence which provides an obligation to undertake continuous professional development (CPD). Test your knowledge with the following questions.

[See next page for instructions on how to submit your answers].

International equities

Figure 2. US 10Y benchmark bond yield 4.5

200

29

These, along with President Biden’s US$1.9 trillion “American rescue Plan” – that hands out a one-off payment of US$1400 to most citizens and extends unemployment support, and is expected to be topped up with another US$4 trillion in new infrastructure spending – should lift consumer spending.

Jogging Joe is certainly pulling all the stops. But while this is sending the American economy to a roaring 2020’s, it’s also sparking concern over inflation and soaring US debt – according to the Congressional Budget Office (CBO), America’s public debt ballooned from US$9 trillion to US$21 trillion between 2010 and 2020.

So much so that benchmark 10-year US Treasury bond yields have now risen to a 14-month high of 1.78%.

This suggests that Uncle Sam would be paying higher interest payments on its increased debt and it could also force the Fed to raise interest rates sooner than promised to prevent runaway inflation. fs

4. Which subcomponent of the Conference Board’s consumer confidence index improved in April? a) Present situation index b) Expectations index c) Both a and b d) Neither a nor b 5. What were the results with regards to the jobs outlook? a) Proportion of respondents expecting more jobs in the months ahead increased. b) Proportion of respondents expecting more jobs in the months ahead unchanged. c) Proportion of respondents expecting less jobs in the months ahead increased. d) Proportion of respondents expecting less jobs in the months ahead unchanged.

6. US 10-year bonds have risen to 14-month highs. a) True b) False

30

Sector reviews

Fixed interest CPD Questions 7–9

7. What was the Bank of England’s policy decision at its March meeting? a) It raised the Bank Rate by 10 bps b) It lowered the Bank Rate by 10 bps c) It kept the Bank Rate unchanged d) It increased the amount of its bond purchases 8. What are some of the factors behind the BOE’s optimism over the economic outlook? a) Improving economic growth b) Declining levels of infections c) Vaccinations d) All of the above 9. The BOE thinks that spare capacity in the economy is fast getting used up. a) True b) False Alternatives CPD Questions 10–12

10. What is the highest price fetched by iron ore so far this year? a) US$55.00/mt b) US$167.34/mt c) US$174.34/mt d) US$191.70/mt

Fixed interest

Go to our website to

Submit

All answers can be submitted to our website.

Figure 1: BOE Bank Rate Target

Figure 2: UK confirmed COVID-19 cases 5000

70

6.0 PERCENT

THOUSAND PERSONS

THOUSAND PERSONS

60

5.0

10Y GILTS

50

New daily cases -RHS

3500

40

Total cases

3000 2500

3.0

30 2.0

Prepared by: Rainmaker Information Prepared by: FSIU Source: Rainmaker / Sources: Factset

4500 4000

Bank Rate

4.0

2000 1500

20

1.0

1000

10

500

0

0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

0

MAR20 APR20 MAY20 JUN20 JUL20 AUG20 SEP20 OCT20 NOV20 DEC20 JAN21 FEB21 MAR21 APR21

BOE not letting its guard down Ben Ong

T

“ he MPC voted unanimously to maintain Bank Rate at 0.1%. The Committee voted unanimously for the Bank of England to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion. The Committee voted unanimously for the Bank of England to continue with its existing programme of UK government bond purchases, financed by the issuance of central bank reserves, maintaining the target for the stock of these government bond purchases at £875 billion and so the total target stock of asset purchases at £895 billion.”

This was the Bank of England’s (BOE) longwinded way of saying “see last month’s policy decision despite improved tidings on economic growth, rates of infections, vaccinations, topped by additional stimulus from the Exchequer from a month earlier.

Alternatives

11. Which international agency predicts a sharp expansion in the Chinese GDP this year? a) OECD b) World Bank c) IMF d) All of the above 12. The Chinese government targets GDP growth of 8% this year. a) True b) False

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

Prepared by: Rainmaker Information Prepared by: FSIU Source: IEA Sources: / Factset

“Since the time of that forecast, developments in global GDP growth have been a little stronger than anticipated, and the substantial new US fiscal stimulus package should provide significant additional support to the outlook.”

“The rates of COVID infections and hospitalisations have fallen markedly across the United Kingdom and the vaccination programme is proceeding at a rapid pace.”

‘Worldometers.info’ data confirm the BOE’s assertion. The seven-day moving average of daily cases of infections in the country has fallen from a high of 59,660 in early January to 5449 as at March 21, with active cases dropping from around two million to 497,000 over the same period.

As such, “Plans for the easing of restrictions on activity have been announced and envisage that restrictions could be lifted somewhat more rapidly than was assumed in the February Report”.

Furthermore, “Budget 2021, published in March, contained a number of significant new

policy announcements, including the extension of the Coronavirus Job Retention Scheme and other measures to support the economy in the near term which had not been reflected in the February Report” – amounting to an additional £65 billion this year and in 2022.

The BOE’s being prudent. After all: “There is judged to be a material degree of spare capacity at present. The outlook for the economy, and particularly the relative movement in demand and supply during the recovery from the pandemic, remains unusually uncertain. It continues to depend on the evolution of the pandemic, measures taken to protect public health, and how households, businesses and financial markets respond to these developments”.

It should have added the risk of the EU’s threatened ban on vaccine export shipments to the UK that, if implemented, could delay the UK’s vaccination plans and the re-opening of business activity. fs

Figure 2: Iron ore & Chinese steel production

Figure 1: Iron ore price 200

200 US$/MT

180

180

160

160

140

140

120

120

100

100

80

80

60

60

40

40

20

20

2013

2014

2015

2016

2017

2018

2019

2020

2021

20 US$/MT

2013

ANNUAL CHANGE %

16 12 8 4 0 -4 Iron ore price China steel production -RHS

-8 -12

2014

2015

2016

2017

2018

2019

2020

2021

Chinese growth heats up iron ore Ben Ong

T

he iron ore price has fallen by more than 4.0% in recent weeks which, according to reports is due to concerns over further reduction cuts in Tangshan – China’s top steel-producing city – under its anti-pollution plan.

But akin to previous episodes, this is likely to be a pause rather than the beginning of the end of the rise and rise in iron ore prices.

While down from the US$174.34/metric tonne recorded in early March 2021 (the highest since the US$191.70/metric tonne recorded in February 2011), prices are still up 7.4% to US$167.34/metric tonne this year to date adding to last year’s 70.3% surge.

This recent pause aside, the longer-term trend remains for continued price gains backed by strong demand from China – the world’s biggest consumer (69.1% of total world iron imports) – strengthening economy and its growing demand for steel as it proceeds onwards

with its industrialisation and urbanisation.

Although the Caixin China PMI surveys – composite, manufacturing, services – slowed in February 2021 – they remain at levels indicating continued expansion. Moreover: “Optimism regarding future business activity in China remained robust in February amid hopes of an end to the pandemic and a successful vaccine rollout, leading to a release of pent-up client demand at home and abroad. As a result, firms also anticipate further rises in employment and investment.”

This is in line with universal expectations for stronger growth this year – much stronger than the Politburo’s target of “over 6%”.

Just recently, the OECD’s March 2021 ‘Interim Economic Outlook’ report pencilled in a 7.8% expansion this year. In January this year, the World Bank (WB) forecast China’s GDP to grow by 7.9% in 2021 predicated on “the release of pent-up demand and a quicker-

than-expected resumption of production and exports”. In the same month, the IMF predicted China’s economy to expand by 8.1% this year due to “effective containment measures, a forceful public investment response, and central bank liquidity support.

China’s good fortune would have shone brighter for Australia – the world’s the world’s largest iron ore exporter which accounts for around 50% of total world iron ore exports – had it not been for the on-going diplomatic tensions between Beijing and Canberra sparked by that tiny micro-organism.

As such, China had imposed trade restrictions, quotas, bans or whatever on Australian imports.

So much so, that latest international merchandise trade data show that total exports to China dropped by 8.0% in February 2021 from a year ago, with iron ore exports dropping by 12.0%.

Worse, China’s reportedly been exploring alternative suppliers for its iron ore needs. fs

Sector reviews

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

31

Property

Property

CPD Questions 13–15

Prepared by: Rainmaker Information Source: Asian Association for Investors in Non-Listed Real Estate Vehicles

anaged investments in Australian farmM land delivered strong returns in the final quarter of 2020 despite COVID-19 and geopolitical uncertainties.

The latest Australian Farmland Index from the Asian Association for Investors in Non-Listed Real Estate Vehicles (ANREV) shows total returned amounted to 2.45% for Q4, up from 2.04% in Q3. At the same time income return totalled 1.06%, up from 0.48%. Capital growth decreased slightly to 1.39%.

Annualised returns over a rolling one-year period to Q4 end were impressive too, achieving a total return of 11.69%. Income return came in at 7.31% and capital growth at 4.11%.

The index provides financial performance of 42 different properties of market value of $1.07 billion in farmland, of which 74% are permanent horticultural crops and 26% annual farmland assets.

“In the face of the unprecedented turmoil of 2020, investments in Australian farmland showed remarkable resilience compared to other asset classes,” ANREV director of research and professional standards Amélie Delaunay said.

Australian farmland delivers strong returns Jamie Williamson

Annual farmland, which includes broadacre grain, oilseed farming and livestock grazing, enjoyed exceptional performance. Recording its best performance since the index’s inception with an annualised return of 30.26% with 13.34% originating from income and 15.03% from capital growth.

“The performance of annual farmland over the full year to December has been strong due to consistent quarter-on-quarter growth in capital values since the third quarter and the highest income return in Q1 since inception of 10.12%,” ANREV said.

“Strong Q1 2020 results were driven by a well above average winter crop harvest on the eastern seaboard and soaring beef cattle prices as exporters and restockers fiercely competed for stock.”

ANREV said the performance in Q1 2020 should be seen as a positive sign, with performance in Q1 2021 also expected to break records.

“Graincorp reported in February this year that the combined intake across the 20/21 harvest has totalled over 13 million tonnes of grower receivals year-to-date, eclipsing the 12.6 million tonnes of winter crop grower receivals

www.financialstandard.com.au T: +61 2 8234 7500 F: +61 2 8234 7599 A: Level 7, 55 Clarence Street, Sydney, NSW, 2000, Australia Director of Media & Publishing Michelle Baltazar

+61 2 8234 7530

michelle.baltazar@financialstandard.com.au

+61 2 8234 7562 +61 2 8234 7541 +61 2 8234 7519 +61 2 8234 7553 +61 2 8234 7570

jamie.williamson@financialstandard.com.au karren.vergara@financialstandard.com.au kanika.sood@financialstandard.com.au elizabeth.mcarthur@financialstandard.com.au annabelle.dickson@financialstandard.com.au

+61 2 8234 7508 +61 2 8234 7551 +61 2 8234 7563

alex.dunnin@financialstandard.com.au john.dyall@financialstandard.com.au benjamin.ong@financialstandard.com.au

delivered to GrainCorp during the last bumper crop in 2016/17,” ANREV noted.

Meanwhile, capital growth for the quarter remained well above the long-term trend for the third successive quarter. This was as a result of sustained high commodity prices flowing through to asset values.

Agricultural asset values have also benefitted from the flight towards real assets from capital allocators and an easing of interest rates and lending policies of rural lenders, ANREV added.

In December 2020 Elders head of agribusiness investment services Mark Barber said demand for agricultural land is primarily driven by two factors: the value of agricultural products able to be produced by the land over time, and the cost of funding the acquisition of the asset.

Regional scarcity and short-term climate conditions are also seen as drivers.

“Limited data is available but anecdotal evidence suggests new investors have a stronger interest in leasing and finding high-performing incumbent operators to jointly acquire and operate farms,” Barber said. fs

Download

13: The most recent ANREV Australian Farmland Index found that: a) Annualised returns over a rolling one-year period to end Q4 were around 7% b) Total returns were slightly higher for Q4 compared with Q3 c) Capital growth increased strongly for Q4 compared with Q3 d) Income returns over a rolling one-year period to end Q4 were just under 1% 14: Elders attributed the demand for agricultural land to: a) New investors’ preference for owning rather than leasing land b) Regional abundance c) Agricultural product values the land may yield over time d) Long-term climate conditions 15: ANREV found that agricultural asset values were helped by capital allocators’ shifting to real assets. a) True b) False

Subscribers can read the Financial Standard newspaper on the go, accessing the very latest news and insights in wealth management.

Editorial Jamie Williamson Karren Vergara Kanika Sood Elizabeth McArthur Annabelle Dickson

CPD Program Instructions

Research Alex Dunnin John Dyall Benjamin Ong Advertising Stephanie Antonis

+61 2 8234 7547

stephanie.antonis@financialstandard.com.au

+61 2 8234 7524

clientservices@financialstandard.com.au

+61 2 8234 7564 +61 2 8234 7536 +61 2 8234 7542

samantha.sherry@financialstandard.com.au jessica.beaver@financialstandard.com.au shauna.milani@financialstandard.com.au

+61 2 8234 7527

james.yin@financialstandard.com.au

Client Services & Subscriptions Kayleigh Sotto Corona

Search: Financial Standard

Design & Production Samantha Sherry Jessica Beaver Shauna Milani CPD program James Yin Managing Director Christopher Page

FS Private Wealth THE JOURNAL OF FAMILY OFFICE INVESTMENT

The Journal of Family Office Investment

Volume 10 Issue 01

Transitioning the family business EY

+61 2 8234 7501

christopher.page@financialstandard.com.au

Financial Standard is proud to work with Pegasus Print Group, an environmentally responsible printing company. Pegasus has Forest Stewardship Council®(FSC®) certification, and Financial Standard is printed on paper from well managed forests and controlled sources.

All editorial is copyright and may not be reproduced without consent. Opinions expressed in the Financial Standard are not necessarily those of Financial Standard or Rainmaker Information. Financial Standard is a Rainmaker Information company. ABN 57 604 552 874.

The latest edition out now.

Intangible assets Dimensional

THE WELLNESS MILLIONAIRE Radek Sali, Light Warrior

Published by

Charity and cy-pres Investing in esports Shareholder disputes

Each fortnight the Financial Standard will provide you with a selection of CPD questions. You do not have to undertake the CPD program each fortnight.

You can do it as often or as infrequently as you require.

A CPD Activity Statement will be generated and is accessible from our website.

Online access Simply log in using your CPD Program username and password. A record of your CPD work history is maintained for instant online access. You need to have a Principal subscription of Financial Standard to access this service.

For more information please go to our website www. financialstandard.com.au or Freecall 1300 884 434.

32

Profile

www.financialstandard.com.au 19 April 2021 | Volume 19 Number 07

HOME AND AWAY As Challenger’s chief executive of funds management, Nick Hamilton is responsible for the $91 billion business that generates about 25% of the company’s net profits – but it hasn’t always been smooth sailing. Kanika Sood writes.

is usually referred to as an “anCButhallenger nuities giant”. it also has a fast-growing funds management business, led by a not often-quoted executive Nick Hamilton. The business ended 2020 with about $91 billion in total assets and a net income of $81 million in the December half.

Hamilton has headed the division since October 2019 and arrived at the role after a varied – and at times controversial – career in funds management.

The son of a pilot and a flight attendant, Hamilton is the middle child, sandwiched between two brothers.

“We had two choices of holiday. It was a very suburban backyard in Brisbane, which was my grandfather’s house. Or it was going off to very exotic locations in the world because you used to get cheap airfares,” he says.

“We spent a lot of time in India [and] Malaysia – had to be cheap places.”

On finishing at Sydney’s Shore School, he had ambitions to train as an architect. But these were quickly abandoned after a neighbour who lectured on architecture at the University of Technology in Sydney warned him there was no money in the profession.

“I wouldn’t suggest I actively sought out academia, necessarily. But I was consistent in what I did, whether it be my friends, my family life or my school life,” Hamilton says.

He switched gears to an undergrad in economics at University of Sydney. One of his professors was Yanis Varoufakis, who in 2015 was briefly Greece’s minister of finance during the country’s debt crisis.

Hamilton looks back on the classes fondly, saying he feels lucky to have been lectured by someone of his calibre.

He says he enjoyed the social sciences aspect of economics before starting the degree and loved learning about things like industrial relations at university.

The interests had some family connections.

His grandfather, Raymond Hamilton, was a Labor minister for the Namoi electorate in New South Wales.

“I am very interested in in politics, I find the altruism of politics is very powerful. I mean, notwithstanding some of the noise that you get around issues and incidents that occur, most people probably enter politics for very noble and genuine reasons,” he says.

“You’d have to say a lot of what that generation of Labor leaders [Bob Hawke and Paul Keating] did has been extraordinarily powerful for the economy 20 years, 30 years later.”

But for his own career, Hamilton stuck to the for-profit side. He started as an equities dealer and then an analyst at Rothschild, first in Sydney and then in Boston. This was followed by 16 years “more or less” in London before a return to Sydney for the job at Challenger.

“I’m not opposed to for-profit obviously, I never made a conscious decision…I like business, I like the idea of growing things. I think it’s important for the economy,” he says.

After quitting Rothschild for a three-month gap to travel through Africa, Hamilton followed his brother to England, who still lives there and works as a computer programmer.

“The city was booming in the 90s and there was a job at Goldman and there was a job to become an index fund manager. And then there was a job at Reuters within the Lipper business to build a global portfolio analysis business in funds management, working with Steve Lipper and I chose to do that,” Hamilton explains.

The Reuters business and Morningstar dominated the funds research market in the US, seeing Hamilton spend time at Reuters’ development centres in Denver and Boulder.

But eventually he longed to come back to funds management.

And here is the interesting part.

In 2003, Hamilton was hired into Invesco’s Henley business by Neil Woodford and Bobby Yerbury. He worked directly for Woodford for about three years before moving to Invesco’s global equity business and then the multiasset business.

He would eventually leave Invesco to join Woodford as one of the four co-founders of his boutique, which as we know now, suffered hefty losses due to illiquid investments in 2019.

“Neil was an exceptional fund manager in his time at Invesco Perpetual. However, what happened at Woodford in the UK has done significant damage to a lot of ordinary people,” he says.

“In the end it was a liquidity trap, with the fund investing into stocks that time has proven should not have been in this type of vehicle.

“You know, there was clearly some very significant issues and I can probably say this now because the Woodford business no longer exists, but I probably wouldn’t have said it before.”

Hamilton left Woodford, alongside another co-founder. They signed separation deeds with confidentiality agreements, but a 2015 story from Financial Times reported the duo were interviewed by UK’s Financial Conduct Authority upon exit regarding their concerns at Woodford.

“We didn’t leave because the opportunity wasn’t great…on the firm’s first proper day post-authorisation, I remember loading onto our trading system our first client’s portfolio of £3.5 billion. Within months the FUM was more than double that.,” he says.

“It was very hard to come out of a business that was that successful into the London market and to explain to people the reason you had left something was because of the position you took against something else.

“And we were aggressively pursued by the firm’s lawyers when we decided to leave, but I would not change anything about the decision I made at that time.”

I would not change anything about the decision I made at that time.

Nick Hamilton

Hamilton’s LinkedIn is now scrubbed clean of the time he spent at Woodford. He has come to be known instead for his role at Challenger.

After Woodford and a six-month stint at Colonial First State, Hamilton joined Challenger first as the general manager of its multi-boutique business Fidante Partners, which at the time had about $40 billion in total assets.

In October 2019, Hamilton was promoted to chief executive of funds management after Ian Saines retired. The new role added to his purview Challenger’s internal investing business which has since sought external clients including in overseas markets.

Fidante had its highest ever inflows in the December 2020 half, making it – by its own assessment – the fastest-growing listed fund manager in Australia across Magellan, Perpetual, Platinum, Pinnacle and Pendal.

On the way, the business has had some hiccups. An investment in a London boutique, FME Asset Management ended with a $9 million write off after the strategy didn’t work.

“Their strategy relied on making observations of market order books. And under back testing it worked extremely well, under real money – and maybe it was a circumstance of time – it worked less well,” he says, adding FME’s strategy probably belonged better in a fund-of-fund hedge fund structure. “…We accept that 100% of things we do will not be right. And you can do nothing and get nothing wrong, but you’ll definitely get nothing right either.” fs