Financial Standard vol19 no10

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Perpetual Asset Management

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CMSF 2021

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Opinion:

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Feature:

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Sarah Liu, Schroders

Multi-asset

Karyn West Apostle FM

Product showcase:

LICs trial new way to close discounts Kanika Sood

here is a new trick in the book for managT ers of listed investment companies looking to close discounts, but not everyone is sold on the idea.

In a first in Australia, Monash Absolute Investment Company (ASX: MA1) won shareholder approval in May to change its structure from a LIC to an exchange-traded managed fund or ETMF, as it looked to solve the 10-15% discount in its units’ trading price to their underlying net asset value.

“We thought of the standard things that people do, first thing being an on-market share buyback. Then we increased the dividend, increased the NTA frequency [monthly to weekly], did an off-market buyback and issued options,” Monash Investors principal Simon Shields says.

“None of these things worked. On top of that, we were having really good performance and that wasn’t fixing things up.”

The buybacks had the side effect of making the fund smaller and thereby increasing its running cost ratio. Upping the dividend payout ratio had its problems – the strategy seeks capital growth instead of high dividend payers and the market’s downturn had limited the realised capital gains that Monash could use to pay dividends.

When it was time to move to the next solution on the list, changing the structure of the fund, Monash did not want to go the way of an unlisted fund as it had promised investors a listed structure.

Its solution in the end was to pay the units of the LIC as a distribution to a new, open-ended trust that was listed. The investors were able to keep the franking credits.

It was not a straight-up swap of the LIC’s shares to units in a trust. That needs getting court approval on a scheme of arrangement – an expensive task.

Monash still had to get shareholder approval (which it won with a 99.98% saying yes) on the structure change, as it was moving from listing rules to AQUA rules.

“The reason why no one has done it before it is complicated and time consuming,” Shields says.

In the end, Monash’s LIC will list as an ETMF around June 10. The investors will be able to trade closer to the NTA. The costs throughout the process have been reflected in the NTA, Shields says.

“Basically, the directors decided while there was a cost to it, it was very small relative to the size to the discount,” he says.

Would he do a LIC again?

“I wouldn’t do a LIC again without a market maker. A LIC is permanent capital, it gives the fund manager some certainty about what they are managing...”

If more investors will follow Monash’s move is yet to be seen.

As at April end, there were 101 listed investment companies in Australia with a total market capitalisation of $54.5 billion. The largest LIC, the $9.1 billion Australian Foundation Investment Company (AFIC) has been listed since 1928 and traded at a 9.1% premium at April end.

Many smaller LICs trade at discounts, meaning an investor looking to exit can’t get the full benefit of the NTA at the time.

Zenith Investment Partners head of real assets and listed strategies Dugald Higgins says there will always be managers who are under pressure to consider options to close LIC discounts or premiums, and that share buybacks in isolation can be ineffective if there are multiple reasons for the discount.

“In the past we have seen investors probably focusing too much on the manager and the asset class and not enough on the structure. We would argue we need to think about all three together. The structure will shape the outcomes in the hands of the investors,” Higgins says.

Despite the discounts in smaller LICs, managers like Wilson Asset Management and Magellan Asset Management have continued to launch products in the segment.

Listed Investment Companies & Trusts Association chair Angus Gluskie says the objective of removing discounts is “flawed”.

“If the reason for the discount is that investors are dissatisfied, converting it to an open-ended fund won’t solve anything. That’s just transferring the problem to a different structure,” he says.

Gluskie sees the structure standing the test of time. He says discounts give investors an opportunity to buy higher asset backing at a lower cost, closed-ended funds can have lower transaction costs, and their managers can make better investing decisions in times of market stress.

“LICs have had the option of converting to other structures at any point of time,” he says.

“It comes at a cost to underlying investors.” fs

31 May 2021 | Volume 19 Number 10 www.financialstandard.com.au 20 January 2020 | Volume 18 Number 01

Publisher’s forum:

Events:

Profile:

Salaries boosted by skills shortage Elizabeth McArthur

Simon Shields

principal Monash Investors

The financial services and insurance industries have record high job vacancies and skills shortages, sparking a significant boost in salaries.

According to recruiter Robert Half’s 2021 salary guide, it’s a good time to be looking for work in financial services in Australia with salaries up an average of 5.6%.

The most positive forecasts for national wage growth this year is 1.5%, and most recent ABS data showed growth of just 0.6%.

Robert Half surveyed 100 chief financial officers in the industry and found that 78% are concerned about losing their top talent due to a disrupted market and fierce competition after the impact of COVID-19.

With retention a top priority and in an environment where competitors are actively poaching talent, 61% of the organisations plan to extend salary increases to staff in the coming year.

Of those planning salary increases, 22% will offer those increases to all their employees Continued on page 4

ERS cemented inequality: Report A new report has assessed the impact of COVID-19 on low-income earners in Australia, with findings illustrating harm caused by the early release of super program.

The Brotherhood of St Laurence Shocks and Safety Nets report found that financial wellbeing decreased for low-income earners during the pandemic.

Many people aged over 45, disability pension recipients, women on low incomes and single parents reported being left with dwindling financial buffers after accessing savings and superannuation, and increasing debt during the pandemic, the study found.

“Opportunities to recoup these losses are likely to be limited, with the recent federal budget predicting continued low wage growth and a continued shift to part time work,” the report’s author Emily Porter, who is a fellow with the Brotherhood of St Laurence, said.

“The impacts of the crisis were uneven. This is Continued on page 4

News

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

Advisers report burnout, breaking point: Research

Editorial

Karren Vergara

Jamie Williamson

H

Editor

I’ve used this column to discuss mental health before, and I feel compelled to do so again.

Why? Because it’s what our audience has been talking about.

This past fortnight the bulk of comments Financial Standard received from readers came on the back of two distinct articles. The first being a column contributed to sister publication FS Advice by a financial adviser discussing the pressures an adviser faces just by choosing to remain in the industry and do their job (pg.26).

The second is the story you’ll find on the right.

According to the latest research out of Deakin University, almost 60% of current financial advisers are seriously considering exiting the industry due to the stress of the job.

And it isn’t just stress. The research shows 33% have sought medical help due to the impact remaining in the industry is having on their mental and physical health, with 69% saying they experience some level of depression – 17% of which said most or all the time.

The sad thing is any financial adviser or industry professional working closely with advisers wouldn’t be particularly shocked to read those figures. We hear so often of the increased compliance burden advisers are dealing with and the impact of ongoing regulatory reform, that many have become numb to the gravity of the situation.

But no matter which way we slice and dice, the figures are shocking.

According to the Australian Bureau of Statistics, in 2017-18 about 20.1% of the nation’s population was estimated to be living with a mental health condition such as anxiety or depression.

That’s right; 69% of the now less than 20,000 financial advisers versus 20% of the total population, which at that time the ABS pegged at 24.98 million.

Much of this comes down to the pressure advisers face in simply keeping their head above water; RP Wealth principal financial adviser Ronald Pratap estimates he is now spending more than $50,000 a year on licensee fees, ASIC levies and various insurances just to open the doors to his practice.

This, in an environment where most don’t see value in financial advice or, increasingly so, can’t afford to pay for it.

It’s no wonder advisers are clambering for the exit; revenues are down, costs are up, and the support just simply isn’t there.

Unfortunately, the solution remains to be seen. Serious damage has been done, and there’s more to it than simply removing a little red tape.

Most importantly, if nothing else, the focus should be on looking out for one another and for number one. fs If you or someone you know is experiencing personal crisis or suicidal thoughts, contact Lifeline on 13 11 14 or Beyond Blue on 1300 224 636.

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The quote

I have always found financial advisers incredibly committed to their clients and a group that finds great meaning and purpose in the work they do.

igh levels of stress and anxiety are tempting 42% of financial advisers to exit the industry, as reports of burnout underscore the toll their work is taking on their physical and mental health, new research suggests.

The inaugural Wellbeing of Financial Advisers in Australia report reveals how work stress has prompted 33% of advisers to seek medical help.

The authors, e-lab researcher Adam Fraser and Deakin Business School senior lecturer John Molineux, found among other professionals working in the mortgage lending, banking, professional services and educational industries, advisers recorded the lowest scores in the areas of wellbeing, mental and physical health.

The majority (73%) of advisers are experiencing high levels of burnout, while a third (33%) are seeking medical care to manage their symptoms caused by the stresses of the job.

An alarming number (61%) said the stress is affecting their sleep. They blamed regulatory and compliance demands as their biggest source of anxiety; 82% described this as either “highly stressful” or “very highly stressful”.

Out of the total amount of time spent on tasks, client meetings take up most of their attention (16%), followed by administration (15%), compliance (14%), advising (12%) and emails (12%).

“The constant change that they have experienced, the lack of input and consultation around the imposed changes and how they have been portrayed in the media has taken a heavy toll on this group and the profession,” the report read.

Forty-two percent are considering leaving the industry and a further 17% are unsure if they will stay in the profession.

A third (67%) experience some level of depression – ranging from “a little of the time” to “all the

time”. Worryingly, 17% of these advisers are feeling depressed most of the time or all of the time.

On a brighter note, the vast majority find true meaning and purpose in their work, saying that they are still engaged and find working as an adviser challenging and rewarding.

Within this group are advisers growing their businesses and enjoying the work. This cohort reported strong wellbeing, mental health and work-life balance.

“If advisers’ wellbeing and mental health does not improve dramatically, the constant change and regulatory demands look to cannibalise and wipe out people’s desire and capacity to work in this profession,” the report read.

All in all, there are real concerns about the sustainability of the profession.

Fraser said: “Financial advisers play a vitally important role in our society. Having worked with this industry for the last 15 years I have always found financial advisers incredibly committed to their clients and a group that finds great meaning and purpose in the work they do.”

However, the narrative in the industry has been that all the change and disruption they are going through is taking its toll on advisers not only professionally but also personally, Fraser said.

“We did this research to accurately assess the state of wellbeing and mental health of financial advisers in Australia. As well as to uncover the strategies and behaviours of advisers who are thriving and evolving their businesses despite all the disruption and change. But most importantly we did it to help the people who invest so much time and energy into improving the financial security of Australians.”

The study was conducted in two stages in late 2020. The first phase canvassed 45 volunteers, while 709 financial advisers competed the survey in the second phase. fs

UniSuper names next chief executive Kanika Sood

The $95 billion superannuation fund has picked an external candidate to replace outgoing chief executive Kevin O’Sullivan.

Peter Chun will replace O’Sullivan, who earlier this year announced his retirement after eight years in the role.

Chun was most recently the group executive, member growth at Aware Super where he had responsibility for brand, marketing, digital, product and business development.

Prior to this, he spent a decade at Colonial First State.

He will start as UniSuper’s chief executive on September 6, at which time O’Sullivan will depart.

“Peter has worked across all aspects of the superannuation sector and brings immense qualifications, experience and insight to the role. We look forward to welcoming him to the business later in the year.” UniSuper chair Ian Martin said.

“On behalf of the board and all UniSuper employees I reinforce my gratitude and thanks to Kevin for his commitment and contribution to UniSuper over the past eight years. Kevin leaves the fund in very strong shape with a reputation and established track record as unquestionably one of Australia’s top superannuation funds.”

Chun joins the fund at a time when it is among the topperformers on MySuper league tables, but its membership base faces challenges from bans on arrivals of international students.

Earlier this month, UniSuper went public offer in a bid to

retain scale. However, O’Sullivan said he expects the fund’s growth rate to be lower than previous years, at a panel at the Conference of Major Superannuation Funds.

“I am extremely excited to be able to lead such a dynamic and successful team and look forward to working closely with the board, Kevin and the executive team as I take on the role later this year,” Chun said.

“This is an exciting time for UniSuper and its members. The superannuation sector is changing rapidly, and it is important that funds continue to evolve and adapt.

“The fund has a uniquely deep relationship with its members; particularly in the higher education sector and UniSuper’s core purpose – to deliver greater retirement outcomes for members – will continue unchanged. I am motivated and committed to making impactful change to retirement outcomes for Australians and this role furthers that opportunity for me professionally and personally.”

Aware Super has appointed its chief of staff Debra Mika as an interim replacement to Chun’s role as its conducts an external and internal search, “No one wants to lose great talent from their team, but it is an enormous compliment to our organisation that Peter has been selected as UniSuper’s new CEO. We wish him every success in his new role when he takes the reins later this year,” Aware Super chief executive Deanne Stewart said of Chun’s departure. fs

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News

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

01: Ian Silk

Salaries boosted by skills shortage

chief executive AustralianSuper

Continued from page 1 while 39% say increases will only go to top performers.

Despite all the good news, Robert Half said that uncertainty in the market has many employees feeling as though they should stay with their existing employer for now.

The reduced flow of overseas talent, though, is increasing competition for top local performers in the industry.

These factors have seen companies increasingly actively poaching talent, with 38% of employers surveyed believing it will be more challenging to find qualified employees compared to before the pandemic.

And, because companies are worried about attracting new talent 62% say they are willing to increase their initial salary offering to secure finance professionals.

According to Robert Half, the specialist skills within finance and accounting that are proving to be the most difficult to find amongst job candidates include business/financial analysis (26%), compliance (24%), financial planning and analysis (24%), risk (22%) and internal audit (22%).

With limited supply and high demand in the market, these skillsets are well positioned to command highly competitive and even abovemarket salary offers from employers eager to secure their talent. fs

ERS cemented inequality: Report Continued from page 1 just one of the many crises that we’ll face and the most disadvantaged will be hard hit. Put simply, those with less are not likely to bounce back.”

Measures like the Coronavirus Supplement moderated the impact of the crisis for those who were eligible, but many low-income earners were not eligible for payments and had to draw on their own savings in super.

The authors of the report looked at Roy Morgan data and ANZ’s Financial Wellbeing Indicator.

It found that low-income workers showed a 21% decline in their ability to meet financial commitments from the pre-pandemic period to the September 2020 quarter.

And Brotherhood of St Laurence found evidence that many of the most vulnerable wiped out their super all together.

The proportion of low-income women with superannuation declined by 6%. Single parents not in employment showed an even larger 10% decline; now just 45% of single parents have any super at all.

Disability support pensioners with super accounts fell by 7%.

“As savings and superannuation have been depleted over the past year, many people have been left more exposed to labour market risks, with a limited capacity to absorb future shocks,” the report warned.

Overall, the research found that harmful economic impacts were less severe when people had access to government support – not just to their superannuation. fs

AustralianSuper, Club Plus to explore merger Jamie Williamson

The quote

We have been very impressed through this process with the steadfast member-first culture of AustralianSuper.

AustralianSuper and Club Plus Super are working towards a merger, which would see the creation of a $207 billion fund.

Club Plus Super identified AustralianSuper as the right strategic, cultural and operational fit for its members and reached out to discuss combining the two funds, according to a statement.

Club Plus Super chief executive Stefan Strano said a merger is in the fund’s members’ best interests as it looks to “support and enhance the journey of our members to retire on their own terms”.

“While most of our members join us at the start of their working lives, we recognise they need support across all stages of life, through careers that may span multiple industries,” Strano said.

“We have been very impressed through this process with the steadfast member-first culture of AustralianSuper.”

Club Plus was established in 1987, with a large proportion of its 65,000 members work-

ing in the hospitality and community clubs sectors.

AustralianSuper chief executive Ian Silk 01 said initial discussions between the two parties have been positive.

“Members of the two funds have many similarities coming from a wide range of workplaces and being focused on the delivery of strong long-term performance,” Silk said.

“This is a great opportunity for our two funds to get to know each other better as we work through the due diligence period.”

Recent research from KPMG found that ongoing merger activity in Australia’s super sector will likely result in just 12 funds managing close to 80% of all retirement savings. All 12 funds would also have more than $50 billion in funds under management.

The research takes into account mergers that are yet to be finalised, including those between Media Super and Cbus, and Sunsuper and QSuper. fs

Draft advice reforms not enough: FPA The Financial Planning Association of Australia (FPA) used its submission on the single disciplinary body for financial advisers to renew calls to remove the Tax Practitioners Board (TPB) as a regulator of the sector.

While the association welcomed the plan to establish a single disciplinary body, the FPA said the current draft legislation doesn’t really achieve its goal as it still requires AFSLs and corporate authorised representatives to be registered with the TPB. “The FPA continues to believe that the best outcomes for both financial planners and consumers come about when the government and the profession work together on the issues that we are facing,” FPA chief executive Dante De Gori said.

“The FPA has long advocated for the need for reform to reduce duplication and rising costs facing financial planners. We welcome the recognition of this in the draft legislation with the proposal to wind up FASEA and removing the redundant oversight of the TPB being important steps in achieving this goal.”

De Gori also said a professional registration should be the responsibility of the individual adviser, not their licensee.

“A financial planner’s registration should then follow them throughout their career and be a valued symbol of their professional status and commitment to uphold professional values. The creation of a personal obligation to register is an essential component of any professional framework,” he said.

De Gori described it as the missing piece of the puzzle.

“Similar to the legal, medical or architectural professions, the FPA strongly supports a model in which registration is the personal responsibility of each financial planner and is not connected with their employment or authorisation under an AFSL,” he said.

ASIC has recommended its Financial Services and Credit Panel (FSCP) serve as the single disciplinary body, which would also actuaries, stockbrokers and insurers where they are providing personal financial advice.

Consultation on the matter concluded on May 14.

The government is proposing ASIC’s Financial Services and Credit Panel serve as the single disciplinary body.

Broadly, there are six circumstances under which a matter may be referred to the FSCP. These include where an adviser is in a position that compromises their ability to practice as a financial adviser, such as being insolvent or convicted of fraud. They may also have contravened a financial services law, or have breached the education and training requirements or the Code of Ethics.

Advisers involved in someone else’s breach of a financial service law will also be referred, as will those who provide advice while unregistered and those who fail to follow a previous sanction applied by the FSCP. Advisers who fail to respond to a determination made by the Australian Financial Complaints Authority (AFCA) may also be referred. fs

News

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

APRA extends IDII overhaul deadline APRA has given life insurers another year to have the new measures for individual disability income insurance (IDII) in full force by 1 October 2022.

The prudential regulator has acknowledged the challenges life insurers are facing, expressing this in a letter dated May 12.

In the letter, APRA said it will give them more time, scrapping the 1 October 2021 deadline, to implement the policy contract term measures.

Insurers however, must “intensify their efforts” and be ready by 1 October 2022.

IDII typically replaces incomes of policyholders when they are unable to work due to illness or injury.

The product has been a bugbear for providers due to its loss-making nature and its questionable ability to protect policyholders.

Life insurers and friendly societies have lost $3.4 billion in five years from the products.

The industry had until 1 October 2021 to come up with viable solutions to make IDII sustainable and implement three new measures.

One of the measures involve ensuring benefits do not exceed 90% of earnings at time of the claim for the first six months of the claim and do not exceed 70% of earnings thereafter.

Also from 1 October 2021, new IDII contract terms must not exceed five years.

APRA said its product measures are intended to operate as boundaries aimed at addressing fundamental risks associated with IDII. “APRA will continue to engage and work with industry stakeholders and ASIC to support the implementation of the policy contract term measure and sustainable practices more broadly.

Ultimately, however, it is the responsibility of life companies to proactively manage the risks associated with the design of their IDII products to ensure ongoing sustainability,” the letter read.

On May 24 the Actuaries Institute released its final report into IDII, saying there is “real momentum for change” in the sector.

The institute said IDII plays a critical role in the Australian economy, providing financial protection against loss of income because of disability and is particularly important for the self-employed and professionals who may have no other support available.

“But the IDII ecosystem today is not healthy,” senior actuary Ian Laughlin said.

Laughlin noted that the institute firmly believes returning an employee to work at the appropriate time, where this is reasonable, should be a key objective of disability insurance sector reform.

The institute developed a Reference Product which should be used by insurers and their boards and executives to assess risk and uncertainty for both customers and the company. fs

5

01: Andrew Proebstl

chief executive legalsuper

Super fund partners to offer robo-advice to members Karren Vergara

A

The quote

Digital innovation is shaping the future of the super industry.

$5 billion superannuation fund is introducing a robo intra-fund advice solution to members.

With the help of Link Group’s Super Blueprint, legalsuper will offer the digital intrafund advice to its 43,000 members. The offer builds on an existing partnership between Link and legalsuper.

Super Blueprint, which is also used by funds like Intrust Super, promises a personalised approach to delivering advice relating to investment choice, insurance, projected retirement needs and contributions.

Legalsuper chief executive Andrew Proebstl 01 said extending the partnership with Link Group into digital advice is an exciting step for the fund.

“Through the use of APIs from Link Group’s market leading technology, we believe Super Blueprint will provide our members with even more benefits,” he said.

Link Advice chief executive Duncan

McPherson commented: “Digital innovation is shaping the future of the super industry.

The analytics and advice provided through Super Blueprint will give members a clear balance and benchmark for how their super is performing, this encourages more informed decisions on plans and a more positive attitude towards contribution.”

Link also announced that it partnered with personal financial management technology provider Moneysoft to streamline its advice offering for clients.

The new service, Link Advice Digital Fact Find, will enable super funds to configure fact-finds to their requirements, capturing the voice of the members that will ultimately improve the speed and accuracy of financial advice.

“We’ve seen an opportunity to capitalise on both the increased adoption of digital platforms throughout COVID and the drive to continually improve the access and affordability of advice,” McPherson said. fs

Advisers filter clients via ethical lens The rise of ethically minded financial advisers has reached the point where clients have been sacked because they do not align with their values.

This is according to Zurich risk strategy specialist Adam Crabbe, who is seeing a shift in the emergence of financial advisers putting ethics, empathy and compassion at the forefront of their business practices.

Crabbe told the Lifespan Financial Planning National Conference that some advisers are facing the dilemma of having to let go of clients and therefore revenue because values simply do not align.

In some instances, clients were untruthful and would not be open and transparent about their finances.

The onslaught of regulation on the financial advice industry has perhaps pushed the shift to an ethically minded culture.

Crabbe pointed to an adage that posits a business with a robust ethics culture will see less need for the regulator to

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enforce heavy-handed rules and compliance.

Many advisers are putting ethics as a frame of reference into their business practice, making more effort to being transparent, trustworthy, honest and fair, he said.

“Doing what you say will do and when you are going to do it are hallmarks of trust,” he said, adding that these are all the values that clients look for and the community as a whole will measure the profession.

Crabbe pointed out that in the midst of advisers trying to stay viable and paying out huge overheads in the form of licence, education and insurance costs and the like – making a profit is not unethical.

Like other for-profit organisations, financial advice businesses are “not a charity”, he said.

These days, he said that most advisers are doing more than provide financial planning and are extending their services to coaching and counselling. fs

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News

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

Low FASEA pass rate continues

01: Helen Rowell

deputy chair APRA

Elizabeth McArthur

The March FASEA exam results show that January’s lower pass rate may become a trend in 2021.

A total of 69% of candidates passed the March exam, better than the 67% that passed in January but below the 76% that passed in November last year.

The results are also less impressive than the overall 89% who have passed the exam across all sittings.

Over 13,500 advisers have now passed the exam, representing 65% of the advisers on the ASIC Financial Adviser Register.

All existing financial advisers must pass the FASEA exam by 2021 end to stay in the industry.

Only 1182 advisers have had to re-sit the exam after failing once. But, among that group pass rates are lower than overall, with just 65% passing on their re-sit.

March was a popular sitting for the exam, with 2234 advisers taking the exam compared to an average of 1399 across all exams.

“FASEA congratulates successful candidates on completing an important component of their education requirements under the Corporations Act,” FASEA chief executive Stephen Glenfield said.

“Over 15,200 advisers have sat the exam with nine in 10 demonstrating they have the skills to apply their knowledge of advice construction, ethics and legal requirements to the practical scenarios tested in the exam.”

FASEA revealed that the areas of the exam that March candidates underperformed in were: financial advice regulation and legal obligations, applied ethical and professional reasoning and communication and financial advice construction.

There are four more sittings of the exam available in 2021 before the deadline. fs

AFCA welcomes new chair John Pollaers is the new independent chair of AFCA, replacing Helen Coonan, whose tenure comes to an end this month. Coonan announced at AFCA’s November 2020 annual general meeting that she would not seek re-appointment.

Pollaers held several executive roles during his career. He is the former chief executive of Pacific Brands, which is now owned by US firm Hanesbrands, and prior that was the chief executive of Fosters and president of Diageo.

He is the founder and chair of Leef Independent Living Solutions.

Pollaers is also currently the chancellor of Swinburne University, chair of the Australian Advanced Manufacturing Council, and chair of the Aged Care Workforce Strategy Taskforce for the federal government.

He was awarded the Medal of the Order of Australia (OAM) in June 2018 for his contribution to manufacturing, education and business.

“John is an experienced chair and leader whose career is characterised by a commitment to strong governance and visionary strategic leadership. He has always created strong, effective relationships between industry, government and consumer bodies in all sectors he has been involved in,” Coonan said. fs

Super funds under $30bn should merge: APRA Kanika Sood

A

The quote

We’re not convinced all of these mergers are producing a new entity that has either the governance capability [or ability] to be sustainable over the long term.

PRA deputy chair Helen Rowell 01 says the regulator agrees with the industry view that funds under $30 billion in assets should merge.

Rowell said APRA was aware of about 12 super fund mergers currently underway.

“The emerging industry view seems to be that any fund with less than around [$]30 billion in assets under management is increasingly going to be uncompetitive about against the so-called mega funds,” she said.

“And while there will inevitably be debate about a threshold level of assets that’s needed…we generally agree with the sentiment.”

In what may be her last speech as the APRA member responsible for superannuation, Rowell warned of piecemeal mergers: including those where the merged entity ends up with poor governance, or where two small and underperforming funds merge.

“And while this is welcome. We’re not convinced all of these mergers are producing a new entity that has either the governance capability [or ability] to be sustainable over the long term,” Rowell said.

Rowell pointed out the improvements in superannuation including introduction of MySuper and reduction in multiple accounts.

But called out things that needed to improve

including current directors with 20-year tenures on super boards. “[Funds talk about] putting members interests first. But the evidence to support that they genuinely do that is often not as easy to point to as it should be,” she said.

“APRA doesn’t intend to let perfection be the enemy of the good. But we expect trustees to consider whether a small fund to small fund (or bus-stop) merger is going to tackle underlying issues or just be a temporary stop on the way to the ultimate destination of sustainability.”

Rowell added that one type of exit the regulator doesn’t want to see is a super fund being forced out due to insolvency.

APRA will release a new cross-industry prudential framework to enhance APRA-regulated entities’ ability to deal with financial stress.

“Although severe financial stress is a low probability for trustees, it is a foreseeable challenge, and one that is first and foremost their responsibility to prepare for. It is particularly acute for trustees without material financial resources of their own,” she said.

“In parallel, APRA needs to be ready with its own plan for when entity planning is not sufficient, where we will step in and take control.” fs

ERS applicants $3100 worse off Karren Vergara

Members who raided their retirement savings as a result of the early release of superannuation scheme could have been $3100 better off if they had kept their balance intact, new research reveals.

The McKell Institute, a thinktank, found that over three million Australians who took advantage of the scheme lost out from the rapid recovery of the economy and share markets.

Most super funds have now recovered up to 20% of their assets as a result of the V-shaped recovery.

A member who withdrew the maximum allowable amount of $20,000 has foregone $3164 of additional savings, the institute found, and in order to restore this amount of money they will need to make extra voluntary contributions.

In total, super funds released $36.4 billion during 2020. Most of this went towards the rent or mortgage, and household and credit card bills.

According to the Australian Bureau of

Statistics, the average withdrawals were $7728 and $7536 across the two tranches.

The institute said in retrospect, the government should have offered a more targeted assistance program to those in need, rather than giving them the option of using their super.

The government should have enforced with banks, landlords, lenders, financial services and utility companies to offer deferred payment schemes to all customers, McKell further suggests.

“The banks themselves offered mortgage holidays, and state governments implemented moratoriums with regards to residential tenancy.

However, more should have been done to avoid the necessity of Australians withdrawing from their super,” the institute said.

“Even if Australians were able to take out a loan in 2020 with an (astronomical) interest rate of 10%, this would have resulted in less foregone personal wealth than the early access to super scheme.” fs

Product showcase

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

7

01: Vivek Prabhu

head of fixed income Perpetual Asset Management

The search for real yield

At a time of record low interest rates and global uncertainty, fixed income isn’t typically seen as an income-generating option – but it can be. ery few investment managers can lay claim V to having been prepared for the market turmoil seen as a result of the COVID-19 pandemic.

But, whether by coincidence or by design, Perpetual’s head of fixed income Vivek Prabhu can.

Much of it, he says, comes down to the fact the fund is built around investor outcomes, rather than a need to “blindly follow a benchmark”.

“By that, I mean it’s designed to deliver bank bills plus 2% per annum before fees, so it’s built around an actual outcome,” he explains.

The actively managed Perpetual Diversified Income Fund invests in a range of quality debt securities across a variety of sectors and maturities, with the aim to deliver regular income and the potential for above cash rate returns.

In selecting those investments, Prabhu and his team screen out risks using filters that help to identify the companies with strong balance sheets, predictable earnings, that demonstrate industry leadership and low susceptibility to regulatory or event risk.

As portfolio manager of the fund, Prabhu was ready when the downturn hit; about 18 months prior he had started de-risking the portfolio and increasing exposure to top-rated securities.

“Typically, over the 15-year history of the fund, I’ve turned the portfolio over roughly two times per annum, which gives you an idea of how high quality and liquid the portfolio is,” he says.

“The lead up to COVID and after COVID was no different.”

From September 2018 onwards Prabhu set about increasing the portfolio’s exposure to AAA securities. At the outset, AAA securities accounted for about 20% of the portfolio and, by the time COVID hit, sat above 50%.

“To put that into context, during the depths of the GFC we only had about a 40% exposure to AAA assets,” Prabhu says.

Following the downturn, in last year’s June quarter alone, Prabhu turned over about 90% of the portfolio. He cut the AAA exposure to less than 25% and allocated instead to longer dated banks, financials and corporates, typically BBB rated or towards the lower end of investment grade.

“I point that out because, unlike the Global Financial Crisis when it took central banks, regulators and governments the best part of 10 months to implement their policy responses,” he explains.

“During COVID-19 the same players had their GFC playbook from which to draw on and they implemented those responses within a mat-

ter of weeks. So, as an investor, if you didn’t act quickly, you missed the opportunity.”

That’s when credit spreads started to come back in, with Prabhu saying they’re now tighter than pre-COVID levels and, in some cases, tighter than those seen pre-GFC. And it paid off. In the year to March 31, the fund returned 8.85% when the index saw just 0.11%. In fact, the fund has consistently outperformed the Bloomberg AusBond Bank Bill Index since inception.

As a result, Prabhu has profited from many of the positions taken during the June quarter last year. Over 40% of the portfolio is now in AAA bonds and the BBB exposure has been slashed to almost 20%.

We are much more defensively positioned now, Prabhu says.

That works for investors too, with Prabhu saying the fund is ideal for the defensive component of investors’ portfolios.

That said, the fund also has several advantages when compared to traditional defensive assets like cash, term deposits and fixed rate bonds.

Prabhu says a key advantage is that unlike with term deposits and fixed rate bonds, investors in the Diversified Income Fund aren’t locked into a fixed rate of return.

Taking it one step further, the fund’s strategy acts as a hedge against inflation. This is because it’s a floating rate fund with underlying securities that reset to prevailing market interest rates on a monthly or quarterly basis.

“As the cash rate begins to rise, the income generated by the portfolio rises and that’s why it acts as a good hedge against inflation,” Prabhu explains.

However, because of the index that it’s benchmarked to, there’s very little interest rate risk or duration.

“That bank bill benchmark has 0.1 years of interest rate duration, compared to a fixed rate bond fund which would currently have over five and a half years of interest rate duration,” he says.

“From a capital stability point of view, you’re not exposed to capital volatility as a result of changes in market interest rates.”

Much of the success seen by Prabhu and his team in recent times came from foreign denominated holdings, which contributed strongly to the fund’s returns.

Credit is a global market, he says, and the fund is capable of buying bonds in both Australian dollars and international currencies. However,

The quote

As the cash rate begins to rise, the income generated by the portfolio rises and that’s why it acts as a good hedge against inflation.

the fund is not able to take on any currency risk, meaning that when the team does buy foreign denominated bonds, it’s hedged back to Aussie dollar currency risk and the local floating rate interest risk.

“From time to time, particularly during times of volatility, we’ll see opportunities in foreign denominated bonds where the credit spreads available are much wider than the equivalent Aussie dollar credit,” Prabhu says.

“COVID was no different.”

As an example, Prabhu cites a recent investment the fund made.

“During that period, we bought a Commonwealth Bank senior US dollar bond, which is AAA rated. And even after all the hedging costs, the credit premium or credit spread I was able to collect was almost double that of the equivalent Aussie dollar CBA bond,” he says.

Now, Prabhu and his team are looking ahead to identify opportunities to be maximised in the respective domestic and global economic recoveries.

“Credit spreads have come in a long way since the initial COVID period, particularly because we’ve seen that response from central banks, regulators and governments which has been supportive of equity markets and credit spreads,” he explains.

Having said that, credit spreads can remain tight for a long time, Prabhu says, adding that he is reminded of the period from 2004 to 2007 “when they were low and tight for a long period of time”.

Looking at the credit fundamentals, the asset class is buoyed by accommodative policies from central banks, such as ongoing quantitative easing and fiscal stimulus implemented by the world’s governments.

The improving global economic outlook is also encouraging, particularly as the roll-out of COVID-19 vaccines the world over gains traction.

“For these reasons it makes sense to remain fully invested albeit in a more defensive fashion,” Prabhu says.

The Perpetual Diversified Income Fund is available for financial advisers to access on a range of platforms, including BT Panorama, HUB24, MyNorth, Netwealth, and Perpetual WealthFocus. fs Brought to you by

Watch the video on www.fsitv.com

8

News

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

EFM launches to Aussie market

01: Phil Stockwell

chief executive Local Government Super

Annabelle Dickson

EFM Asset Management is entering the Australian market and has appointed Equity Trustees as the responsible entity for its local offering.

The Hong Kong-based global equities specialist is launching the EFM Global Financial Services and Technology Trust locally which provides access to global opportunities in the financial services and technology sectors, with the aim of achieving absolute returns for investors.

Equity Trustees executive general manager, corporate trustee services Russell Beasley said EQT is pleased to be working with EFM. “We are delighted to have been selected to undertake the responsible entity role for this exciting new investment offering and congratulate EFM on its launch,” he said.

EFM was founded by former UBS Australia head of equities Jeff Emmanuel in 2016. He is currently the executive chair and chief investment officer of EFM. “We are proud to partner with Equity Trustees to provide Australian based investors the ability to tap into winning companies in the global financial services and technologies sectors.”

The portfolio typically comprises of between 30 to 50 securities and is aimed at long-term investors seeking capital growth from unhedged investments in global equity markets.

The fund’s strategy is based on a fundamental bottom-up research approach, combined with fundamental qualitative and quantitative analysis. fs

Macquarie cops $126k fine Karren Vergara

Macquarie Securities Australia (MSA) has copped a $126,000 fine for breaching market integrity rules, making this its fifth infringement in the last six years.

The Markets Disciplinary Panel (MDP) found that MSA failed to follow a client’s instruction with respect to an on-market buyback on the “dark market”.

In February 2019, the unnamed ASX-listed company tapped MSA to act on its behalf as its broker for an on-market buyback.

MSA conducted the buy back across three financial markets: the ASX, Chi-X and the dark market being ASX Centre Point (ASXC).

The MDP raised concerns over the purchase of 1.2 million shares at $2.465 on 6 May 2019 on the ASXC, alleging it was not in the ordinary course of trading.

MSA’s sell order, which traded with MSAL’s buy order, was preferenced ahead of two existing sell orders on ASXC that were submitted by another participant and which had time priority, the MDP said.

Further, the MDP was not satisfied that MSA’s conduct in relation to any of buy-back transactions on the ASXC were not fair and orderly.

“MSA’s conduct did not affect the price of the shares and did not result in the other participant’s sell orders not being able to transact with MSAL’s buy orders,” it said. fs

Local Government Super rebrands, reduces fees Jamie Williamson

A

The quote

We will remain a focused player where size and scale are used to our advantage….

s part of a broader strategy aimed at growing the fund, Local Government Super has adopted a new name and cut some of its fees.

LGS is now known as Active Super; a name that “captures our long-standing active pursuit of investments that deliver solid long-term returns for members that have a positive impact on the world, as well as our active involvement with our members and their local communities”.

Active Super chief executive Phil Stockwell 01 said the decision to rebrand is part of the fund’s wider strategy it has followed since going public offer in 2009. The aim is to attract new members and increase scale.

The fund currently has about 84,000 members and around $13 billion in funds under management.

“This decision will increase our appeal to a broader range of members looking to have their superannuation invested in a responsible way, as well as delivering great returns so members can maximise their retirement outcome,” Stockwell said.

“Our ambition is to grow out membership be delivering great value to our members and this rebrand is key to that growth. We have a loyal membership base within local government and beyond, and we will continue to deliver great service for them.”

Also commenting, Active Super chair Kyle

Loades said the fund’s investments, operations and service is not impacted by the change and that it remains a profit-to-member fund.

“It is important that we stay true to our heritage and that we focus on our members, delivering a solid performance and doing so in a responsible way,” he said.

“We will remain a focused player where size and scale are used to our advantage…”

The fund confirmed there will also be no changes to member benefits or its commitment to those working within local governments as a result of the change. However, there will be changes to some fees.

From July 1, administration fees on accumulation accounts, account-based pensions and retirement accounts will reduce, while the switching fee is being removed.

In terms of investments, Stockwell said responsible investment will remain as a cornerstone of the fund’s philosophy.

“Our aim is to help members maximise their retirement income by earning long-term sustainable investment returns. While we are an industry leader in responsible investment, our number one priority is delivering the best member outcomes possible,” he said.

“We want to use size to our advantage as we are nimble enough to actively manage our investments to deliver great long-term returns and high levels of service for our members.” fs

What instos want from managers Elizabeth McArthur

The latest Morrow Sodali institutional investor survey has revealed what some of the largest institutional investors in the world want from fund managers and companies.

The survey asked 40 institutional investors, representing US$29 trillion in assets under management, about their priorities.

Morrow Sodali reported that institutional investors see lots of room for improvement in ESG. In 2021, they firmly expect to see links between climate change and financial risks and opportunities identified by boards.

The Task Force on Climate-related Financial Disclosures was a priority for 75% of investors surveyed. They either expect companies to align with these disclosures or explain in detail why they believe it is not necessary.

One of the big shifts in attitude among institutional investors is the thinking around financial incentives for sustainability performance.

Now, 95% of investors said they support the inclusion of sustainability performance metric in

short-term incentive plans. When investors were asked the same question in 2018, 8% had no opinion and 29% said sustainability metrics were not important to annual incentives.

Alongside sustainability, 95% of investors want to see ESG performance metrics incorporated into executive incentive plans.

“Aside from poor financial performance, poor strategic decisions were the factor most likely to lead an investor to support an activist. When asked what ESG factors might lead them to support an activist, 66% of respondents identified a lack of response to an ESG shareholder resolution as the most pressing issue,” the report said.

“Last year the survey proposed a slightly different but similar question about how investors would seek to influence boards to pay more attention to ESG issues, and this option received only 21% support. It is notable that the support for this option has increased dramatically in 2021. This clearly reflects the overarching theme of investor responses this year: the increasingly sharp focus on climate change at a global level.” fs

Opinion

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

9

01: Sarah Liu

head of China A-Shares Research Schroders

Five trends to watch in China

4. Luxury vs. mass market

20% 0%

Source: CEIC, Wind, STR, CPCA, Company Data, Morgan Stanley Research

Sep-20

Jul-20

Aug-20

Jun-20

Apr-20

Ma y-20

Ma r-20

Jan-20

Feb-20

Dec-19

-80% -100%

Oct-19

-60%

Nov-19

Auto Sales Hotel Occupancy Cement Shipment Subway Passenger Volume Box Office Property Sales

-40%

Oct-20 MTD

-20%

Sep-19

Imagine a classroom with one teacher and five thousand students. This “big class livebroadcasting” business model is one example of how consumer sector companies are seeking to merge their online and offline service offerings. Education providers are starting to use

YoY% 40%

Jul-19

5. Online integration

Figure 1. China High Frequency Tracker

Aug-19

Over the past decade, the trend in China has been for consumers to upgrade their spending to higher quality goods and services, as average incomes rise.

But more recently, there has been a shift in some segments, with the result that consumer behaviour has become more polarised.

Strong demand for luxury brands has continued, particularly cosmetics and autos. But we have also seen consumers become more value conscious. As a result, the market is polarising into those that offer a strong luxury brand and those that offer good value for money. Companies in the middle are facing the greatest pressure.

Jun-19

Many consumer companies that were already leading the market have managed to increase their market share over the past 12 months, particularly in areas such as home appliances, sportswear, education and home furniture.

We are now seeing the largest players achieve even greater economies of scale, grow faster, and cut prices in order to consolidate market share, while the profitability of some of their smaller competitors declines.

One example is Midea, one of the world’s

Consumer confidence in China is set to rise further as China transitions from an in­vestment-led to a consumption-led economy.

Apr-19

2. Market share

While the Chinese government recently announced its official growth target has been set as “above 6%”, it is likely that growth will be quite a bit stronger. Growth of about 6% would suggest an abrupt tightening of policy this year, which there is so far little sign of. We suspect that the authorities are trying to anchor medium-term expectations.

In the short term, the focus may remain on COVID-19 and its impact on people and economic activity globally. But in China, with restrictions on movement now largely lifted, and the government’s track and trace system working effectively, the outlook for growth in China’s consumer sector remains strong. Shops, restaurants and other services have been able to reopen, and consumers have regained the confidence to spend.

As a result, the consumer sector is now picking up more meaningfully, and there are good opportunities for investors to take advantage of this emerging trend. fs

The quote

Ma y-19

E-commerce in China is expanding at an everincreasing rate. As was seen across global markets, the impact of the pandemic has provided a huge boost to online sales. But when the population numbers and demographics of China are also taken into account, the potential is enormous.

In China, the main beneficiaries of pandemic restrictions have been those areas where online sales hadn’t yet taken hold. For instance, online ordering and delivery of fresh foods and groceries has seen a step change, and so too have purchases of home appliances such as air conditioning units, which were previously the domain of bricks and mortar stores.

Outlook

Ma r-19

1. E-commerce

3. Local vs. overseas demand There is starting to be a shift in local versus overseas spending, both in how Chinese citizens spend their money, and the amount of overseas money coming to Chinese companies.

It has been estimated that Chinese consumers account for over a third of global luxury goods spending before COVID, but traditionally only a small percentage of this has been on Chinese products.

However in the past few years, the Chinese government has taken steps to encourage domestic spending and to support consumption within the country rather than abroad. For instance, a couple of years ago the Value Added Tax (VAT) was cut from 17% to 13%. The effect of measures such as these has helped to make overseas spending relatively less attractive.

The pandemic has boosted this trend. With international tourism constrained by lockdowns and quarantines, there has been a recovery in domestic tourism, which is expected to continue even after the pandemic abates.

Jan-19

last year feed through the economy.

China was “first in, first out” of the COVID-19 induced economic slump, avoiding a significant second wave. It has therefore rebounded earlier and quicker than other major economies, setting the scene for strong economic growth throughout 2021. Indeed most activity levels are now back to relatively normal states, as shown in Chart A - Activity data continues to recover) One key metric for China’s ongoing economic potential is consumer confidence. In recent months, consumers have regained the confidence to spend, and consumer consumption is now becoming a more significant driver of economic growth.

However, compared to other major global economies, private consumption in China still lags. It currently accounts for around 39% of GDP, compared to 69% in the US, 55% in Japan, or 54% in the Eurozone.

But consumer confidence in China is set to rise further as China transitions from an investment-led to a consumption-led economy.

This means that there is significant investment potential in consumer-oriented companies in China, both short and long term.

There are five key trends for investors to watch:

live-broadcasting to hold classes, with artificial intelligence enabling teachers to monitor their students’ level of focus and attention. Teaching assistants then follow up with homework and answer any questions. This approach has grown significantly in 2020.

It’s an approach that other companies are also pursuing. For some companies, the aim is to make the supply chain more efficient by storing stock closer to the end customer, in turn reducing shipping times and costs. As an example, Sportswear manufacturer ANTA Sports announced the acquisition of 30% of its distributors.

Other companies are introducing promotions such as awarding online purchases with points for future offline purchases.

The investment in technology in terms of databases, supply chains and inventory management systems, will be significant.

largest home appliance manufacturers. In 2019 it reduced the prices of its air conditioning units to the lowest level in a decade, taking advantage of demand from those working from home. This move has only had a small impact on its profit margin and it is still looking at positive earnings growth in 2020 while some of its smaller competitors are likely to post losses.

Investment in new technology, notably automation and inventory management, is also enabling the larger players to cut unit costs.

Feb-19

he start of 2021 has seen China’s economic T growth accelerate as its recovery continues and the impact of stimulus measures introduced

10

News

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

Ironbark signs on Canadian manager

01: Victoria Devine

managing director Zella Wealth

Kanika Sood

Ironbark Asset Management will distribute a Canadian manager’s unlisted infrastructure fund to Australia and New Zealand Investors.

Fiera Infrastructure’s EagleCrest Infrastructure invests mid-market infrastructure assets in OECD countries.

It is led by Alina Osorio who was previously the chief executive of Aquila Infrastructure, and of Macquarie Essential Assets Partnership.

The EagleCrest Infrastructure is the firm’s flagship fund, and is currently invested in 41 assets across energy, utilities, telecommunications, transportation, and public-private partnerships.

It targets returns of 10-12% p.a. in gross IRR and delivered 11.6% last year. Ironbark declined to comment on the fees.

In Australia and New Zealand, Ironbark will distribute the fund to institutional investors and family offices as part of a long-term distribution partnership.

Ironbark will invest the Australian assets into the strategy via Fiera’s existing Luxembourg-domiciled vehicle, which has a minimum investment size of US$5million.

Ironbark Asset Management head of funds management Alex Donald said the firm will launch an Australian feeder fund for the strategy in the third quarter of this year.

It will also look for co-investment and separately managed accounts opportunities for Fiera’s strategy among Australian investors.

Fiera Infrastructure had assets under management and commitments of US$2.2 billion at April end. Its parent Fiera Capital Corporation has offices in over 12 cities and had C$172.9 billion in assets under management at March end.

“Australia is an important market for Fiera Infrastructure, and we are looking for strategic investors in our flagship EagleCrest fund, an open ended fund that invests in mid-market core and coreplus infrastructure equity investment opportunities in OECD countries,” Osorio said. fs

ASIC takes action against Equiti Karren Vergara

Equiti Financial Services (Equiti FS) – which is now called DOD Bookkeeping and is in liquidation – will see the corporate regulator in the Federal Court for several alleged breaches of the Corporations Act 2001.

Between 26 October 2015 to 27 August 2018, ASIC alleges that Equiti FS paid three advisers bonuses worth $164,750 for property purchases made via clients’ SMSFs. The bonuses applied to purchases arranged by Equiti Property, which is also a subsidiary of Equiti FS’s parent company Equiti Group. The group also had a mortgage broking business Equiti Finance.

ASIC alleges that the bonus payments influenced the financial product advice provided or the choice of financial product recommended

by Equiti FS advisers to retail clients.

ASIC also claims that between 18 May 2015 and 13 February 2018, Equiti FS advisers gave financial advice that was not in their clients’ best interests on 12 occasions. fs

Victoria Devine launches investing platform Elizabeth McArthur

F

The quote

Different clients have different needs, and different business models can meet all of those needs.

inancial adviser and personal finance influencer Victoria Devine 01 is launching a She’s on the Money branded investment platform, powered by robo-adviser Six Park.

With a minimum investment of $5000, fans of She’s on the Money (which has a social media community of 160,000) will be able to invest in the platform for the same fees charged by Six Park in its other robo-advice products.

On balances between $5000 and $19,999 a $9.95 monthly flat fee will be charged. For those with between $20,000 and $199,999, 0.5% per annum is the fee and reduces to 0.4% up to $499,999 and 0.3% on balances over $500,000.

Devine and She’s on the Money will make a percentage of the revenue Six Park earns from the new branded platform. A spokesperson said they could not disclose that percentage.

“We’re very careful about who we align with and we engaged in a long process of research and due diligence to find a suitable partner. Six Park has proven to have an impressive pedigree in its investment advisory committee, extensive experience, an understanding of our audience and a professional approach to partnerships.

Six Park’s investment philosophy also aligns re-

ally strongly with our approach at She’s on the Money,” Devine said.

“We want our community to think longterm, we want them to be well-diversified, and we want them to be able to get a well-assembled investment portfolio that aligns with their goals and level of experience.”

Devine’s audience, most of whom are young women and many of whom only work part-time, are largely unlikely to be able to afford professional financial advice, she said.

“I was once turned away from a financial adviser and I know what it feels like to feel financially lost and like you’re missing out on services and opportunities that the wealthy take for granted,” Devine, who is also managing director of Melbourne’s Zella Wealth, said.

“That’s why taking this step to be part of the solution is so important. As financial advisers we all need to work together to help people. Different clients have different needs, and different business models can meet all of those needs.

“We need to stop worrying about the competition, stop seeing technology as a threat and stop saying it’s too hard to address the advice gap and throwing our hands in the air. It’s time for solutions – not in five years’ time. Now.” fs

Hostplus eyes Intrust merger Kanika Sood, Elizabeth McArthur

The $61 billion Hostplus will swallow up the $2.6 billion Intrust as it pursues its long-standing ambition of acquiring more members in Queensland, Financial Standard understands.

The 33-year-old Intrust has about 96,000 members, and 30,000 employers in the hospitality, clubs, tourism and retail sectors.

Its MySuper product returned 6.7% p.a. in the three years and 8.29% p.a. in the 10 years ending 30 April.

Hostplus and Intrust’s merger talks are advanced, Financial Standard understands.

The merger for Intrust comes at a time when it is significantly below APRA’s desired scale of $30 billion for superannuation funds to survive.

For Hostplus, merging with Intrust delivers a membership that is close to both its key industries, and in a state it has eyed for a long time.

Hostplus’s strategic plan for FY18 to FY20 presented to its board identified Queensland as a core market for growing funds under management.

The board document was put on public record as a part of materials requested and published by the Hayne Royal Commission.

In ‘Project Sunshine’, as the strategic plan called it, Hostplus identified Queensland as a priority market. The documents said that only 10% of Hostplus’ membership at the time was in Queensland, while 32% and 33% were based in NSW and Victoria respectively.

The documents also identified three funds Hostplus saw as its key competitors: Club Plus, Club Super and Intrust. The plan

said Hostplus hoped to “destabilise” or merge with the three.

Since then, Hostplus has swallowed up $600 million Club Super in 2019. In April, Club Plus signed a memorandum of understanding with AustralianSuper. Hostplus has also entered a partnership with Maritime Super.

Financial Standard understands Hostplus had also seen Club Plus as a possible merger partner.

Super fund merger activity has intensified in Queensland in recent months. The most significant of these is the QSuper and Sunsuper merger which will create a roughly $200 billion fund.

LGIASuper will scale up to a $28 billion fund after impending merger with Energy Super, and purchase of Suncorp’s superannuation business.

Intrust and Hostplus both declined to comment specifically on speculation around the merger.

“We recognise that there is presently an increased level of interest and speculation as to super fund merger activity across the market,” Intrust chief executive Brendan O’Farrell said.

“As a matter of policy, we do not comment on such speculation, or any other potential commercial arrangements between or with other entities.”

Hostplus said in a statement: “As one of Australia’s most consistent and well-performing industry superfunds, Hostplus is often linked to prospective mergers and partnerships.”

“Hostplus will routinely explore opportunities where a strategic partnership or merger with another fund offers scale benefits that would be in our members’ best interests.” fs

Publisher’s forum

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

01: Brian Pollock

national manager, corporate governance, BT Principals’ Community BT

Self-licensing: The first 12 months or business owners wishing to have greater F control, obtaining their own AFSL can be appealing. But the step up in resources and accountability is not to be underestimated. Knowing where to focus in the first 12 months can help in balancing new obligations with continuing to deliver the best outcomes for clients and the business.

New AFSL holders often come from a dealer group where they are used to having their legal and regulatory obligations assessed by others.

Their licensee would then communicate any new requirements, via policy updates and training events. As an AFSL holder, they need to be ready to examine the regulatory guidance and make choices about how to apply it.

For most, this is new territory, and even the most experienced practice principal can find this a significant step up in their knowledge.

However they can build the capability to make a successful transition.

The right partnerships and peer community can bring practices up the curve quickly, to assist in making critical changes to business strategy, resources and operations, so they can deliver on these new responsibilities.

Focus areas In a profession dedicated to delivering the best financial outcomes to clients, it’s only natural the majority of resources are focused on client acquisition, service delivery and retention. Success in meeting AFSL obligations takes a reasonable shift from systems and staff focused on servicing customers, to fulfilling AFSL compliance and reporting responsibilities.

Identifying priorities that can help businesses maintain client focus, while making necessary changes, is crucial in that first year: Team

• Review current skills and competencies – objectively assess the skillset and knowledge of the whole team to determine if they have the capability to manage the AFSL responsibilities. Staff can often adapt to meet new requirements but only if they are provided with the time and support, and sometimes this can be in supply in a busy practice.

• Explore suitable training and mentoring opportunities – for team members training might include learning multiple regulatory systems and acquiring other specialised knowledge associated with managing AFSL obligations. Practice principals may benefit from coaching in accountability and decision-making so they can make the changes

required to ensure operations meet AFSL standards for compliance and reporting.

• Fill the gaps – if time constraints rule out upskilling existing staff, there may be a need for new hires or outsourcing. Exploring ways to resource their AFSL outside of the existing team can mean tough decisions about aligning the employee base with the new direction for the business.

For many financial advisers, running their own AFSL is one of those significant milestones that shows they have arrived. Holding an AFSL can be so onerous and time-consuming that if you’ve gotten to the point where you are committing to having your own, it often means you’ve reached a certain level of success with your client base, you’ve clocked enough time in the industry to understand the ins and outs of your legal and operational obligations, and that you’ve achieved a certain level of success where you want more freedom to customise the client experience.

But there are things to be mindful of in your first year of being a d self-licensed practice. In this issue, we help you explore the impact of making the shift, on your team, your systems and processes and your business.

Michelle Baltazar director of media & publishing

fits with the business model and value proposition, speaking to more experienced AFSL holders can be invaluable. There are AFSL communities offering peer-to-peer interaction in a formal and informal way, such as the BT Principals’ Community. Early interactions with peers can help focus on key priorities and select providers who are well-regarded in the licensee community. While ultimately it’s the practice directors who are responsible, support from peers can assist with making better informed choices.

Systems and processes

• Get organised – prioritise having everything in place early so there is no risk of falling behind on due diligence, data capture or reporting obligations. This can involve introducing new meetings, reporting and oversight mechanisms to business processes. Holding regular meetings with staff and external experts is critical to ensuring the progress of AFSLrelated activities.

• Make tasks and outcomes visible – a regular forum for reviewing progress is also a good way to reach consensus on who is responsible for actions and outcomes, both in the transformation process and the practice’s new AFSL decision-making and reporting activities. Creating a workflow to track and measure AFSL tasks and milestones can drive accountability and make it clear that these regulatory processes and outcomes are just as important as client service deliverables.

The quote

Keeping things simple can be key to ensuring the sustainability of the business in the first 12 months.

Small changes, big impacts How does a practice best identify what to outsource and how to achieve this swiftly?

Revisit the practice’s value proposition to understand where your core competencies lie.

Determine where the most value can be added, given current capabilities and IP; for example, is developing bespoke advice policies and templates a strength, or is it more appropriate to bring in external resources to assist? In essence, where should resources be allocated to maximise value?

While some new AFSL holders may outsource to fill capability gaps, keeping things simple can be key to ensuring the sustainability of the business in the first 12 months. This may mean keeping systems and processes as consistent as possible, and leveraging off existing resources within the practice. Integrating or building new functions that aren’t core to the business can be expensive and inefficient.

Don’t go it alone When it comes to making astute judgements about which providers can deliver support that

11

A worthwhile investment The transition to holding an AFSL takes a significant commitment of time and resources, however the rewards can be equal. For example, a deeper understanding of risk can help run a practice that’s more aligned to your culture and to the client experience. As an AFSL holder you may decide what level of risk is acceptable in order to meet regulatory standards, and is consistent with your customer service experience. So if you want to use a different technology to deliver statements of advice, for example, you can make that determination.

Businesses often find they can respond more quickly to seize opportunities because they don’t have to wait for their licensee to make decisions.

In the past, they may have been acting on their third party AFSL guidance which may be either too broad or limited to support a more agile business approach to regulatory change. Running a nimbler, more competitive practice in today’s fast-paced, ever changing business environment is just one of the draws of holding an AFSL. fs Important information This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. BT Australia Pty Ltd ABN 72 000 700 247. (BT) makes no representation or warranties, express or implied, as to whether this guide meets a licensee’s or representative’s particular objectives, obligations or requirements or whether it is applicable to the licensee or representative’s particular business. Decisions as to the suitability of this article shall be made by each licensee or any BT Services prospective clients who reads this article. The licensee will not under any circumstances have any cause of action against or right to claim or recover from, BT for or concerning (and BT is not liable for) any loss or damage (including consequential loss or damage) caused directly or arising indirectly from this article or the use of this article. In the event that any questions arise with respect to this article or its applicability to the licensee’s business, such questions should be directed to the licensee’s compliance manager.

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News

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

Ex-fundie faces criminal charges The former managing director of Global Merces Funds Management, which is now in liquidation, has been slapped with criminal charges for dishonest conduct and providing dodgy information about the fund’s affairs.

The court determined that Holly Grofski, the fund’s investment and risk management director, carried out her powers and discharged her duties dishonestly or recklessly.

In the second charge, she gave false information to the auditors of Global Merces. The final charge related to Grofski falsifying the books of the fund.

Grofski ran Global Merces, which provided responsible entity and trustee-for-hire services, and custody and administration services between December 2012 and January 2020.

The Commonwealth Director of Public Prosecutions, which pursued the matter thanks to a tip off from ASIC, investigated her conduct in November 2019.

On 21 January 2020, ASIC suspended the fund’s AFSL for six months. On 31 January 2020, following an application by ASIC, the Federal Court ordered Global Merces be wound up on just and equitable grounds. Seven months later, ASIC cancelled its AFSL. Since the fund shuttered, Grofski has been working at Long Reef Capital, an independent investment banking firm, across its investment and transaction unit, since March 2020. fs

01: Ee Fai Kam

head of research and data operations Preqin

Super funds hunt for co-investment deals Karren Vergara

S

The numbers

$77bn Total private capital assets as at FY20.

Magellan enters retirement space Kanika Sood

Magellan’s retirement income product FuturePay was slated for a June 1 launch, the company said in ASX’s filings.

Magellan Financial Group has been working on its retirement product since at least 2017.

It scheduled a June 1 briefing for the retirement income focused product but did not provide further detail.

It is understood that the Magellan FuturePay will be listed on the stock exchanges.

It is likely to use Magellan’s global equities and listed infrastructure capabilities to target monthly distributions for investors, while forgoing a fixed income allocation.

The minimum recommended holding period for investments will be seven to 10 years.

The fund is expected to have a mortality component, where investors who exit the fund may not be able to recover all their contributions.

Magellan is expected to seed a discretionary trust called the “FuturePay Support Fund” from its balance sheet to kickstart the mortality component. The support fund will hold the assets and make distributions to the managed funds that will be listed.

“We are pleased to announce the launch of Magellan FuturePay. We believe it will help address the challenges faced by many investors and the challenges faced by many investors and their advisers, particularly those dealing with the problem of establishing a retirement income…”

Magellan chief executive Brett Cairns said. fs

uperannuation funds’ appetite for alternative investments, particularly private equity and infrastructure, is heating up, new research shows.

Joint research by Preqin and the Australian Investment Council reveal super funds are on the hunt for co-investment opportunities across major private capital asset classes as the funds themselves grow in size and sophistication.

Two years ago, super funds’ looking for private equity co-investments stood at 65%. In 2020, this figure climbed to 74%. Their appetite for infrastructure co-investments jumped from about 58% to 71%.

This is consistent with a broader global shift that is taking place, the research found, as investment teams develop their expertise in the industry and look to get closer to the underlying assets.

Preqin found a “sweet spot” exists for co-investments for investors with assets under management between $1 billion and $10 billion on a global basis.

There are 59 superannuation funds occupying this sweet spot, Preqin found, but mergers with or acquisitions of the 47 funds with $100 million to $1 billion of AUM could swell the ranks of funds that are large enough to make meaningful co-investments, but small enough for it to make a difference to their return and fee profiles.

At the super fund level, AustralianSuper is

the largest investor in private capital, allocating 16.4% of its $209.2 billion AUM to this asset class. Next is the $130 billion Aware Super allocating 22.3%, while UniSuper’s $83 billion has 14% in private capital.

As a whole, the Australian private capital industry reached a record-breaking $77 billion in AUM as at June 2020.

While venture capital received a record $1.3 billion boost in asset last year – almost double the amount secured in 2019 of $735 million – it has yet to gain stronger momentum among super funds.

Preqin senior vice president and head of research and data operations Ee Fai Kam 01 recently spoke to Financial Standard about Aussie super funds’ attraction to alternatives – specifically in real estate and infrastructure.

Venture capital on the other hand tends to receive a lower allocation.

“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 compared to their peers in other countries,” he said.

Another reason is that the super industry is dominated by investment consultants. If consultants aren’t looking proactively into new assets classes or areas of investments like venture capital, then super funds don’t get that exposure, he says. fs

Praemium chief executive exits Annabelle Dickson

The platform chief executive has suddenly left the company after almost a decade in the role as Praemium calls in consultants to review the international business.

Michael Ohanessian joined as chief executive in August 2011 and was terminated by the former board in 2017.

Soon after, Ohanessian moved to oust the board by engaging the support of several Praemium investors at a general meeting of shareholders.

The board was then terminated and Ohanessian was reinstated as chief executive. He oversaw the acquisition of Powerwrap which led to a 96% increase in global funds under administration.

For the March quarter, the Australian platform FUA increased 224% on the previous corresponding period to $16.9 billion while the international platform increased 42% to $4.4 billion.

The platform recorded $801 million in net platform inflows with $448 in the Australian platform for the quarter, up 149% on the previous corresponding period.

“On behalf of the board, we are appreciative to Michael for his hard work and wish him well in his future endeavours,” Praemium chair Barry Lewin said.

“During his tenure, Michael has built a solid and profitable

foundation at Praemium. He leaves the business having positioned Praemium for continued strong growth, both in Australia and overseas.”

This, despite also announcing it has engaged Deloitte Corporate Finance to undertake a strategic review of its international business.

As previously announced, the platform just opened an Edinburgh office and already has offices in London and Birmingham. It is looking to hire for 20 roles in Edinburgh by the end of the year across investment operations, adviser support, IT and administration.

In the UK and international business, Praemium has £2.2 billion in funds under management with net platform inflows of £450 million in 2020.

Praemium non-executive director Anthony Wamsteker has stepped in as interim chief executive with immediate effect.

He will be paid a monthly fee of $50,000 for both roles until Ohanessian’s replacement has been found.

Wamsteker was previously the chair of Powerwrap and joined the board in November following Praemium’s acquisition.

He was previously chief executive - lending at AXA before going onto be the founding chief executive of ME Bank for nine years. fs

News

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

13

Executive appointments 01: Bryce Doherty

AdviserLogic executive departs Daniel Gara is leaving his role as director of product management, financial planning at Morningstar having joined in 2019 at the time of the Morningstar acquisition.

He previously spent over 13 years at AdviserLogic as head of product development and chief executive, co-founded with Gundeep Sidhu.

Upon acquisition, Sidhu left the company and founded a property facilities management software called NowYouCan. Morningstar Australasia managing director Jamie Wickham thanked Gara for his contributions to AdviserLogic and Morningstar and said his insight and leadership have been instrumental in supporting the integration.

“As we gear up to take our financial planning solutions to the next level, Daniel felt the timing was right to hand over the reins to the expanded financial planning team at Morningstar,” Wickham said.

“Over the last 18 months, we have made great strides - investing heavily in the business, bringing on over 60 new people, and fully integrating AdviserLogic into our financial planning solutions.

Our plans to bring the best of Morningstar to the software are progressing well, and there is much more to come.”

Gara will work with the Morningstar teams to ensure a transition of his responsibilities over the next month. Morningstar will soon commence the recruitment process for his replacement.

UBS AM chief steps down The managing director of UBS Asset Management announced his exit and a long-serving portfolio manager has stepped up to oversee the Australia and New Zealand region in the interim.

Bryce Doherty01 led the asset management unit from October 2013 and was the head of wholesale prior to his promotion.

The firm said Doherty will leave in June to “pursue new challenges within the Australian market”.

“We would like to offer our sincere thanks to Bryce for his contribution to UBS. During his career at the firm, he has played a key role in the successful build-out of asset management in Australia, including the integration of ING Investment Management and the partnership with Yarra Capital Management and CBRE Clarion, and has provided strategic insights to the broader Australian business,” UBS said in a statement.

Effective immediately, John Mowat has become interim head of asset management Australia and New Zealand, maintaining his responsibilities as head of the Australian real estate and private markets business, a role he’s held since July 2019.

He is a member of several committees, including the UBS AM Australia management committee, and real estate APAC investment and management committee.

Mowat joined the firm’s UK office in 2010 and relocated to Sydney in 2015 as head of real estate Australia.

Fidelity head of institutional exits The head of institutional at Fidelity has departed after three years in the role and a successor with 23 years’ experience has been named.

Fidelity has confirmed the departure of John Meagher. Meagher led the firm’s institutional business since June 2018, joining from AMP Capital where he held the same role for close to a decade.

While Fidelity didn’t offer any comment in the way of Meagher’s exit, it did confirm the appointment of Tim Connolly as its new head of institutional. Connolly has been with fidelity for more than five years as a director within the institutional business.

Prior to joining Fidelity in 2015, Connolly worked in business development at Ambassador Funds Management Services and Tyndall Investment Management.

Connolly will operate out of the investment manager’s Melbourne office.

Interestingly, both Meagher and Connolly worked at Fidelity earlier in their careers; Connolly from 2005 to 2009, and Meagher between 2005 and 2007. .

State Street names sales executive Based in Sydney, Damian Hoult joined the firm on May 17 as a new outsourced trading sales executive, finishing recently as Basis Global Analytics’ chief executive, which he led for nearly two years.

Prior to that, Hoult spent over 10 years at Macquarie, working as the global head of trading and execution services, overseeing global portfolio trading, electronic execution and transition management.

Hoult’s appointment marks his return to State Street. He previously worked at State Street Global Markets where he was Asia Pacific head of agency execution.

The new role sees Hoult working with asset managers and asset owners to identify where State Street’s multi-asset class execution capabilities can add value as an outsourced service.

He will work with clients across the Asia Pacific region, responsible for developing sales strategies and contributing to the continued development of outsourced trading products.

State Street Global Markets head of portfolio solutions for Asia Pacific James Woodward said: “An increasing number of asset managers and asset owners are likely to move to outsourcing some of their trading. Clients benefit from experienced trading personnel, access to liquidity, state-of-the-art technology and a continued focus on execution quality, without having to build, pay or maintain it for themselves.”

BetaShares hires from Class The former chief strategy officer at Class Limited has joined BetaShares as executive director of corporate development, taking over from Jason Gellert.

Glenn Poynton will join the ETF provider in June, having spent over three years at Class where he was responsible for strategy and corporate development functions.

Gellert was recently promoted to chief financial officer where he will also be accountable for capital management, accounting and audit functions, as well as corporate strategic investments.

Poynton previously spent 18 years at Macquarie Group in several strategy and product roles including division director wealth product strategy, head of commercial management – wrap and division director strategy – Macquarie Adviser Services.

He also spent time at Macquarie in the UK as director of wealth management strategy for banking and financial services and was a board director of both Macquarie UK Self Invested Personal Pension Trustee and Custodian Entities.

“I am delighted to join such a high calibre team and be part of this exciting phase of growth at BetaShares. I look forward to helping the firm further extend the breadth of quality solutions for its clients,” Poynting said.

Also commenting BetaShares chief executive Alex Vynokur said: “We’re excited to welcome Glenn to the BetaShares team. Glenn brings a wealth of experience across the financial services

02: Deborah Ralston

industry, combining strategic insight with a proven track record of execution. Glenn will be a great asset to the business.”

Savills IM appoints local team Savills IM has appointed four, including former BlackRock managing director and chief investment officer for APAC real estate Greg Lapham, to its Sydney office.

Lapham has been appointed head of investment, Australia and will oversee the new Savills IM Asia Pacific Income and Growth Fund (APACIG). Lapham left BlackRock last year after six years and has been working in private equity with Savills IM since, based in Hong Kong.

He will be supported by Guy Sainsbury who joins Savills IM from Lendlease in the role of investment director. They will be further supported by investment manager Anthony Lupis and investment analyst Jacob van Egmond. Lupis joined from Centuria Capital last month and van Egmond was previously a property analyst at AMP Capital.

The team’s key responsibility will be the APACIG strategy, which targets an IRR in the region of 8-10%, with investments focused on Asia-Pacific’s developed markets and key gateway cities to capitalise on their stability, resilience and liquidity.

“We have been active in the Asia-Pacific market for a number of years across a variety of different sectors. The combination of the launch of a dedicated pan-Asian strategy and the expansion of our Sydney office represents a step-change in our growth across the region,” Savills IM chief executive Alex Jeffrey said.

Deborah Ralston joins Household Capital Household Capital has appointed the retirement expert to chair its advisory board.

As of May, Deborah Ralston 02 will chair the retirement funding provider’s advisory board. She replaces Jack Diamond.

Sitting alongside her on the board is Peter Kell, Gary Weaven, Alastair Peattie, Bob Officer, and Peter Harris.

Ralston played a key role in the Retirement Income Review as a member of its panel and was recently appointed to an advisory panel established by Allianz Retire+ that will look to drive innovation in the retirement sector. She is also the former chair of the SMSF Association.

“Australia has to find new ways to help current baby boomers navigate retirement with confidence. Throughout my career I’ve tried to understand finance through the eyes of consumers, their needs and the regulation of markets that meet them,” Ralston said.

“Australians enjoy good health and long lives, high quality housing, a sustainable pension system and a leading superannuation savings system.

I’m excited to join Household Capital in delivering widespread, responsible, long-term access to home equity retirement funding to show how Australia can lead the way in meeting the housing and funding challenges of an aging population.” fs

Feature | Multi-asset

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

DIVIDE AND CONQUER Investors have been drawn to multi-asset strategies to fortify their defensive allocation, but is a world of low rates forcing managers to take on more risk for the same returns? Annabelle Dickson writes.

Multi-asset | Feature

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

D

iversification has always been a key part of portfolio creation for investors and managers alike.

The events of the last 12 months have proven so, particularly for those relying on fixed income proportions of a portfolio for safe haven in the early months of 2020, before riding the equities recovery.

However, the composition of diversifying assets in a portfolio has changed dramatically in recent years.

The father of Modern Portfolio Theory Harry Markowitz, famously said in his 1959 book Portfolio Selection: Efficient Diversification of Investments: “To reduce risk it is necessary to avoid a portfolio whose securities are all highly correlated with each other.”

“One hundred securities whose returns rise and fall in near unison afford little more protection than the uncertain return of a single security.”

Even Vanguard founder and index fund pioneer Jack Bogle realised the importance of diversification and popularised the 60/40 or ‘balanced’ portfolio with weighting to equities and bonds.

Further diversification away from two asset classes into a multi-asset strategy was first broached in the 1980s but only really came into focus after the Global Financial Crisis.

“After major market crashes people generally get more interested in active asset allocation,” Pendal Group head of multi-asset Michel Blayney01 explains.

“Investors look back and say: ‘If I had just managed to sell there when it was really high and buy when it was really low’. Of course, hindsight investing is much easier than investing in the real world.”

Investors in multi-asset funds benefit from actively managed exposure to asset classes like equities, fixed income, foreign currencies, and alternatives.

However, multi-asset strategy is more of a style than a strict strategy that investors might see in single asset class strategies.

Different managers employ different levels of risk for their returns and use different asset classes and investment styles to construct their multi-asset strategy. But the overall multi-asset funds are unconstrained, defensive and are generally benchmark unaware.

These characteristics are ideal for First Unity financial adviser Amy Reed02 who uses a multiasset product as a satellite holding in her clients’ portfolios.

“Whenever there’s a lot of instability, multiasset funds hold their line with characteristics of low volatility and tend to preserve capital,” Reed says.

She uses this not only as a diversification measure but also as a defence mechanism.

Meanwhile, Wealthwise senior financial adviser Dawn Thomas03 uses multi-asset funds as a one-

01: Michael Blayney

02: Amy Reed

head of multi-asset Pendal Group

financial adviser FIRSTUNITY

stop shop for clients with less complex needs. “[I use multi-asset] for clients who want oneoff advice or for some current clients who have lower balances and also appreciate a simple set up for them to feel ease at retirement,” Thomas says.

“They have their place in portfolio construction as not everyone wants to be bamboozled by a selection of 10 to 12 funds. Multi-asset funds provide an easy way for someone to be invested as per their risk profile and stay that way to boost their funds over the long term.”

However, there are different contexts, Blayney says, in which you can talk about multiasset investing.

“In the context of our multi-asset fund and the real return category in which it tends to get grouped, we see them as being used by investors in an overall portfolio where they want a bit of active asset allocation as essentially a component of their liquid alternatives.”

But the real question for a multi-asset strategy is how to ensure steady returns in the fixed income proportion of the portfolio when yields are low and while equities are highly valued.

The case for government bonds Typical fixed income strategies have been forced to change as they previously relied on returns on government bonds have dwindled down to almost nothing.

Fidelity International cross-asset investment specialist Anthony Doyle believes the role of fixed income, particularly bonds, within a multi-asset portfolio remain key due to their defensive characteristics.

The reason to own sovereign bonds, Doyle says, is that they perform best in a deflationary, recessionary type of environment.

“That’s an environment where generally equities and the growth portion of your multi-asset portfolio does really poorly,” he says.

“It’s just that you have to now factor in that returns are likely to be far, far lower from that defensive portion from that fixed income portion of your multi-asset portfolio.”

However, it is the expectations of bonds in a portfolio that need to be reset, rather than ridding them altogether.

As such, T. Rowe Price head of multi-asset solutions APAC Thomas Poullaouec explains the diversification properties of bonds are lower for two reasons.

“The cushion of return they can provide from lower yield is lower and it’s likely that the stock market risk will be sensitive to a rise in yields, making the correlation positive between yields and stocks during rising volatility (while you would expect that to be the opposite for diversification),” he says.

Aberdeen Standard Investments senior investment specialist Nick Schoenmaker04 shares Poullaouec’s sentiments and finds developed market government bonds unappealing.

“We have kept to low-duration bonds in gen-

Whenever there’s a lot of instability, multiasset funds hold their line with characteristics of low volatility and tend to preserve capital.

Amy Reed

15

eral, although we retain some high-yield and emerging market debt as proxies for growth yielding from 4% to 5% for US high-yield to 7% for Asian high-yield,” he says.

“Return prospects for developed market government bonds remain unattractive, with any offset in income likely to be minimal. As yields rise in the years ahead, we would expect long-dated bonds to offer negative total returns, yielding little more than cash but being subject to greater volatility.”

Schoenmaker says ASI will only re-enter developed market sovereign bonds when yields are at attractive enough levels to compensate for the risks of rising inflation and interest rates.

Pyrford International chief executive and chief investment officer Tony Cousins 05 sees things a little differently, arguing that sovereign bonds still have a large role to play in securing defensive returns in the BMO Pyrford Global Absolute Return Fund.

Cousins’ fund has 52% exposure to bonds with Australian, United States, United Kingdom and Canadian government bonds holding the highest exposure.

“Bonds are a place to potentially hide from equity market corrections which is why we own them. We protect the portfolio by having very short duration,” he says.

But he believes having short duration is key, guaranteeing safe returns from these bonds.

“If you buy a 30-year bond now you buy a duration of about 28 years because the coupons are so low. If yields go up by one percentage point, then you will lose about 25% of your money,” Cousins says.

According to Cousins, the risks in long duration bonds are too high and the upside reward is very low. In his fund, he is currently holding an average duration of 1.2 years.

“It’s skewed, it’s not symmetrical and that’s why we hold low duration assets,” he says.

Moving into alternatives When AMP Capital Multi-Asset Fund senior portfolio manager Matthew Hopkins 06 first started on the fund a decade ago, interest rates for bonds were hitting around 7% or 8%.

Now they are around 1.7% and the cash rate is nearing zero.

“In an asset allocation sense the benefit we were getting from fixed income has diminished massively as a diversifying asset,” Hopkins says.

As a result, the fund’s capital had to turn to high returning assets such as equities and various types of alternative strategies than it otherwise would have.

“Alternatives are more attractive given what’s been happening in markets overall and the growth in that sector,” he says.

Making up the alternative asset portion of the fund, Hopkins looks to hedge funds, co-investment arrangements, private assets including debt and equity and some alternative risk premia.

BMO Pyrford Global Absolute Return Fund (PER0728AU)

For wholesale investors only

We have three simple aims: • generate positive returns higher than inflation; • deliver these returns with low volatility; and • most importantly, not lose our clients’ money.

Past performance is not a guide to future performance.

A positive return is not guaranteed over any time period.

Capital is at risk and investors may receive back less than the original investment.

Visit us at bmogam.com/aus or call us on 02 9293 2804

© 2021 BMO Global Asset Management. All rights reserved. This document is issued and distributed by BMO Global Asset Management (Asia) Limited (“BMO GAM Asia”) in the conduct of its regulated business in Hong Kong. In Australia, BMO GAM Asia (ARBN 618067959) is exempt from the requirement to hold an Australian financial services license under the Corporations Act in respect of the financial services it provides to wholesale investors (as defined in the Corporations Act). BMO GAM Asia is incorporated in Hong Kong and authorised and regulated by the Hong Kong Securities and Futures Commission under Hong Kong laws, which differ from Australian laws. 1239052 (05/21) Investment involves risk. The value of investments and income derived from them can go up or down. Before investing, investors should read offering documents for further details including product features and risk factors. You should not make investment decision solely base on this material.

This material has not been reviewed by the Securities and Futures Commission.

18

Feature | Multi-asset

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

03: Dawn Thomas

04: Nick Schoenmaker

05: Tony Cousins

senior financial adviser Wealthwise Financial Planning

senior investment specialist Aberdeen Standard Investments

chief executive and chief investment officer Pyrford International

“The highest conviction area has been in US securitised mortgages. There has been a lot of dislocation in that space over the last few years,” Hopkins says.

“Those securities have had tremendous fundamentals – a very strong US housing market and very seasoned pools of borrowers underpinning those bonds.”

Schroder Investment Management head of fixed income and multi-asset Simon Doyle07 echoes Hopkins and says moving into alternatives is simply broadening and deepening the kind of fixed income exposure the firm is taking.

“We are dedicating more focus on exposures to Asian credit. We think the quality’s quite high, on balance and there’s a yield premium,” he says.

“Private markets and private debt are also things that we’re exploring, both in terms of sort of direct lending to small developers to real estate lending because a bit of a gap in the market and there’s some high yields there.”

Schroders had to lower its real return funds’ targets due to the low interest rates and bond yields and the impact of the pandemic on economies around the world.

The Schroder Real Return CPI Plus 3.5% is now the Schroder Multi-Asset Income Fund and has changed its return objective from CPI plus 3.5% per annum to return between 3% to 4% above the Reserve Bank of Australia’s target cash rate before fees over rolling three-year periods.

The asset class mix has changed from 0% to 50% growth to 0% to 30% while diversifying assets and defensive assets remain the same. The distribution frequency has also changed from quarterly to monthly.

Schroders’ Doyle justifies the move, knowing the lending is secured and is relatively short dated on the investments he is making.

“We’re sort of managing that risk quite carefully through the structure of those investments,” he says.

The issue of liquidity An issue for multi-asset that arises from private markets is illiquidity and the ability to move into those is capped by liquidity constraints on the fund.

“As with anything in multi-asset as long as you’re harvesting the benefits of diversification, and you have an appropriate level of liquidity within your strategy, it can make sense to allocate more to private debt, or to less liquid parts of the investment universe, but it’s no alternative to government bonds,” Fidelity’s Doyle says.

AMP Capital’s Hopkins’ fund has a liquidity cap of 20%. He and his team will find less liquid assets and will be capped out at less than 10% of net asset value.

The liquidity of alternatives poses an issue for Pyrford’s Cousins who is not currently invested in any but would only do so through a listed vehicle.

“At times of crisis liquidity just dries up, it

evaporates. We saw that last year, in the corporate bond market when it was very difficult to sell and there was only one buyer in the market that came into to the rescue – the US Federal Reserve,” he says.

Schoenmaker agrees and highlights that, while private equity and private debt have demonstrated lower volatility than bonds, neither offers a “free lunch”.

“They may justify a place in portfolios, but investors need to identify the best managers and be able to engage with them proactively. The liquidity risk of investing in private markets is noteworthy for wholesale investors especially,” he says.

In ASI’s multi-asset strategies the firm invests in listed alternatives such as music royalties, healthcare royalties and litigation finance.

“These have different performance drivers to equities, bringing portfolio diversification benefits. They tend to have more of an income focus, too,” Schoenmaker says.

“Listed alternatives give individual investors access to assets that typically have only been accessible to the world’s largest institutions until now.

This has increased the scope for individual investors to build genuinely diversified portfolios.”

Over the long term, Schoenmaker sees the performance of listed alternatives being driven by the consistency of cash flows generated by their investments. “[…] regardless of whether those come from properties, wind farms, specialist credit assets or private equity or debt, for example,” he says.

Elsewhere, Pendal’s Blayney also doesn’t invest in private market assets at all as the fund has daily liquidity to its end investors.

The issue, Blayney says, is that private assets can smooth returns due to infrequent valuations.

Schoenmaker agrees: “While they might look less volatile on paper, it is largely because of a different accounting or valuation technique: they don’t price on a daily basis.”

“Using private assets can be useful to dampen daily volatility on paper but that’s merely hiding the true volatility of these assets.”

Multi-asset in super Institutional investors favour multi-asset strategies for their consistent returns and liquidity in a low interest rate environment.

Multi-asset is popular among endowments, charities and superannuation funds. But within the superannuation universe, super funds, by definition, are multi-asset funds themselves.

Sunsuper head of portfolio strategy Andrew Fisher08 says the super fund implements externally managed multi-asset funds and separately managed accounts for two benefits: diversification and expanded knowledge.

“When implemented successfully, they provide a diversifying source of active returns to the fund improving outcomes for members,” Fisher says.

“In addition, by working with external multi-

Our multi-asset investments were used for liquidity purposes during ERS. Andrew Fisher

asset managers, we can expand our knowledge base and leverage the insights that we receive from our multi-asset managers to improve outcomes across our fund.”

Fisher anticipates that while multi-asset will continue to play a role in the fund’s investment strategy, Sunsuper will look to internalise investments. “[…] our growing scale will lead us to have less exposure to external multi-asset investments with our internal multi-asset expertise playing a more significant role in adding value for members through asset allocation,” he says.

AMP Capital’s Hopkins has several superannuation funds invested that use the multi-asset fund largely for its diversified qualities.

“Because the fund is quite diversified itself, superannuation investors tend to use it as a core component of their portfolio and that will be in various sizes,” he says.

“But the features of our fund, which is targeting strong real returns, play into members around 15 to 20 years away from retirement.”

Pyrford’s Cousins is also targeting pre-retirees with the opportunity to make positive real returns while protecting the capital base from significant declines in value.

“It isn’t going to shoot the lights out, but it will generate steady increases in total returns,” he says.

“The very important thing is, we will never generate huge drawdowns and that’s particularly important for people in retirement or approaching retirement, as sequencing risk poses a greater threat for investors.”

On the other hand, Schroders’ Doyle found that his superannuation clients turned to multiasset to raise cash and fund liquidity requirements instead of selling equities after they fell upwards of 40% in 2020.

“They also couldn’t sell their private market exposure, so they looked at strategies like ours to provide that liquidity,” he says.

Sunsuper did just that, turning to multi-asset for liquidity management during the early release of superannuation scheme.

“Our liquidity management assessed the needs of the fund and liquidity conditions in the market to choose the optimal liquidity sources and our multi-asset investments were used for liquidity purposes during the early release of super scheme (ERS),” Fisher explains.

However, Schroders’ Doyle has found the most pressing issue for external multi-asset strategies in super, particularly for his clients, is how they will fit within the Your Future, Your Super performance benchmark.

“Multi-asset doesn’t fit neatly into the performance benchmark. Clients are trying to figure out how to assess the performance of multi-asset against the benchmark requirements that have been laid out,” Doyle says.

“It’s still a bit up in the air as to where it’s going to land.”

Fisher agrees and says an important factor when considering YFYS is how to manage any

Multi-asset | Feature

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

06: Matthew Hopkins

07: Simon Doyle

08: 09: Name Andrew Fisher

senior portfolio manager AMP Capital

head of fixed income and multi-asset Schroders

title head of portfolio company strategy Sunsuper

potential misalignment between the objectives of a multi-asset investment and the benchmark that it will be measured against.

“One option is to adjust and align the multiasset strategy to the YFYS benchmark or alternatively asset owners can engage through regular asset allocation reporting and seek a more representative benchmark,” he says.

The new fixed income As the yields on government debt remain so low and are unlikely to compensate for the risks of inflation or rising inflation moving forward, investors are moving out of fixed income and into asset classes that can generate higher returns.

Fidelity International’s Doyle says he is seeing this happen increasingly offshore where investors are looking at volatility managed multiasset strategies.

“Defensive multi-asset portfolios that have a higher weighting to defensive-type equities is one area that I think will be an increasingly attractive opportunity for investors in a low yield, low return world,” he says.

Taking this further, Schroders’ Doyle believes multi-asset could be the new fixed income.

“If you think about fixed income being cash, government bonds, credit, private debt and so on, they all have very different characteristics so in a way they are multi-asset. The only thing missing is equities,” he explains.

“Investors generally hold fixed income to diversify equity risk to generate a bit of an anchor within the portfolio.”

However not all multi-asset strategies can play that role, but funds that focus on a consistent rate of return and mitigate drawdowns can play a similar role to fixed income and have benefit of flexibility.

“Markets don’t move in straight lines and in three months a manager might want a lot of duration again. Multi-asset funds that have that flexibility to manage that interest rate risk and the credit risk,” Schroders’ Doyle says.

“They’re actually quite important sources of return and important ways to manage risk in a portfolio and the objective based strategies can do what investors expect their fixed income allocation to do.”

Like Doyle, Russell Investments multi-asset portfolio manager Daniel Choo says that it comes down to the client’s objectives as multiasset typically offers higher returns along with higher levels of volatility.

“Multi-asset strategies have some equity exposure and income focused multi-asset strategies will likely have exposure to Australian shares, which provide income through dividends,” he says.

“Income focused multi-asset strategies can opportunistically tilt between credit and defensive alternative markets, which may provide higher income and returns along with higher volatility compared to bonds for the foreseeable future.”

Yet ASI’s Schoenmaker thinks differently and doesn’t necessarily believe that multi-asset is a replacement for fixed income but understands that investors are concerned that bonds can no longer fulfil their defensive role in portfolios.

“Many [investors] are concluding they need to hedge their risk exposure by investing in assets negatively correlated with equities. In this instance, we advise clients to invest in instruments that explicitly set a negative equity correlation target,” he says.

“Through dynamic allocation we seek to perform positively during volatile markets and reduce the cost of protection when markets are rallying.

“The total return is negatively correlated to equities, with an exponential pay-off in down-markets, which we call ‘crisis alpha’. We also focus on minimising any drag on our portfolio in bull markets or environments when volatility is benign.”

Meanwhile, First Unity’s Reed also thinks that fixed income will always play a role in a portfolio but is aware that the returns are not and will not be the same as they used to.

“Whereas multi-asset funds can hold a stable positive return. It is giving investors the fixed income returns that they were used to in the past,” she says.

The value of equities The resurgence of value has emerged as one of this year’s biggest investment themes and multiasset managers have not shied away from it.

Hopkins says equity markets are currently very expensive in an absolute sense but have tremendous earnings growth and to mitigate this, value has come to the forefront.

“With inflation likely to increase companies with pricing power and those with operating leverage tends to be broadly cyclical and value type companies have definitely been the place to be,” he says.

“We’ve reflected that in different ways as well.

We’ve held overweight positions to some of our value managers which have done very well and held specific positions in places like US banks which had tremendous upside coming out of the pandemic.”

Meanwhile, Pendal’s Blayney has a narrower lens when it comes to equities and is focusing exposure on small caps in emerging markets and niche instruments like dividend futures.

“We have maintained some equity exposure but less than usual. Things got really beaten up a year ago, so we think our exposure is a really interesting way to play the recoveries,” he says.

Schoenmaker is also tilting his portfolio to cyclicals with holdings areas such as commodity producers, financials, industrials and consumer discretionary.

“Australia’s subsequent recovery has also emboldened businesses to invest – providing support to those segments,” he says.

Following on from this, Cousins says he is very wary of tech because the valuations are so stretched.

Quite frankly if you buy companies that consistently deliver a high level of return on equity at the right price, you’re backing winners.

Tony Cousins

19

“Equities will be the best-performing asset class that we can invest in, provided you buy them when they’re good value and that’s being stretched very much at the moment,” Cousins says.

However, he prefers to take a geographical stance to investing and is currently finding the best opportunities in Asia.

“One of the themes that’s been prevalent in our equity portfolios for many years is the inexorable rise of Asia ex Japan. It has the same trend or potential growth rate as the US had in the early 1960s,” he says.

“That is driven by superior fundamentals and better demographics. It’s not everywhere but in most of Asia ex Japan, demographics are significantly superior to the rest of the developed world as well as stronger productivity growth.”

Yet Cousins believes an MSCI sector index such as materials includes widely disparate companies.

“It includes steel stocks, bulk chemicals, paper stocks, but it also includes things like industrial gases and flavours and fragrances which have totally different fundamentals driving them,” he says.

Instead, Cousins prefers to focus on the fundamentals driving a business and whether a business can generate an above average return on capital profitability.

“Quite frankly if you buy companies that consistently deliver a high level of return on equity at the right price, you’re backing winners,” he says.

The case for multi-asset Investors that rely on index funds or 50/50 funds have had a terrific tailwind for the last few years from bond rates coming down towards zero but time is running out, according to Hopkins.

“They are picking up some yield or low yield, but they’re also capitalising all those forward returns from bonds, but you can only race to zero once,” he says.

They’re also capturing the concentration in indices on the equities side if you think about the S&P 500, the top five stocks went up around 20% and that was enhanced by their valuations being improved by those lower insurance rates.”

But that has now run its course and Hopkins explains investors in an index fund are facing a point where they have a large concentration of expensive stocks and bonds that aren’t yielding very much.

“Looking forward, multi-asset funds have a much better, more flexible and more attractive path out of that,” Hopkins says.

Schoenmaker echoes this and says even now investors still retain a growth mindset born of the past decade.

“We don’t think a basic blend of bonds and equities will drive returns the way it once did.

Low interest rates have rendered bonds and equities expensive, suggesting investors need to diversify into alternative assets with differing drivers of return,” he says.

“Now is the time to consider the risk-adjusted return potential of a 21st century multi-asset portfolio.” fs

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News

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

ERS applicants $3100 worse off

01: Kate Farrar

chief executive LGIAsuper

Karren Vergara

Members who raided their retirement savings as a result of the early release of superannuation scheme could have been $3100 better off than if they had kept their balance intact, new research reveals.

The McKell Institute, a thinktank, found that over three million Australians who took advantage of the scheme lost out from the rapid recovery of the economy and share markets.

Most super funds have now recovered up to 20% of their assets as a result of the V-shaped recovery.

A member who withdrew the maximum allowable amount of $20,000 has foregone $3164 of additional savings, the institute found, and in order to restore this amount of money they will need to make extra voluntary contributions.

In total, super funds released $36.4 billion during 2020. Most of this went towards the rent or mortgage, and household and credit card bills.

According to the Australian Bureau of Statistics, the average withdrawals were $7728 and $7536 across the two tranches.

The institute said in retrospect, the government should have offered a more targeted assistance program to those in need, rather than giving them the option of using their super.

The government should have enforced with banks, landlords, lenders, financial services and utility companies to offer deferred payment schemes to all customers, McKell further suggests.

“The banks themselves offered mortgage holidays, and State governments implemented moratoriums with regards to residential tenancy.

However, more should have been done to avoid the necessity of Australians withdrawing from their super,” the institute said.

“Even if Australians were able to take out a loan in 2020 with an (astronomical) interest rate of 10%, this would have resulted in less foregone personal wealth than the early access to super scheme.” fs

Pinnacle affiliates reach $85bn AUM In an update to investors, the ASX-listed firm announced robust end of April 2021 results thanks to a combination of investment performance and $9.9 billion of new inflows, most of which came from institutional investors.

About $1.2 billion new money came from new offshore accounts secured for seven affiliates across public and private pension plans, sovereign funds, endowments, wealth managers and insurance companies across the North America, EMEA and APAC regions “International markets offer large, diverse addressable markets for our affiliate capabilities,” Pinnacle told investors.

Pinnacle’s management team has spent over a decade building global investor networks, strategies and infrastructure, it said, adding that investment consultant ratings, offshore fund infrastructure and time-zone centric distribution are well in place to underwrite future growth.

FUM for the retail channel hit $19.3 billion at the end of the month, growing from $16.7 billion at the end of December 2020. fs

LGIAsuper reveals postmerger executive lineup Jamie Williamson

I

The quote

Our approach to selecting our new ELT was rigorous and involved a closed merit process to ensure a fair and transparent decision took place.

n an update on the progression of its merger with Energy Super, after already announcing Kate Farrar as chief executive of the merged fund, LGIAsuper has confirmed the team that will support her from July 1.

In a statement to Financial Standard, LGIAsuper chief executive Kate Farrar01 said: “Our approach to selecting our new ELT was rigorous and involved a closed merit process to ensure a fair and transparent decision took place.”

“We are fortunate to have an exceptionally talented, motivated team, and I am very optimistic about the future for our people, our fund and our members under the stewardship of our leaders and their teams.”

Moving over from Energy Super is general manager, member services Lisa Kay, general manager, customer insight and product Sean Marteene, and general counsel and fund secretary Hamish McKellar.

Kay will take on the role of chief experience officer, while Marteene has been appointed chief transformation officer. McKellar will remain in the same role following the merger.

As for the other roles, Troy Rieck is staying on as chief investment officer, a role he has held since September 2019.

Likewise, Shawn Chan will remain as chief risk officer, having joined the fund as head of risk in October 2018 before being promoted to his current role in October 2019.

Also remaining in their roles are LGIA’s chief financial officer Grant Hollier and Ivan Ortiz as chief technology officer. Andrea Peters will also remain as chief growth officer.

Energy Super’s chief investment officer Kevin Wan Lum will become LGIAsuper’s deputy chief investment officer.

Energy Super’s chief financial officer Phil Hagen, LGIAsuper’s chief operating officer Eleanor Noonan and its general counsel Shelley Sorrenson are not listed among the new executive team. However, Farrar said the fund’s commitment to no redundancies before 30 June 2022 remains.

In terms of the fund’s board of directors, it will comprise 15 members until 31 December 2022 with three employer and three member representatives, and three independent directors including an independent chair. From 2023, it will reduce to nine directors, with four employer and four member representatives and one independent director.

LGIAsuper chair John Smith is one of the independent directors, along with Ronald Dewhurst and Peter Kazacos.

Ray Burton, Rosamund Heit, Jennifer Sanders, Neisha Traill, Jennifer Thomas and Scott Wilson have been appointed as member representatives. Meanwhile, the employer representatives are Teresa Dyson, Richard Flanagan, Greg Hallam, Mark Jamieson, Christine Maher and Cameron O’Neil. fs

Former van Eyk chief charged The former chief executive of failed van Eyk Research has been charged with four counts of dishonestly using his position within the firm for personal advantage.

Mark Thomas appeared in Downing Centre Local Court facing several allegations from ASIC. Thomas was chief executive of van Eyk - and its largest shareholder - until its collapse in September 2014. van Eyk comprised four distinct businesses: investment research via the van Eyk Research business; asset consulting via the van Eyk Consulting business; financial advisory via the van Eyk Advice business; and funds management via the van Eyk Blueprint Series business.

The allegations made by ASIC relate to his conduct as an officer of the company over an almost three-week period in early 2014.

The regulator alleges that between 31 January 2014 and 20 February 2014, Thomas facilitated a near-$5 million investment from Blueprint Investment Management Limited (BIML) while also a director of BIML. He also used his positions to conceal from the trustee of the Blueprint CashPlus Fund and the Blueprint Australasian Income Fund (collectively the BIML Funds) “reasonable detail of the

BIML investment and its purpose”. He did so while knowing that the funds from the BIML investment would be loaned to TAA Melbourne Pty Ltd (TAA) to purchase an interest in van Eyk Research to prevent a third party from obtaining a majority shareholding in van Eyk Research, ASIC said.

ASIC further alleges that Thomas used his position to facilitate and instruct another company to rebalance two van Eyk funds into a separate fund (the Rebalance Investment). He also concealed reasonable detail of the Rebalance Investment while knowing it was to fund the acquisition of the TAA loan, thereby blocking a third party from investing van Eyk. ASIC also said that, as a director of Three Pillars Portfolio Managers, enabled the acquisition of the TAA loan, “concealing reasonable detail of the investment and its purpose and misrepresenting that there was no impediment or material conflict”.

ASIC alleges that Thomas knew the purpose of the acquisition of the loan, which was directed to maintaining ongoing control of van Eyk Research.

Thomas is facing fines of up to $340,000 or up to five years in prison per count. fs

News

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

21

Products 01: Shannon Bernasconi

Platform cuts fees A specialist managed accounts platform has cut the administration fee on its superannuation offering.

Wealth02 lowered the admin fee on its Super Simplifier by 3.3 basis points, capping fees at $1760 per member or $3630 across six family members.

The company said the fee cut is in response to more advisers adopting Super Simplifier, which is a tool for SMSF management.

“This fee reduction, coupled with no minimum fee, makes Super Simplifier a very cost-effective product for those advisers looking to provide a market leading advice offering for super and pension clients, as well as provide a profitable service to the typically lower balance adult children of existing clients,” Wealth02 managing director Shannon Bernasconi 01 said.

“Super Simplifier gives members the personalisation, transparency and flexibility of an SMSF but for a fraction of the cost. It is the only a low cost offering of its type in the market and offers full transparency of assets through the use of the HIN structure and managed accounts.”

She argued that the business is contributing to price pressure on platform offerings, which she hopes will lower the cost of providing advice and increase practice profitability.

“Platforms that haven’t kept up with the latest developments in technology have a higher cost of operation that is often recouped through hidden or layered fees. Hence the newer investment platforms like WealthO2 that don’t rely on cash fees, MER uplift or SMA fees for revenue, can lower the overall cost to the client even further,” Bernasconi said.

PPS Mutual launches member offer Mutual life insurer PPS Mutual has launched a timesaving underwriting offer for existing members to add cover to their policy.

Members who have a current income protection policy with PPS Mutual can now apply to add or increase life, total and permanent disability (TPD) or trauma cover without providing medical evidence.

Under this offer members can receive maximum life cover and TPD cover of up to $3 million, TPD and trauma cover of up to $1.5 million.

Cover amounts higher these would be subject to a full application and underwriting.

PPS Mutual head of underwriting and claims management Marcello Bertasso said the offer is the latest commitment to improving and innovating PPS Mutual member experience.

“Reducing the time and effort of providing mandatory medical evidence is part of our mission to remove ‘underwriting friction’ where possible and optimise our members’ experiences,” Bertasso said.

“This offer aligns with our mutual based value of putting our Members needs front and centre, whilst simultaneously maintaining a sustainable approach to our overall risk pool.”

Jarden gets market participant licence Jarden has been admitted as a market participant to the ASX and the Chi-X. The investment and advisory firm said the admission accelerates the growth of its institutional equities franchise in Australia.

Jarden has appointed ABN Amro as its clearing and settlements partner.

“The fact that our first direct trades are being executed today is a testament to the skills of our team, who have worked tirelessly over the past six months to meet all the strict regulatory requirements relating to the ASX and Chi-X admission about governance, policies, procedures and people,” Jarden Australia chief operating officer Tim Keegan said.

Jarden Australia chief executive Robbie Vanderzeil said the licence is a strategic milestone and underlines Jarden’s long-term commitment to Australia.

Members with income protection issued on or after 1 July 2019 (where loadings do not exceed +100% extra morbidity) will qualify and is applications are available between 1 May 2021 and 30 June 2022.

In December, PPS Mutual removed several assessments to its medical and financial underwriting requirements to speed up the application process and benefit members.

Members of all ages are no longer required to test for Hepatitis B, Hepatitis C and HIV when applying for life insurance of up to $20 million, total and permanent disability of up to $5 million, trauma insurance of up to $2 million and income protection of up to $30,000 per month.

New responsible ag fund seeks $300m Brisbane-based Australian cattle property investment manager Packhorse has launched the Packhorse Pastoral Company Australia (PPCA), a regenerative agri-business that is aiming to raise $300 million that will go towards restoring Australia’s rural land and in turn support the local beef industry.

PPCA is aiming for an internal rate of return between 8% to 10% per annum and is open to Australian investors only.

The minimum investment amount for wholesale and institutional investors are $100,000 and $10 million respectively with an investment horizon of 25 years.

PPCA is led by chief executive Geoff Murrell, who previously was the general manager of Macquarie Bank’s Paraway Pastoral Company Northern Operations based in Orange, New South Wales, while Tim Samway02 acts as chair.

Samway told Financial Standard that the fund’s mission is to build and repair soil with the help of cattle, which are brought onto the land to restore grass, which will not only help with droughtproofing but reduce carbon dioxide omissions on a mass scale.

Packhorse also typically buys property, similar in the way Westfield invests in property, by upgrading it, rents it out and then receives rental income, he said.

Samway described the strategy as a “virtuous circle” whereby the investors and environment both benefit, adding that Europeans investors are increasingly demanding that their Australian investments are either demonstrating they are working toward minimising reducing carbon footprints or becoming carbon neutral.

Samway, who is also the chair of Hyperion Asset Management, said the exciting upside for investors is the fund’s commitment to engage in large scale programs to sequester carbon in the soils and generate carbon credits and sell them to those seeking to offset their carbon emissions.

The carbon credits market is tipped to be worth $8.25 billion by 2027, he said.

ECPI draft legislation released The government has introduced exposure draft legislation to reduce red tape for super funds

02: Tim Samway

when calculating the exempt current pension income (ECPI).

The minister for financial services, superannuation and the digital economy Jane Hume said the draft legislation simplifies reporting obligations and streamlines administrative requirements for ECPI. Fund trustees can choose their preferred method of calculating ECPI where the fund is fully in the retirement phase for part of the income year but not for the entire income year.

The legislation will also remove the requirement of obtaining an actuarial certificate when calculating ECPI using the proportionate method.

“These reforms will reduce costs and simplify reporting for affected superannuation funds,” Hume said.

The changes to ECPI were first flagged in the 2019/20 budget and submissions on the consultation are open until June 18.

It comes after the government released the draft legislation for the Your Future, Your Super reforms in late April.

This included administration fees on the performance benchmark for funds also added Australian unlisted infrastructure and unlisted property as specific asset classes.

Hume later said the inclusion of the administration fees will not punish funds that reduced fees in recent years.

“This isn’t about industry funds versus retail funds.

It is simply about underperformance,” she said.

Charter Hall grows portfolio by $800m Charter Hall has secured a $790 million portfolio, comprising the Services Australia building in the ACT’s Tuggeranong, Australian Taxation Office buildings in Box Hill, Victoria and Albury, New South Wales, and the Australian Red Cross building in Alexandria.

The portfolio is to be owned by Charter Hall Direct funds and the Charter Hall Long WALE REIT. The latter will own 50% of each asset, with Direct funds owning the other half. The Charter Hall Direct Office Fund will own Tuggeranong and Box Hill, Charter Hall Direct PFA Fund will own Albury and the Charter Hall Direct Industrial Fund No.4 will own Alexandria.

The portfolio boasts an average WALE of 9.1 years with fixed annual rent increases of between 3.5% and 4% per annum.

The acquisition brings Charter Hall’s office portfolios to more than $23 billion. In total this financial year, Charter Hall has added about $7 billion via acquisitions.

“We continue to deliver on the long WALE and government lease thematic that Charter Hall has pursued for many years which, in the current environment of low interest rates and the focus on secure and growing income streams, provides attractive risk adjusted returns to both our listed and unlisted fund investors,” Charter Hall managing director and group chief executive David Harrison said. fs

22

Events | CMSF 2021

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

Conference of Major Superannuation Funds 2021 After a year’s absence, the Australian Institute of Superannuation Trustees Conference of Major Super Funds (CMSF) returned with an event in Adelaide and more than 500 super professionals in attendance. Elizabeth McArthur and Kanika Sood write.

Kicking off the conference, Australian Institute of Superannuation Trustees (AIST) chief executive Eva Scheerlinck reflected on one of the key challenges superannuation funds faced in 2020 the early release of super program.

Presenting findings from new research, Scheerlinck said nearly seven in 10 Australians who dipped into their superannuation during COVID-19 are concerned the decision has made them less financially secure, according to a poll from the AIST. AIST also said one in four non-retired women who participated in the consumer poll did not have any superannuation savings at all.

The people who drained their accounts tended to come from lower levels of education, are currently unemployed or in low-income households.

“The legacy of this will last a lifetime. Australia must turn its attention to helping rebuild those balances, to ensure dignity in retirement for those who were made to choose between poverty now, or poverty later,” Scheerlinck said.

“Those who can least afford to lose their super now find themselves in the position of having to close the gap or end up retiring with the same meagre amount of super as their grandmothers

did. We simply must not condemn another generation of women to poverty in retirement.”

In all, nearly 3.5 million Australians withdrew about $36.4 billion from their superannuation accounts across the two tranches of ERS, which the government used as part of its economic revival package.

Scheerlinck’s speech also called attention to four other areas of change in superannuation: the increase of the superannuation guarantee to 12%, the gender super gap, Treasury’s proposed changes to proxy voting, and the Your Future, Your Super reforms’ “ministerial powers” to ban investments.

She noted that while the superannuation guarantee (SG) will increase to 10% from July 1, the government hasn’t publicly affirmed its commitment to 12% as legislated.

Introducing the Terra Carta Appearing in a prepared video, Prince Charles discussed the latest work from his Sustainable Markets Initiative, Terra Carta.

Terra Carta is described as a charter, which Prince Charles wants institutional investors worldwide to sign up to. He appealed directly to

We simply must not condemn another generation of women to poverty in retirement.

Eva Scheerlinck

the super funds at the conference to give their support to the Terra Carta.

The charter outlines a series of commitments that supporters of the Terra Carta must adhere to.

These include recognising the urgency of climate change, considering diversity and acknowledging the need to reach net zero carbon emissions by 2050.

In total, the Terra Carta has 10 articles and almost 100 actions that the Prince says will put “nature, people and planet at the centre of value creation”.

“We want signatories to work to ensure that investment and financial flows are consistent with a low carbon and nature - positive future,” Prince Charles said.

Leadership lessons Following Scheerlinck and the Prince of Wales, retired governor general Peter Cosgrove offered some words of advice to corporate Australia on the role of boards and leaders.

Cosgrove delivered a speech on leadership strategies through good times and bad, drawing on his military experience.

Corporate boards should be the chief executive’s “strap-on brain”, Cosgrove said.

CMSF 2021 | Events

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

“You’re like a nurse attending a needy patient, you’re not necessarily intervening all the time, but you are constantly monitoring the vital signs of the company,” he said of the role of boards.

He added: “In business, integrity is just as important as in any public office.”

Touching on corporate leaders who have had their integrity brought into question through the media and in the public, Cosgrove empathised with their situation but said it’s all part of being a leader.

“We do create tall poppies in Australia, and we take a little bit of delight in cutting them down,” he said.

“Leaders are constantly faced with concern and nervousness. They must therefore create a culture which is confident and energetic.”

Trustee of the Year announced Sue Dahn was announced as the recipient of the AIST Trustee of the Year Award.

She is currently a trustee director at Spirit Super and was the chair of the investment committee at MTAA Super prior to its merger with Tasplan.

She has 20 years of experience as a nonexecutive director. She is also a financial adviser at Pitcher Partners and has topped the Barron’s list and appeared in the FS Power50.

“While your intellect, expertise and skill as a professional investor has secured some fantastic results...I think it’s been your steadfast resolve to ensure that decisions are made for the right reasons, with more than a healthy dose of respect for good governance practices that has impressed me the most,” Spirit Super chief executive Leeanne Turner, who has worked with Dahn since 2012, said.

Spirit Super chair Naomi Edwards said working with Dahn was one of the best parts of the merger.

Meanwhile, former MTAA Super chair John Brumby credited Dahn with steering the fund’s investments towards sustainability and changing its asset allocation.

Dahn also serves on the board of AIA Australia, Australian Communities Foundation, Victorian Traditional Owners Funds Limited and the investment committee of Trinity College at the University of Melbourne.

Rehab fears Life insurers offering rehabilitation services to policyholders has its demerits, says Super Consumers Australia director Xavier O’Halloran.

Speaking at a panel on the future of life insurance in Australia, O’ Halloran said while insurers getting into rehabilitation can help, two key concerns remained.

“Obviously there is a financial incentive as well in terms of being able to reduce the claims level,” he said. “...We want to make sure that we’re not just doubling up on a bunch of... health insurance.”

O’Halloran said the ideal solution to sustainability of life insurance may be akin to the New Zealand model, where there are incentives to control costs.

In other solutions, Aware Super chief executive Deanne Stewart said better data on members may potentially bring down premiums, while the Design and Distribution Obligations legislation will force superannuation funds to strip their insurance offers of anything that is not needed.

Merger stress revealed With consolidation in the superannuation industry not slowing down, those who’ve been through a merger have revealed the anxiety, job losses and workload involved.

Speaking on a panel, Spirit Super chief executive Leeanne Turner revealed what it was like bringing MTAA Super and Tasplan together recently.

She also said Spirit Super is “open for business” when it comes to the possibility of merging with more funds.

“It is absolutely in our strategic plan to do more but what we’ve undertaken is a very, very big merger and we need to settle for a little while,” Turner said.

“Don’t underestimate how much work is involved.”

Spirit Super brought together what would become its board early in the merger process, creating a Joint Implementation Committee.

23

But this committee could only make recommendations and both MTAA and Tasplan’s boards would have to agree.

Turner admitted this resulted in one proposal being rejected by one board but conceded this was with good reason.

She also opened up about the anxiety within the funds from employees as their future plans shifted and redundancies were made.

“It is workers who make the merger happen, and you cannot underestimate how much work the merger is,” she said.

The way to Rebuilding brand super [differentiate The government’s early release of a super fund superannuation program hurt superannuation as brand] is not a category brand, according to Campaign Edge to do what the creative director Dee Madigan. banks do and Taking to the stage at CMSF, Madigan pretend you’re theorised that the early release of super response the customer’s friend but provide to COVID-19 might not have just hurt super funds’ funds under management, but the brand value.

Dee Madigan

reputation of super itself.

“Super was sacrosanct then we had the early release program. What happened after that? It’s raid super for domestic violence victims, raid super to buy a house,” Madigan said.

Madigan said the industry super sector had been slow in realising that the funds are competing against each other.

“The way to [differentiate a super fund brand] is not to do what the banks do and pretend you’re the customer’s friend but provide value,” Madigan said.

She said members don’t open their letters from super funds because there’s “three pages of text”, a lot of it is hard to understand and people don’t really know why they should care.

“Assume that the people out there don’t care about you,” was her blunt advice on the approach funds should take in building engagement. fs

Financial Standard was the official media partner of the Conference of Major Super Funds 2021.

24

International

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

BlackRock to operate in China China Banking and Insurance Regulatory Commission (CBIRC) has granted BlackRock CCB Wealth Management, which is owned by BlackRock (50.1%), China Construction Bank subsidiary CCB Wealth Management (40%), and Singapore investment firm Temasek, to begin operating in asset management.

The joint venture, which aims to meet demand from local investors for diversified asset management solutions and support the development of the local wealth management industry, will draw on BlackRock’s expertise in investment and risk management, China Construction Bank’s client base and distribution network and Temasek’s expertise, the firms said.

BlackRock’s chair and chief executive Laurence Fink said: “We look forward to partnering with China Construction Bank and Temasek to support China in building a sustainable ecosystem for investing. The Chinese market represents a significant opportunity to help meet the long-term goals of investors in China and internationally. We are committed to investing in China to offer domestic assets for domestic investors and look forward to creating a better financial future for more people.” fs

AMP loses KiwiSaver mandate

01: Martin Gilbert

chair AssetCo

New Martin Gilbert vehicle strikes first deal Jamie Williamson

A The quote

We believe that the next few years will see significant investment opportunities in the financial services sector as some of the pressures that the industry faces...force further, and arguably a faster pace of change.

Elizabeth McArthur

The New Zealand government’s review of default KiwiSaver providers has resulted in AMP not being reappointed.

New Zealand’s default retirement savings scheme KiwiSaver works by having a network of default providers which manage client money in balanced funds.

Under an overhaul of the default provider scheme aimed at slashing fees and improving returns, the number of default providers has been cut from nine to six.

This resulted in AMP, ANZ and ASB being cut.

Bank of New Zealand, Booster, BT Funds Management, Kiwi Wealth, Simplicity and Smartshares have retained their mandates.

AMP Wealth Management chief executive Blair Vernon said he was disappointed to not be reappointed as a default KiwiSaver provider.

“Our current default portfolio represents less than 7% of our total assets under management and around 3.5% of total revenue so this decision doesn’t have a major impact on our business or our commitment to KiwiSaver,” he said.

“We continue to invest extensively in the ongoing strengthening of our offer to clients and focus on supporting them to achieve a great retirement.”

Currently, AMP is “renovating” its KiwiSaver scheme after appointing BlackRock as key investment manager.

New Zealand finance minister Grant Robertson and consumer affairs minister David Clark said the changes were made to provide KiwiSaver account holders with better bang for their buck.

“The six default providers were selected because they offer the best value for money for their members in terms of lower fees and higher levels of service,” Clark said. fs

ssetCo, the new investment vehicle for the former co-chief executive of Aberdeen Standard, has made its first acquisition under its new business strategy.

Martin Gilbert 01 bought into AssetCo in January this year and joined as chair, alongside fellow Aberdeen Standard veteran Peter McKellar who serves as chief executive.

“We believe that the next few years will see significant investment opportunities in the financial services sector as some of the pressures that the industry faces from regulation, fee pressure, technology and changing client preferences force further, and arguably a faster pace of change. We believe that AssetCo can be a platform to make strategic investments across the sector and to bring active management to such opportunities,” Gilbert said at the time.

Consequently, in March AssetCo announced a change in strategy. Having previously been a provider of outsourced firefighting services, AssetCo confirmed it would now focus on asset and wealth management activities.

In its first major step since, AssetCo has acquired Edinburgh-based Saracen Fund Managers.

Saracen currently operates the TB Saracen UK Alpha Fund, TB Saracen Global Income and Growth Fund and TB Saracen UK Income Fund. In total the fund have £119 million in assets under management.

The fund manager is home to five investment staff, who will all stay on under the new owner-

ship. There will also be no changes to the way the funds are run.

Announcing the move, Saracen said: “It has become increasingly difficult for smaller boutiques to gain traction with larger managers.

With the backing of AssetCo, Saracen will be able to increase research capacity, distribution capabilities and fund offerings. This deal promotes continuity of all staff and no change to our philosophy and process for our funds.”

“This is a fantastic opportunity and we look forward to working with AssetCo in the years ahead.”

Both Gilbert and McKellar will now join the board of Saracen.

The acquisition will test AssetCo’s new strategy, having decided to abandon the emergency services business after the loss of its key contract in Abu Dhabi in 2018 and not winning any subsequent contracts.

“Saracen is a small fund management firm with great potential. Its business model, people and product offering are its key assets and are an ideal fit for AssetCo,” McKellar said.

“I’m looking forward to working with Graham and the team. Our focus will be on building on Saracen’s strong foundations, particularly the experience and expertise of its management team and their investment approach. We aim to grow the business through marketing its existing funds and over time broadening its product range to continue to meet the needs of customers.”

AssetCo also has a 5.85% share in River & Mercantile Group, which it acquired in February. fs

Female CFPs more invested in financial planning: Research Karren Vergara

A new survey reveals that women with the Certified Financial Planner designation are more focused on holistic yet detailed advice and can build client trust better than male counterparts.

The survey commissioned by the CFP Board of Standards found that female CFPs are more invested in the financial planning process, meaning they are detail oriented and provide written and comprehensive financial plans than male CFPs. The report, Building a diverse practice: The value of CFP certification to female advisers, which canvassed 400 US advisers, revealed that female CFPs tend to give more retirement and estate planning advice compared to male professionals.

The research comes off the back of the CFP Board wanting more women to enter the profession, hiring a director of diversity and inclusion to drive the initiative. In the US, 80% of advisers are male.

On average, female CFP professionals have given retirement

planning advice to 80% of their clients, while male CFP professionals have worked with 73% of clients on this topic.

Female CFPs are more satisfied with their careers (53%) compared to males (42%) and other female advisers who are not qualified CFPs (35%).

“Female CFP professionals are as likely as their male colleagues to generate the majority of practice revenue (68%) from fee-based investment management. This investment management style indicates that they are primarily working with clients as fiduciaries, acting in the best interests of their clients,” the report read.

“These findings make a compelling business case for increasing the number of women in the financial planning profession,” CFP Board chief executive Kevin R. Keller said.

“The study confirms that financial planning is a rewarding career opportunity, and that CFP certification is a must-have designation for women.” fs

Between the lines

www.financialstandard.com.au 31 May 2021 | Volume 19 Number 10

Federation AM awards mandate

25

01: Con Michalakis

chief investment officer Statewide Super

Annabelle Dickson

Federation Asset Management has selected an administrator for its Sustainable Australian Real Asset Trust (SARA).

Apex Group will provide fund administration, share registry and regulatory services to Federation’s SARA, which will invest in renewable energy projects, energy storage systems and sustainable infrastructure projects and developments across Australia and New Zealand.

SARA is targeting $750 million in capital commitments and launched in December 2020 with signed anchor commitments of around $75 million.

“There is an exciting growth opportunity in the Australian renewables sector as the transition to a low carbon economy gets underway. We are delighted to partner with longstanding Apex client, Federation, to support their innovative role in driving that transition,” Apex Group regional managing director – APAC Valerie Mantot-Groene said.

“By providing flexible and reliable fund administration solutions we will allow the Federation management team to focus on the job at hand: identifying and executing investment opportunities which will fuel the energy transition.”

Federation partner Stephen Panizza added: “We have received the high level of responsive service we have come to expect from Apex and have been particularly impressed by their local team who demonstrate extensive knowledge of the Australian regulatory requirements and closed ended structures and strategies.” fs

Loomis Sayles wins super fund mandate Karren Vergara

A The quote

We look forward to a long and productive partnership between Statewide Super, Loomis Sayles and Natixis Investment Managers.

n industry superannuation fund awarded a $180 million mandate to Loomis, Sayles & Company.

Statewide Super appointed Loomis Sayles for an asset-backed securitised strategy aiming to achieve returns of cash plus 2% to 3%.

Based in Boston, Loomis Sayles head of mortgage and structured finance Alessandro Pagani will oversee the mandate.

“We are so pleased to manage this mandate for Statewide Super and believe that Loomis Sayles’ proven expertise in securitised credit investing is an excellent fit for their investment needs. We look forward to a long and productive partnership between Statewide Super, Loomis Sayles and Natixis Investment Managers,” Pagani said.

Natixis is an affiliate of Loomis Sayles in Australia.

Natixis managing director and head of distri-

Rainmaker Mandate Top 20

bution for Australia and New Zealand Louise Watson said that the members of Statewide have access to a strategy specifically built to reflect the current low-rate environment.

Asset-backed securities are typically different forms of debt like mortgages, credit card debt and student loans, packaged up.

Loomis Sayles offers four strategies in mortgage and structured finance: core securitised, high yield securitised credit, investment grade securitised credit and pure agency mortgagebacked securities.

Statewide chief investment officer Con Michalakis01 said Loomis Sayles was awarded the mandate following a review of the $10.8 billion fund’s defensive alternatives asset class at the end of 2020.

Returns from is next to nothing and developed market sovereign bond yields remain low, he said, so by investing in this strategy the fund can generate some yield pick-up. fs

Selected international equities and bonds investment mandates appointed last two quarters

Appointed by

Asset consultant

Investment manager

Mandate type

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Kapstream Capital Pty Limited

Alternative Fixed Interest

25

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

ClariVest Asset Management LLC

Global Small Cap Equities

73

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

Other

International Small Cap Equities

69

Australian Catholic Superannuation and Retirement Fund

Frontier Advisors

ClariVest Asset Management LLC

Emerging Markets Equities

51

Citibank Australia Staff Superannuation Fund

Willis Towers Watson

Other

Global Equities (Hedged)

20

Citibank Australia Staff Superannuation Fund

Willis Towers Watson

Ardevora Asset Management LLP

Global Equities (Unhedged)

6

Construction & Building Unions Superannuation

Frontier Advisors

Mesirow Financial

Emerging Markets Equities

1

Construction & Building Unions Superannuation

Frontier Advisors

Mondrian Investment Partners Limited

Global Equities

Health Employees Superannuation Trust Australia

Frontier Advisors

Macquarie Investment Management Australia Limited

Global Fixed Interest

44

Health Employees Superannuation Trust Australia

Frontier Advisors

Macquarie Investment Management Australia Limited

Indexed Global Bonds

141

legalsuper

Willis Towers Watson

Other

International Equities

178

Local Government Super

Cambridge Associates; JANA Investment Advisers

Challenger Limited

International Equities

202

Prime Super

Whitehelm Capital

State Street Global Advisors Australia Limited

International Equities

168

Retail Employees Superannuation Trust

JANA Investment Advisers

Wellington Management Australia Pty Ltd

International Fixed Interest

Retail Employees Superannuation Trust

JANA Investment Advisers

Artisan Partners Australia Pty Ltd

International Equities

Retail Employees Superannuation Trust

JANA Investment Advisers

Macquarie Investment Management Australia Limited

Ethical/SRI Fixed Interest

Retail Employees Superannuation Trust

JANA Investment Advisers

JP Morgan Asset Management (Australia) Limited

International Fixed Interest

Retail Employees Superannuation Trust

JANA Investment Advisers

Other

Ethical/SRI International Equities

Sunsuper Superannuation Fund

Aksia; JANA Advisers; Mercer Consulting; StepStone

BlackRock Investment Management (Australia) Limited

Emerging Markets Equities

TWU Superannuation Fund

JANA Investment Advisers

T. Rowe Price International Ltd

Global Equities

Amount ($m)

1,260

1,101 260 15 1,343 28 151

Source: Rainmaker Information

26

Managed funds

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11 PERIOD ENDING – 00 MONTH 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

AUSTRALIAN EQUITIES

$m

% p.a. Rank

% p.a. Rank

% p.a. Rank

COMBINED PROPERTY

Bennelong Australian Equities Fund

576

6.3

2

13.6

1

11.2

3

Australian Unity Diversified Property Fund

Bennelong Concentrated Aust Equities

883

7.7

1

12.4

2

14.3

1

Greencape Broadcap Fund

723

2.9

5

11.2

3

10.3

Alphinity Sustainable Share Fund

162

-4.5

18

10.9

4

8.6

1,014

-3.1

13

9.9

5

AB Managed Volatility Equities Fund AMP Sustainable Share Fund

289

14.1

1

14.8

1

17.2

1

Investa Commercial Property Fund

5,946

7.0

3

12.6

2

13.7

2

5

Lend Lease Aust Prime Property Industrial

1,089

12.3

2

12.3

3

11.5

4

9

Lend Lease Aust Prime Property Commercial

5,154

5.2

4

11.4

4

12.7

3

9.0

6

DEXUS Property Fund

10,284

-0.4

7

8.1

5

10.8

5

15

-2.3

11

9.8

6

6.7

23

Resolution Cap. Global Prop. Sec. Series II

348

-5.6

8

7.8

6

5.4

14

406

0.4

7

9.3

7

8.6

11

AMP Listed Property Trusts Fund

119

-14.4

20

7.7

7

7.0

9

Aberdeen Standard Australian Equities Fund

46

-4.0

16

9.2

8

7.6

14

ISPT Core Fund

Chester High Conviction Fund

55

3.5

4

8.5

9

9

2.8

6

8.5

Greencape High Conviction Fund

SGH Australia Plus Fund Sector average

10

11.5

2

16,028

1.3

6

7.0

8

9.6

6

Quay Global Real Estate Fund

163

-11.7

15

6.5

9

5.5

13

Pendal Property Securities Fund

373

-16.3

26

6.5

10

6.3

11

450

-9.3

4.3

5.3

Sector average

1,244

-15.2

2.6

4.3

S&P ASX 200 Accum Index

-7.7

5.2

6.0

S&P ASX200 A-REIT Index

-21.3

2.0

4.4

INTERNATIONAL EQUITIES

FIXED INTEREST

Loftus Peak Global Disruption Fund

98

29.5

2

23.1

1

Principal Global Credit Opportunities Fund

173

13.1

1

7.1

1

6.3

1

Zurich Concentrated Global Growth

29

15.1

8

23.0

2

Macquarie True Index Sovereign Bond Fund

613

3.5

52

6.3

2

4.9

20

705

23.0

3

22.0

3

Legg Mason Brandywine Global Inc Optimiser Fund

45

12.2

2

6.3

3

BetaShares Global Sustainability Leaders ETF T. Rowe Price Global Equity Fund

3,830

21.5

5

21.1

4

14.9

1

Pendal Government Bond Fund

896

4.4

31

6.3

4

5.0

13

Franklin Global Growth Fund

301

21.9

4

19.9

5

14.7

2

Macquarie Australian Fixed Interest Fund

210

4.5

29

6.2

5

5.2

6

Apostle Dundas Global Equity Fund

979

12.4

13

18.5

6

11.5

8

Schroder Fixed Income Fund

2,353

4.6

27

6.2

6

4.9

18

99

10.1

16

18.4

7

12.4

4

UBS Global Credit Fund

118

8.3

3

6.2

7

6.2

2

367

9.9

17

17.7

8

11.5

9

AMP Capital Wholesale Australian Bond Fund

963

4.3

32

6.1

8

5.0

9

Nikko AM Global Share Fund Zurich Unhedged Global Growth Share Fund Evans and Partners International Fund

58

3.7

38

17.7

9

13.5

3

Nikko AM Australian Bond Fund

185

4.0

38

6.1

9

5.0

11

Zurich Global Growth Share Fund

198

10.3

15

17.6

10

11.6

7

Pendal Fixed Interest Fund

958

5.1

20

6.0

10

4.6

42

Sector average

728

2.4

10.4

7.9

Sector average

946

3.6

4.4

4.1

MSCI World ex AU - Index

5.8

11.4

10.0

Bloomberg Barclays Australia Breakeven

4.3

6.4

5.4

Note: The performance figures for diversified funds are net of fees, performance figures for sector specific funds are adjusted for fees.

Source: Rainmaker Information

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Brumbie

By Alex Dunnin alex.dunnin@ financialstandard .com.au www.twitter.com /alexdunnin

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Super funds

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11 PERIOD ENDING – 31 MARCH 2021

Workplace Super Products

1 year

3 years

% p.a. Rank

5 years

SS

% p.a. Rank % p.a. Rank Quality*

MYSUPER / DEFAULT INVESTMENT OPTIONS

27

* SelectingSuper [SS] quality assessment

Retirement Products

1 year

3 years

% p.a. Rank

5 years

SS

% p.a. Rank % p.a. Rank Quality*

PROPERTY INVESTMENT OPTIONS

Virgin Money SED - LifeStage Tracker 1979-1983

25.0

6

9.3

1

AAA

AMG Corporate Super - AMG Listed Property

41.0

2

9.6

1

6.7

8

AAA

UniSuper - Balanced

22.6

12

9.1

2

9.2

6

AAA

Prime Super (Prime Division) - Property

-4.0

34

8.4

2

15.7

1

AAA

GuildSuper - MySuper Lifecycle Growing

28.0

3

9.1

3

8.8

16

AAA

Sunsuper Super Savings - Australian Property Index

41.7

1

7.1

3

5.3

15

AAA

smartMonday PRIME - MySuper Age 40

25.6

5

9.0

4

9.5

4

AAA

FirstChoice Employer - FC Property Securities Select

39.0

3

7.0

4

5.4

14

AAA

Australian Ethical Super Employer - Balanced (accumulation)

19.3

29

8.9

5

8.4

23

AAA

Telstra Super Corporate Plus - Property

9.3

24

7.0

5

8.2

2

AAA

AustralianSuper - Balanced

21.7

14

8.6

6

9.5

3

AAA

Virgin Money SED - Australian Listed Property

38.7

4

6.7

6

AAA

LGS Accumulation Scheme - High Growth

24.6

8

8.5

7

9.8

1

AAA

Aware Super Employer - Property

19.7

18

6.7

7

7.0

5

AAA

Mine Super - Aggressive

28.5

1

8.5

8

8.9

10

AAA

REI Super - Australian Property

36.8

8

6.5

8

5.0

19

AAA

Lutheran Super - Balanced Growth - MySuper

20.6

20

8.2

9

8.8

14

AAA

LUCRF Super - Property

38.5

6

6.5

9

4.9

22

AAA

Vision Super Saver - Balanced Growth

20.7

19

8.2

10

8.8

12

AAA

Mine Super - Property

30.5

9

6.5

10

5.4

13

AAA

Rainmaker MySuper/Default Option Index

19.9

Rainmaker Property Index

21.9

7.3

8.1

AUSTRALIAN EQUITIES INVESTMENT OPTIONS

4.7

5.1

FIXED INTEREST INVESTMENT OPTIONS

UniSuper - Australian Shares

40.0

12

11.8

1

11.4

3

AAA

Australian Catholic Super Employer - Bonds

2.1

17

4.9

1

4.1

1

AAA

Vision Super Saver - Just Shares

41.4

4

11.6

2

12.7

1

AAA

GESB West State Super - Mix Your Plan Fixed Interest

1.0

26

4.1

2

3.5

3

AAA

Prime Super (Prime Division) - Australian Shares

43.5

2

11.2

3

11.6

2

AAA

AMG Corporate Super - AMG Australian Fixed Interest

2.3

14

4.0

3

3.5

2

AAA

ESSSuper Beneficiary Account - Shares Only

30.4

54

10.3

4

10.8

4

AAA

QSuper Accumulation - Diversified Bonds

2.5

12

3.6

4

3.1

14

AAA

CBA Group Super Accumulate Plus - Australian Shares

39.4

14

10.1

5

9.9

20

AAA

Intrust Core Super - Bonds (Fixed Interest)

4.1

5

3.6

5

3.4

5

AAA

AustralianSuper - Australian Shares

34.9

29

9.8

6

10.1

13

AAA

AMG Corporate Super - AMG International Fixed Interest

4.9

4

3.3

6

3.1

12

AAA

Aware Super Employer - Australian Equities

34.0

37

9.7

7

10.1

12

AAA

UniSuper - Australian Bond

-2.3

43

3.3

7

2.7

22

AAA

Maritime Super - Australian Shares

40.5

9

9.6

8

10.0

14

AAA

Mine Super - Bonds

-0.9

41

3.3

8

3.1

10

AAA

Sunsuper Super Savings - Australian Shares Index

33.4

42

9.5

9

10.1

11

AAA

StatewideSuper - Diversified Bonds

5.7

3

3.3

9

3.5

4

AAA

Vision Super Saver - Australian Equities

36.7

25

9.5

10

9.9

19

AAA

GESB Super - Mix Your Plan Fixed Interest

0.6

31

3.3

10

2.8

20

AAA

Rainmaker Australian Equities Index

36.8

Rainmaker Australian Fixed Interest Index

0.1

8.7

9.4

INTERNATIONAL EQUITIES INVESTMENT OPTIONS

2.7

2.0

AUSTRALIAN CASH INVESTMENT OPTIONS

Vision Super Saver - Innovation and Disruption

64.9

1

29.8

1

AAA

AMG Corporate Super - Vanguard Cash Plus Fund

0.5

6

1.4

1

1.6

1

AAA

UniSuper - Global Environmental Opportunities

61.1

2

22.6

2

19.5

1

AAA

AMG Corporate Super - AMG Cash

0.6

3

1.3

2

1.5

4

AAA

UniSuper - Global Companies in Asia

29.7

39

15.5

3

15.9

2

AAA

GESB West State Super - Cash

0.2

18

1.3

3

1.6

3

AAA

UniSuper - International Shares

38.2

13

14.2

4

14.9

3

AAA

Intrust Core Super - Cash

0.3

16

1.3

4

1.5

5

AAA

LUCRF Super - International Shares (Active)

32.1

29

14.2

5

13.4

10

AAA

NGS Super - Cash & Term Deposits

0.4

8

1.2

5

1.5

6

AAA

AustralianSuper - International Shares

27.2

47

14.2

6

14.3

7

AAA

Prime Super (Prime Division) - Cash

0.4

9

1.2

6

1.6

2

AAA

Equip MyFuture - Overseas Shares

37.8

15

13.2

7

14.6

5

AAA

Rest Super - Cash

0.6

4

1.2

7

1.4

9

AAA

Vision Super Saver - International Equities

42.9

7

13.0

8

14.6

4

AAA

ANZ Staff Super Employee Section - Cash

0.8

2

1.2

8

1.3

16

AAA

Intrust Core Super - International Shares

35.1

18

12.6

9

14.0

8

AAA

Sunsuper Super Savings - Cash

0.2

19

1.1

9

1.3

14

AAA

HOSTPLUS - International Shares

33.0

26

12.3

10

14.5

6

AAA

Telstra Super Corporate Plus - Cash

0.4

10

1.1

10

1.4

12

AAA

Rainmaker International Equities Index

30.2

Rainmaker Cash Index

0.1

10.4

11.7

Note: Tables include Australia’s top performing superannuation products that also have a AAA SelectingSuper Quality Assessment rating.

Investment options are sorted by their three year net performance results. All performance figures are net of maximum fees.

0.9

1.1 Source: Rainmaker Information www.rainmakerlive.com.au

28

Economics

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

Budget to secure the recovery

Monthly Indicators

Ben Ong

Retail Sales (%m/m)

-

1.32

-0.78

0.29

Retail Sales (%y/y)

-

2.22

9.09

10.61

9.74

137.24

22.42

5.05

11.06

13.55

A

ustralia’s economic recovery is now well underway and we must keep the momentum going … but, this pandemic is not over.

For as long as the virus persists, so will we. So tonight, we go further.”

This is according to Treasurer Josh Frydenberg, who on May 11 went further, announcing a spending splurge of around 74.6 billion in order secure Australia’s recovery.

There’s money, money and more money for almost every Australian to ensure that the country’s emergence from its first recession in nearly 30 years is sustained.

“You must spend money to make money.”

This quote, generally attributed to Roman playwright, poet and philosopher Titus Maccius Plautus (254 BC - 184 BC), along with Keynesian economics – that prescribes government intervention (spending) to mitigate the drop in aggregate demand in times of recessions to stabilise economic output – has put the Australian economy in good stead.

“Ahead of any major advanced economy, Australia has seen employment go above its pre‑pandemic levels. At 5.6%, unemployment today is lower than when we came to government … Australia’s fate could have been so much worse. The United Kingdom, France and Italy all contracted by more than 8%, Japan and Canada by around 5%. Australia, just 2.5%.”

“The strength in the domestic economic recovery is reflected in a stronger fiscal position, predominantly due to higher-than-expected tax receipts as well as lower-than-expected unemployment benefits.”

True that. The government’s underlying budget deficit might still be an eye-watering

A$161.0 billion (7.8% of GDP) this fiscal year but it’s a lot less (A$52.7 billion to be exact) than A$213.7 billion (11.0% of GDP) forecast October 2020. The budget deficit would have been much worse had the government not intervened, with worse economic outcomes. There would be more Australians out of work, more business closures, more crimes, etc. overall, a deeper and lengthier recession that’ll eventually come full circle in terms of higher government expenditure with the added cost of entrenched unemployment and scarred confidence among consumers and businesses.

Because of these, the following year will see the deficit reduced to 5.0% of GDP (from the 5.6% ratio predicted in October) and “and continue to improve over the forward estimates to $57.0 billion (2.4% of GDP) in 2024-25. Over the medium term, the underlying cash balance is projected to improve to a deficit of 1.3 per cent of GDP in 2031-32”.

Then again, so much spending would take its toll on Australia’s debt. “Net debt will increase to $617.5 billion or 30.0 per cent of GDP this year and peak at $980.6 billion or 40.9% of GDP in June 2025.”

Here’s Frydenberg’s final words: “…this budget secures the recovery and sets Australia up for the future. Tax cuts to put more money in people’s pockets. Business incentives to unleash a further wave of investment. New apprenticeships and training places to get more Australians into work.

A $110 billion infrastructure pipeline to build our nation’s future. And record funding to guarantee the essential services Australians rely on.” fs

Apr-21

Mar-21

Feb-21

Jan-21

Dec-20

Consumption

Sales of New Motor Vehicles (%y/y)

-3.55

Employment Employed, Persons (Chg, 000’s, sa) Job Advertisements (%m/m, sa) Unemployment Rate (sa)

-

70.71

88.67

29.47

46.35

4.68

7.78

7.46

2.74

8.56

-

5.62

5.83

6.34

6.59

Housing & Construction Dwellings approved, Tot, (%m/m, sa)

-

0.06

14.92

-10.64

16.53

Dwellings approved, Private Sector, (%m/m, sa)

-

17.39

20.11

-17.11

12.34

Survey Data Consumer Sentiment Index

118.78

111.80

109.06

107.00

AiG Manufacturing PMI Index

61.70

59.90

58.80

55.30

112.00 -

NAB Business Conditions Index

31.75

23.61

18.17

10.80

15.01

NAB Business Confidence Index

26.04

16.65

18.72

13.55

6.68

Trade Trade Balance (Mil. AUD)

-

5574.00

7595.00

9527.00

Exports (%y/y)

-

-5.61

8.58

1.72

-6.16

Imports (%y/y)

-

5.75

-4.19

-12.00

-13.23

Mar-21

Dec-20

Sep-20

Jun-20

Mar-20

Quarterly Indicators

7400.00

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

1.11

0.86

0.69

-0.35

2.19

CPI (%y/y) trimmed mean

1.10

1.20

1.20

1.30

1.70

CPI (%y/y) weighted median

1.30

1.30

1.20

1.20

1.40

Output

News bites

Federal budget Treasurer Josh Frydenberg announced a spending splurge of around 74.6 billion in order secure Australia’s recovery. The government’s underlying budget deficit might still be an eye-watering A$161.0 billion (7.8% of GDP) this fiscal year but it’s a lot less (A$52.7 billion to be exact) than A$213.7 billion (11.0% of GDP) forecast October 2020. The following year will see the deficit reduced to 5.0% of GDP (from the 5.6% ratio predicted in October) and “and continue to improve over the forward estimates to $57.0 billion (2.4 per cent of GDP) in 2024-25”.

US CPI inflation The US Bureau of Labor Statistics (BLS) reported that headline inflation rose by 0.8% over the month of April – the biggest increase since June 2009 and four times above market expectations for a 0.2% gain – taking the annual headline inflation rate to 4.2% (the fastest

rate since September 2008) from 2.6% in the previous month. Core inflation (all items less food and energy) rose by 0.9% in April – the largest since April 1982 – with the annual rate accelerating to 3.0%, nearly double March’s 1.6% rate. There is no denying that part of the jump in the annual inflation rate in April is due to base effects – both the headline and core CPI dropped by 0.7% in the month of April 2020. However, it’s also true that the re-opening of the US economy, pent-up demand and government handouts make consumers more willing to accept higher prices passed on by businesses that are paying higher costs due to continuing bottlenecks in the supply chain.

China economic activity China’s activity stats for April suggest that China is gradually coming off the low base comparisons of February and March 2020 when the coronavirus pandemic hit, prompting the government to impose draconian lockdown measures that virtually froze social and business activity. The National Bureau of Statistics (NBS) reported that China’s retail sales grew by 17.7% in the year to April, slowing from March’s year-on-year rate of 34.2% (repeat, due to base effect) and less than market expectations for a 25.0% pick up. Industrial production rose by 9.8% over the same period, down from the 14.1% annual growth rate in March and missing expectations for a 10.0% gain.

Fixed asset investment increased by 19.9% in the year to April, down from 25.6% in March and still slightly behind expectations for a 20.0% expansion. fs

Real GDP Growth (%q/q, sa)

-

3.13

3.40

-7.00

-0.30

Real GDP Growth (%y/y, sa) Industrial Production (%q/q, sa)

-

-1.12

-3.70

-6.31

1.40

-

-0.30

0.20

-3.01

0.10

Survey Data Private New Capex, Total, Chain, Vol, (%q/q, sa) Financial Indicators

-

3.03

-3.08

-5.51

-1.91

14-May Mth ago 3mths ago 1yr ago 3yrs ago

Interest rates RBA Cash Rate

0.10

0.10

0.10

0.25

1.50

Australian 10Y Government Bond Yield

1.74

1.69

1.22

0.90

2.61

Australian 10Y Corporate Bond Yield

1.96

1.57

1.27

2.01

3.31

Stockmarket All Ordinaries Index

7239.4

-0.57%

2.23%

33.62%

16.11%

S&P/ASX 300 Index

7002.3

-0.19%

3.04%

32.18%

14.95%

S&P/ASX 200 Index

7014.2

-0.13%

3.05%

31.63%

14.33%

S&P/ASX 100 Index

5809.9

0.36%

3.44%

32.12%

15.29%

Small Ordinaries

3179.9

-3.99%

0.35%

33.03%

12.39%

Exchange rates A$ trade weighted index

64.40

A$/US$

0.7769 0.7720 0.7751 0.6423 0.7555

63.90

63.00

57.80

62.50

A$/Euro

0.6403 0.6451 0.6396 0.5939 0.6312

A$/Yen

85.01 84.17 81.36 68.75 82.76

Commodity Prices S&P GSCI - commodity index

515.00

487.52

463.95

279.94

486.71

Iron ore

163.68

171.42

163.93

88.74

67.59

Gold

1838.10 1735.55 1816.35 1731.60 1319.85

WTI oil

65.51

63.15

59.50

27.40

Source: Rainmaker Information /

71.01

Sector reviews

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

Figure 1. RBA cash rate target and 10y bonds

Australian equities

7.0

6.0

Australia

Weighted median

RBA target band

2.0

3.0

1.0

2.0

Source:

Trimmed mean

3.0

4.0

Prepared by: Rainmaker Information

Headline

4.0

5.0

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].

ANNUAL CHANGE %

5.0

RBA cash rate target

6.0

CPD Program Instructions

Figure 2. Australian CPI inflation measures

PERCENT

1.0

0.0

0.0

-1.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

A date with the RBA in July Ben Ong

T

he Reserve Bank of Australia’s (RBA) May board meeting would have been a ho-hum event had it not been for the month of July.

As expected, the RBA left monetary policy settings unchanged – “including the targets of 10 basis points for the cash rate and the yield on the 3-year Australian government bond, as well as the parameters of the Term Funding Facility and the government bond purchase program”.

As expected, it lifted Australia’s GDP growth forecast to 4.75% this year – now in line with both the OECD and IMF’s latest projections – from 3.5% it predicted in its February statement.

This stronger economic growth would boost the labour market with the RBA now expecting the jobless rate “to be around 5% at the end of this year and around 4.5% at the end of 2022”.

It all seems cut and dried. With the domestic economy’s outlook getting betterer and betterer

International equities

– despite the end of the JobKeeper – the RBA, along with the federal government – cannot be faulted for declaring its battle against the pandemic nearly “Mission accomplished”.

But unlike the Bank of Canada which walked its optimistic talk by announcing a “tapering of QE” , the RBA’s holding out until July. To wit: “At its July meeting, the board will consider whether to retain the April 2024 bond as the target bond for the 3-year yield target or to shift to the next maturity, the November 2024 bond. The board is not considering a change to the target of 10 basis points. At the July meeting, the board will also consider future bond purchases following the completion of the second $100 billion of purchases under the government bond purchase program in September.”

July is the month when the RBA decides to maintain QE or taper QE or increase QE. RBA governor Philip Lowe’s statement gives

us a wink and a nod: “Despite the strong recovery in economic activity, the recent CPI data confirmed that inflation pressures remain subdued in most parts of the Australian economy. A pick-up in inflation and wages growth is expected, but it is likely to be only gradual and modest. In the central scenario, inflation in underlying terms is expected to be 1.5% in 2021 and 2% in mid 2023.”

“The board is prepared to undertake further bond purchases to assist with progress towards the goals of full employment and inflation. The board places a high priority on a return to full employment.

And as for interest rates, “It will not increase the cash rate until actual inflation is sustainably within the 2-3% target range. For this to occur, the labour market will need to be tight enough to generate wages growth that is materially higher than it is currently. This is unlikely to be until 2024 at the earliest.” fs

Figure 1. Japanese CPI inflation

Figure 2. Japan GDP growth and inflation

4

6

ANNUAL RATE %

3

ANNUAL CHANGE %

ANNUAL CHANGE %

4 3

3

2

2

0

1

1 -3

0

0 -6

-1

Prepared by: Rainmaker Information Source: Rainmaker /

-2

Headline inflation Core inflation (ex-food)

-3 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

-1 GDP growth

-9

-2 Core inflation (ex-food)

-12 2006

-3 2008

2010

2012

2014

2016

2018

2020

That elusive virtuous cycle Ben Ong

A

s expected, the Bank of Japan’s (BOJ) monetary policy board decided to keep settings unchanged at its April meeting.

Ever the optimist, the BOJ summarises its view, saying: “Although the level of Japan’s economic activity, mainly in the face-to-face services sector, is expected to be lower than that prior to the pandemic for the time being, the economy is likely to recover, with the impact of the novel coronavirus (COVID-19) waning gradually and supported by an increase in external demand, accommodative financial conditions, and the government’s economic measures. Thereafter, as the impact subsides, it is projected to continue growing with a virtuous cycle from income to spending intensifying.”

There goes that “virtuous cycle” mantra again. Nothing wrong with that but perhaps the BOJ believes that if it repeats it often enough, someday, one day it will come true. The earliest

reference to the “virtuous cycle” I found was in the Japanese central bank’s ‘Summary of Opinions at the Monetary Policy Meeting on December 20 and 21, 2017’ document.

“Japan’s economy is expanding moderately, with a virtuous cycle from income to spending operating. Going forward, it is likely to continue expanding on the back of highly accommodative financial conditions and underpinnings through the government’s past stimulus measures,” Still, to this day inflation – headline and core – has gone nowhere near the BOJ’s 2% target despite introducing QQE with Yield Curve Control and Negative Interest Rates in 2016.

But I digress. While the BOJ upgraded its GDP growth forecasts in its April 2021 Outlook report – 4.0% in 2021 (from 3.9% predicted in January 2021) and 2.4% (from 1.8%) next year – it doesn’t expect core inflation to reach target – 0.1% this year, 0.8% in 2022 – even up to 2023 (1.0%).

The resurgence of coronavirus infections in

29

the country is already nullifying one of the BOJ’s assumptions – “The outlook is based on the assumption that the impact of COVID-19 will wane gradually and then almost subside in the middle of the projection period”.

Japan is reportedly considering extending the 17-day state of emergency placed on the prefectures of Tokyo, Osaka, Kyoto and Hyogo as cases continue to increase.

With less than three months to go, the extension of emergency restrictions raises doubts over the Olympics. If cancelled or delayed (again), it would remove the benefits – increased travel and tourism and broadcast rights to events – Japan could get as host.

In its policy statement, the BOJ promised that, “the Bank will closely monitor the impact of the novel coronavirus (COVID-19) and will not hesitate to take additional easing measures if necessary”.

It’s necessary now. fs

Australian equities CPD Questions 1–3

1. The RBA’s revised 2021 Australian GDP growth forecast is now consistent with? a) The IMF’s forecast b) The OECD’s forecast c) Both a and b d) Neither a nor b 2. When will the RBA make a decision towards tapering QE? a) June 2021 b) July 2021 c) June 2022 d) July 2022 3. The RBA expects that inflation would reach 2.0% in mid-2023. a) True b) False

International equities CPD Questions 4–6

4. According to the BOJ, what is/are the factors that’ll support Japan’s recovery? a) Increase in external demand b) Accommodative financial conditions c) Government’s fiscal stimulus d) All of the above 5. What is the BOJ’s 2021 GDP growth forecast? a) 1.8% b) 2.4% c) 3.9% d) 4.0% 6. The BOJ expects to reach its inflation target by 2023. a) True b) False

30

Sector reviews

Fixed interest CPD Questions 7–9

7. What was the Eurozone’s GDP growth rate in the March 2021 quarter that brought it back to recession? a) -0.6% b) -0.7% c) -3.8% d) -11.6% 8. Which Eurozone PMI increased in April from March? a) Composite PMI b) Manufacturing PMI c) Services PMI d) All of the above 9. Latest readings from the Eurozone PMI suggest private sector activity in the region is expanding. a) True b) False Alternatives CPD Questions 10–12

10. What is iron ore’s alltime high as at the 6 May 2021? a) US$163.93/tonne b) US$191.70/tonne c) US$215.48/tonne d) US$265.50/tonne 11. What is/are the reason/s for the rally in iron ore prices? a) Increased demand b) Reduced supply c) Both a and b d) Neither a nor b 12. China bought more iron ore from Australia in March this year compared with a month earlier. a) True b) False

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

Fixed interest

All answers can be submitted to our website.

PERCENT

INDEX

60

10

55 50 45

0

40 35

-5

Manufacturing

30 -10

Prepared by: Rainmaker Information Prepared by: FSIU Source: Rainmaker / Sources: Factset

Composite

25 Quarterly change

-15

Services

20

Annual change

15

-20

10

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

APR18

AUG18

DEC18

APR19

AUG19

DEC19

APR20

AUG20

DEC20

APR21

Third wave causes double dip Ben Ong

T

he Eurozone is back in recession, dragged down into a double-dip by the coronavirus – its resurgence (third time unlucky), its variants and the slow pace of vaccinations.

Preliminary estimates released by Eurostat show the single-currency region’s GDP contracted by 0.6% in the three months to March 2021. This followed the December 2020 quarter’s 0.7% contraction – satisfying the technical definition of a recession (two consecutive quarters of negative growth).

The Eurozone registered its first pandemicinduced recession last year when GDP dropped in the first (-3.8%) and second (-11.6%) quarters of 2020.

But this had been largely expected and more importantly, all in the past. The future looks brighter.

Renewed social restrictions and lockdowns appear to have succeeded in bringing the num-

Alternatives

Prepared by: Rainmaker Information Prepared by: FSIU Source: IEA Sources: / Factset

ber of daily coronavirus infections down, allowing easing of containment measures that is, in turn, reviving economic activity in the region.

This is evidenced by IHS Markit’s most recent PMI surveys. The IHS Markit flash Eurozone composite PMI increased to a ninemonth high reading of 53.7 in April (from 53.2 in March).

The region’s manufacturing PMI rose to a record high of 63.3 while the services PMI went up to a reading of 50.3 – the first reading indicating expansion and the highest in eight months.

This is good news according to Chris Williamson, chief business economist at IHS Markit.

“In a month during which virus containment measures were tightened in the face of further waves of infections, the eurozone economy showed encouraging strength. Although the service sector continued to be hard hit by

lockdown measures, it has returned to growth as companies adjust to life with the virus and prepare for better times ahead”.

Even better, Factset reports that: “With the Q1 reporting season well underway, analyst expectations of Q1 profits have jumped considerably higher vs earlier expectations. Refinitiv IBES data showed EPS from STOXX 600 companies in Q1 are expected to surge 71.3% from a year earlier, which would mark the best quarter for European stocks since IBES records began nine years ago” and that “European bank Q1s show fading concerns about pandemic driven meltdown.”

This optimism is made manifest by a Bloomberg report (citing SocGen) that, European companies intend to purchase around €150 billion of their own shares next year – a “25% jump from the average of €120b in the five years pre pandemic”.

And why shouldn’t they be? fs

Figure 2: Iron ore and Chinese steel production

Figure 1: Iron ore price 245

245

US$/MT

ANNUAL CHANGE %

US$/MT

24

220

220

20

195

195

16

170

170

12

145

145

8

120

120

4

95

95

0

70

70

45

45

20

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

20

2013

-4 Iron ore price China steel production - RHS 2014

2015

2016

2017

2018

2019

2020

2021

-8 -12

Iron ore breaks record T

Submit

Figure 2: IHS/Markit Economic’s Eurozone PMI 65

15

5

Ben Ong

Go to our website to

Figure 1: Eurozone GP growth

he price of iron ore continues to heat up. It broke above the all-time high of US$191.70 a tonne recorded more than 10 years ago (February 2011) on May 6 this year and is currently fetching 215.48/tonne.

This represents a 31.4% increase from end2020’s closing price of US$163.93/tonne and a whopping 175% rally from the pandemic low of US$78.33/tonne plumbed on the 3 February 2020.

Favourable demand and supply conditions have put a rocket from underneath the iron ore’s price.

Demand comes from China – the world’s biggest consumer (69.1% of total world iron imports) – where crude steel production continues surge (up by 19.1% in the year to March from 12.9% in the January-February period) as Chinese mills lift production on the back of expectations for increased demand from the manufacturing and housing sectors.

For a very brief while, there were concerns that China’s efforts to curb output to reduce carbon emissions and pollution from steel manufacturers would crimp demand for iron ore. But this had been negated by rising demand elsewhere.

Reuters points out that “imports by the rest of the world are rising, with ex-China arrivals estimated at 41.25 million tonnes in March, up from 34.43 million in February and 35.76 million in January” – a likely offshoot of the strengthening global recovery and world government’s stimulus and counter-cyclical efforts to sustain this.

Besides these, China’s anti-pollution drive has driven steel producers to buy higher quality iron ore exports from Australia and Brazil.

Speaking of Brazil, here’s where the “favourable supply conditions” come in. It’s the second largest exporter of iron ore (18.1% of total world exports) next to Australia (53.8%). Supply from Rio de Janeiro – where Vale S.A. (the country’s

largest iron ore miner) has its headquarters – is not expected to return to normal until June this year. Vale produced only 68 million tonnes in the January-March period, below expectations of 72 million tonnes.

What’s not so good for Brazil is heaven sent for Australia.

Despite the escalation of diplomatic and trade tensions between Beijing and Canberra, China cannot get enough of Australia’s biggest commodity export.

Australian Bureau of Statistics’ (ABS) figures show that, in terms of quantity, Beijing bought 4% more iron ore (lump) in the month of March from February this year and 1% more iron ore (fines) over the same period.

Goes to show that China needs Australia for its continued urbanisation and economic growth as much as Canberra needs Beijing for a stronger Australian recovery.

And oh, a lower underlying budget deficit. fs

Sector reviews

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

31

Property

Property

CPD Questions 13–15

Prepared by: Rainmaker Information Source: ME Bank

espite record high sentiment in the first D quarter of the year, ME Bank’s latest Quarterly Property Sentiment Report shows affordability and supply issues are leaving a bad taste in the mouths of would-be homebuyers.

Even with record low interest rates, residential property market sentiment dropped seven percentage points to 42% in the last three months.

Broken down by groups, first home buyers recorded the lowest level of positive sentiment this quarter, down three percentage points to 24% (five percentage points lower than the same time last year), while investors recorded the highest at 52%.

Overall, 60% of respondents believe there “isn’t enough choice in the current residential property market” − a 17 percentage point increase since January.

Regional buyers were more likely to cite this, saying there “isn’t enough choice” (65%), especially in regional New South Wales (71%), compared to metropolitan buyers (57%).

Meanwhile, a whopping 91% of respondents said housing affordability is a big issue in Australia. Among first home buyers, this rose to 93%.

Property sentiment sours Jamie Williamson

Affordability concerns are likely being compounded by expectations for further house price growth, ME Bank said, with about 67% of those in the residential property market expecting prices to increase in their area during the next 12 months. This is 13 percentage points higher than in Q1 of this year.

Flowing on from this, property owners’ ‘sense of wealth’ and general financial confidence increased to 41% and 42% respectively – the highest levels since April 2019. In contrast, 82% of those looking to buy are worried about paying too much in the current market.

In terms of buyer groups, more first home buyers this quarter said they are looking to purchase property in the next 12 months (52%), followed by investors (40%) and owner occupiers (21%).

At the same time, about 23% of property investors indicated they want to sell their property in the next 12 months, compared to only 11% of owner occupiers. How quickly they want this to happen is evenly split, with 51% saying they’re in no particular rush, while 49% said as soon as possible.

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

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+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

Geographically, Sydneysiders are more likely to buy (38%) and sell (13%) in the next 12 months than Victorians (32% and 10%, respectively), the survey found.

Of those looking to buy, over half (58%) reported feeling “a sense of FOMO” (fear of missing out) in buying property in the current market.

In gathering the data, ME Bank surveyed 570 owner-occupiers, 251 investors, 268 first home buyers.

Around 75% of those ‘looking to buy’ said ‘record low interest rates have made buying or investing in property more attractive to them.”

ME’s head of home loans and personal banking Claudio Mazzarella said: “When property prices and interest rates lowered last year during the pandemic, a unique buying opportunity opened up for confident first home buyers with cash savings and secure employment, while many investors became nervous.”

“Now prices have rebounded strongly and affordability is going down, first home buyers aren’t feeling as positive.” fs

3: According to ME Bank, residential property market sentiment: a) declined in the last three months, despite low interest rates b) improved in the last three months due to low interest rates c) declined in regional areas over the last three months d) improved in regional areas over the last three months 14: Among first home buyers, which issue is of most concern? a) Rising interest rates and inflation b) Affordability compounded by expectations of further price growth c) A sense of FOMO (fear of missing out) d) Paying too much in the current market 15: Twenty-three percent of owner occupiers said they want to sell their property in the next 12 months. a) True b) False

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32

Profile

www.financialstandard.com.au 15 June 2021 | Volume 19 Number 11

BACK YOURSELF Apostle Funds Management managing director Karyn West believes in putting her money where her mouth is. She invests in every product she sells, and she’s built a career out of fearlessly backing herself. Elizabeth McArthur writes.

aryn West describes herself as always havK ing been independent. As soon as she finished high school she moved out of home.

Determined to support herself, she went to university part-time to complete a business degree while working. Her first exposure to the corporate world came during this period, when she got into the undergraduate scholarship program with Oil company, Shell.

Working for a huge corporation like Shell at a young age had twin benefits. West gained steady work with paid time off to study and she got to learn a valuable lesson – what she didn’t want to do.

Despite appreciating the experience at Shell, West knew it wasn’t the industry for her.

“I’ve always been an independent person. My parents had six children so there was also a bit of an expectation that we would be independent,” West says.

That independence would serve her well when she eventually found her way into the world of funds management.

After a brief stint in banking, at the National Mutual Royal Bank on the bond and cash desks, West got the role that would set her on her career path – with Rothschild.

“At the time, there were really only a handful of large funds management businesses. And Rothschild was one of the premium brands.

And it was back when all the super funds really just had balanced funds,” West says.

“You didn’t have what you have today where people were going into very small specialist investments. They usually picked two or three balanced funds, and there was well over 500 super funds in Australia then. It was a fun time to be in the industry and Rothschild was a great learning ground for me.”

West started seeing the landscape of superannuation and funds management shift around her while she was at Rothschild.

She left just before it was acquired by Westpac and recalls that at the time, she noticed super funds were increasingly hiring specialist managers for various asset classes.

“It became clear to me that fixed income was a really tough place to be. At the time, the best performing manager on the league tables for Australian fixed income was the benchmark.

The index outperformed everybody,” West explains.

“I started thinking about where alpha was coming from and looking at offshore fixed income and seeing the opportunity set in credit.”

It was at this point that West’s fierce independence would come in handy again. She set up the Australian business for Loomis Sayles, the Boston-based investment manager owned

by Natixis.

“Working for Loomis Sayles, I was kind of on my own here in Sydney even though they’re a

big firm in Boston. I had to organise the office space and start from the ground up,” West says.

The experience would eventually give her the confidence to go out on her own all together. In 2008, West did a deal with Natixis to acquire the distribution rights for Australia on a sevenyear basis.

She grew the assets and could include nonNatixis managers too. Then in 2015, West sold the business back to Natixis, at the time it was Apostle Asset Management, and post-sale West’s firm became Apostle Funds Management as it is today.

“Once you’ve done it once, it’s actually pretty easy. And once I did it, I realised I could probably quite easily do it again,” West says of setting up shop alone.

“There are always people to help you. I think you do have to be entrepreneurial and ready to take risks, but the rest of it is just hard work. You have to be ready to do the work.”

And she does acknowledge the help she had along the way. West says she is often asked for her perspective on being a woman in the traditionally male-dominated funds management industry.

But she doesn’t share the complaints that are often voiced by women. She thinks it’s actually a supportive industry, one that perhaps unfairly gets a bad rap.

“Shortly after [starting with Loomis Sayles] I had a baby. The company was really good, and we’d already started winning mandates,” West says.

“About a month after I had my baby there was a presentation we had to do for a pretty large account. It was in Melbourne and I just couldn’t do it. I rang my lovely boss over in Boston and asked him, ‘is there any chance you could do this presentation?’ He said, ‘yes, I’m going to make it work’. He got on a plane, flew to Melbourne, did the presentation, got back on the plane and flew all the way back to Boston. He was on the ground for maybe three hours. We still joke about it.”

Since 2015, West has been adding managers to her Apostle offering after starting with just Dundas and Mark Carnegie’s firm MHCC. Traditionally, West has focused on distribution and building products. But now, Apostle is launching its own ethical product – something the firm and West have been part of the production process for.

West says she’s also working with Kayne Anderson on credit products for the wholesale and independent financial adviser markets.

“It’s a big change for us,” West admits.

For West, it is essential for entrepreneurs to adapt with the times. In Australian funds management, that means considering the ongoing consolidation of super funds.

“The number of participants in the institutional space has shrunk significantly with all the mergers that are going on.

And, on top of that, a lot of the large super funds are managing assets in-house,” West says.

I always invest in every single thing I recommend to a client.

Karyn West

Having focused on institutional investors her whole career, West is now building out product offerings for the wholesale and IFA markets in response to this.

“I see [the consolidation in super] as a continuation of something I’ve observed over 25 years. It was a bit of a cottage industry at the beginning, and it’s been maturing and evolving over the entire period,” she explains.

“This is just part of that maturation, obviously it’s been impacted by the regulators needing to strengthen regulation – you can’t regulate over 500 super funds. It’s just an evolution and you can’t, as a businessperson, rail against evolution.”

West is clear, she plans to move with the times. Her independence allows her an agility other businesses don’t have.

“You just have to adapt and move. If you don’t adapt, you’ll be sitting there in a few years with only a handful of clients to sell to. It applies to any industry, there’s always going to be disruption and it’s up to you to adapt,” she says.

Asked whether West has any advice for others in funds management looking to tread their own path, she is blunt: “Put your money where your mouth is.”

“The only advice I have would be to look after the clients, then everything will be OK. You should really make sure the product is appropriate for them, you’ve done all the due diligence yourself and you should be happy to invest yourself,” she says.

“I always invest in every single thing I recommend to a client.” fs