Financial Standard Volume 18 Number 05

www.financialstandard.com.au

16 March 2020 | Volume 18 Number 05

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Fidelity International

ESG

Coronavirus

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Dawn Thomas Wealthwise

SMSF Association Conference 2020

Ian Macoun Pinnacle IM

Product showcase:

Opinion:

Feature:

Events:

News:

Profile:

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Fidelity International

ESG

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SMSF Association Conference 2020

Ian Macoun Pinnacle IM

Product showcase:

Opinion:

The beginning of the end for ERFs Eliza Bavin

reasury has confirmed it will soon introduce T legislation to allow Eligible Rollover Fund trustees to voluntarily transfer any amount in a superannuation account to the ATO at any time in a bid to speed up the process of ridding the industry of ERFs. But not everybody is convinced ERFs are the enemy.

The deadline for transferring all ERF accounts below $6000 to the ATO will be set at the end of June 2020 and ERFs will be required to transfer any remaining accounts to the ATO by June 2021.

Senator Jane Hume, assistant minister for superannuation, financial services and financial technology in the Federal Treasury said the next “logical step” in the Protecting Your Super (PYS) reforms will come by shutting down ERFs. “With the advent of the PYS reforms and the ATO on the case, ERFs will eventually wither away. But that’s not good enough,” Hume said in January.

“With the ATO’s super matching engine up and running, members should be reunited with their lost and forgotten super now. And, acutely aware of their best interest duties, the trustees of the ERFs agree.”

AUSfund is an ERF intended to be a temporary repository for amounts transferred from other regulated superannuation funds.

The House of Representatives Standing Committee on Economics had been grilling superannuation funds over the practice of transferring “zombie accounts” to AUSfund.

Committee chair, Tim Wilson MP, labelled the practice “suspicious” given the rollover fund charges a fee, while the ATO does not.

Media Super is just one of many funds that use AUSfund. Chief executive Graeme Russell told Financial Standard that the claim the use of ERFs is somehow suspicious is “ideological clap-trap.”

“The facts – including the returns earned for members by ERFs – speak for themselves,” he said.

Russell said that his fund has been acknowledged as one of the best in pursuing the widelysupported public policy objective to reduce the number of multiple accounts.

“Over the past 11 years, we have transferred thousands of inactive accounts to ERFs,” he said.

“The benefit to members is that they continued to be invested in the market, at very low fees, while we searched for a matching account.”

“And over recent years the net returns on accounts held by AUSfund have well exceeded the CPI-based adjustment credited to accounts transferred to the ATO.” To 30 June 2019 AUSfund returned 8.05% for one year, 7.38% for three years and 7.14% for five years.

Russell added that all members whose accounts were transferred to ERFs received prior written notification, and had the choice to opt out of the process.

This is not how Treasury has viewed the situation.

Hume said ERFs have a “woeful record” of reuniting members with their money, even when they have all the information to do so.

“Even if they had the will to do it, ERFs simply don’t have the full suite of tools that the ATO has at its disposal, with its sophisticated data-matching technology and visibility of all contributions to every superannuation account in the system, rather than just a sub-set of funds,” Hume said.

The approach, Hume said, is consistent with the Productivity Commission’s recommendations that ERFs should be wound up within three years.

“It’s also consistent with APRA’s messaging to ERFs last year, and in my discussions with APRA, they’ve confirmed they will take a pragmatic approach where possible with respect to the compliance and reporting obligations of the ERFs during this wind-up phase,” she said.

A spokesperson for AMP, which recently copped heat for opening ERF accounts on behalf of former customers to deposit refunds into, told Financial Standard it is supportive of Treasury’s decision.

“AMP is supportive of a system which allows for members’ funds to be reunited with active accounts as soon as possible. The ATO is well positioned to do this and AMP would comply with the legislation,” the fund said.

The effect this might have on super funds is yet to be determined, and will likely only come to light if the legislation is passed.

So far, close to half a million accounts from 10 industry funds have been transferred to AUSfund, and if the legislation Hume has referenced is passed those will also need to be transferred to the ATO. fs

16 March 2020 | Volume 18 Number 05 www.financialstandard.com.au 20 January 2020 | Volume 18 Number 01

Feature:

Events:

News:

Profile:

Gender diversity remains static Ally Selby

Graeme Russell

chief executive Media Super

The state of play for women in financial services remains dramatically disadvantaged.

According to Morningstar’s latest report on Women in Investing, gender diversity in funds management hasn’t changed over the past two decades.

“When it comes to gender diversity, the global fund industry looks much like it did 20 years ago: At the end of 2000, 14% of fund managers were women. And at the end of 2019, 14% of fund managers were women,” it said.

Some countries perform better than others, with Hong Kong, Singapore and Spain’s fund managers being more than 20% female. However, the world’s largest financial powerhouses remain below the global average, with UK and United States-based fund managers only being 13% and 11% female, respectively.

Morningstar’s UK team recently found that there were more funds run by people named Dave than women.

Continued on page 4

Advice disclosure reforms proposed Eliza Bavin

Financial advisers will need to provide every retail client a written statement explaining “simply and concisely” why they are not independent, impartial and unbiased; if ASIC’s draft recommendations for advice fees are adopted.

The purpose, ASIC said, is to ensure financial advisers’ lack of independence is brought to the clients attention through a prominent disclosure.

Advisers will also need to seek express written authority and consent forms to deduct fees.

The regulator released the draft legislation, based on the Exposure Draft Bill, so it can review submissions and finalise draft instruments before the planned commencement on 1 July 2020.

Under the recommendations, ASIC said written “express written consent” will be needed to charge fees for an ongoing fee arrangement from a clients’ account on a yearly basis.

In addition, the regulator suggests each year a record must be kept of the services that a client Continued on page 4

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News

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

Queensland funds inch closer to merger

Editorial

Harrison Worley

Jamie Williamson

M

Editor

Should those who have been banned from providing personal financial advice still be able to work in the industry?

It’s a question that pops up every now and then and has done so again now that consultation on a range of legislative measures – including reference checking protocols for licensees – has been undertaken by government.

Under the proposed reforms licensees would have to conduct reference checks as part of the due diligence process when bringing a new adviser on board.

However, the Financial Planning Association of Australia has argued the practice should be extended to include more than just those providing personal financial advice.

The FPA claims it is aware of several instances in which people who have been banned from providing financial advice and have since been appointed in senior management roles, some even overseeing the provision of advice within the very same licensee they were authorised by when banned.

Now, skipping over the obvious lack of common sense and logic employed by those particular decision makers – is financial advice the one industry in Australia where reference checking isn’t already standard practice?

A 2018 article from Assured Support said AFSL’s focus on growth has seen reference checking evolve into “an optional extra” and a “don’t ask, don’t tell” mentality emerge.

I assume the expectation is that the due diligence process covers off the tangible evidence of whether an adviser is capable of doing their job; example Statements of Advice, compliance history, client book and funds under advice, proof of qualifications – the list goes on.

Then there’s the tightknit community aspect to consider. Advisers attending the same events and conferences get familiar, many have probably worked together at some point, remained friendly and possible recommended them to their licensee or vice versa.

But the same can be said for journalism.

You provide a portfolio of work, a resume demonstrating previous experience, proof of qualifications, click rates achieved and so on.

We’re invited to all the same events, attend all the same conferences, read one another’s work from time to time.

And yet, I would still never hire someone without having spoken to at least two previous employers.

How could I? I don’t know the person, not in the way you get to when spending eight hours a day with them.

A person’s work ethic or ethics cannot be measured solely on their output, and what an employee does for (or to) a business’ culture – a quality so often forgotten by prospective employees and employers during the interview process – is equally important as technical capability.

What do you think? Let me know at jamie. williamson@financialstandard.com.au. fs

The quote

We will embark on detailed analysis and due diligence over the coming months to see if major benefits do emerge.

ajor Queensland superannuation funds QSuper and Sunsuper are a step closer to a merger, signing a Memorandum of Understanding to undertake exclusive due diligence to explore a merger.

The agreement comes around four months after the two super funds first flagged the possibility of a merger, with high-level discussions having taken place since November.

After assessing one another, the fund’s found there were “sufficient potential benefits to members” to move to the due diligence stage.

The funds said any potential combination would be subject to the trustees of both funds agreeing on a structure which is in the best interests of all members. They also pointed out there were several regulatory approvals still to clear, and noted legislation would need to be passed to enable any partnership.

QSuper chair Don Luke said the discussions had stepped up after both funds determined members would be better off if the funds came together.

“Now that the Memorandum of Understanding is signed we will embark on detailed analysis and due diligence over the coming months to see if major benefits do emerge. From QSuper’s point of view the merger will only proceed if it is

clearly in the best interest of QSuper members,” Luke said.

Luke’s Sunsuper counterpart Andrew Fraser said the fund would still keep a close eye to the impact the merger would have on members.

“Any merger will only proceed on the basis it will benefit the membership of Sunsuper, and this work is now being undertaken in detail. The potential capability of a merged fund to deliver scale benefits to all members into the future means we are obliged to test the possibilities and then act in the interests of our members,” Fraser said.

Late last year QSuper revealed to the House of Representatives Standing Committee that the two funds were not committed to a strict merger, confirming they would also examine other possibilities.

“That could mean a merger, or it could mean some other arrangement,” QSuper chief executive Michael Pennisi said in late November.

Asked by committee chair Tim Wilson if an arrangement could amount to the two super funds pooling member savings to achieve scale benefits, Pennisi replied it was one among a series of options available to the funds.

“Or joining together for operational efficiencies. There is a broad spectrum,” he said. fs

First State Super and WA Super also in merger talks Elizabeth McArthur

First State Super and WA Super have said they are exploring the benefits to members of a merger, in a move that would create a $109 billion fund.

The funds have signed a Memorandum of Understanding and will enter due diligence, with the process expected to be completed mid-year.

Both funds will now work together to consider how they can share and leverage each other’s services to deliver even better outcomes for members.

First State Super is the industry fund for teachers, nurses and carers and WA Super is the default fund for local government employees in Western Australia.

First State Super and its financial planning business StatePlus has had a presence in WA for many years with nearly 8000 members and clients in the state.

The merger would see the combined funds serve 60,000 members in WA alone.

First State Super chief executive Deanne Stewart said she was delighted to explore a merger with WA Super.

“To ensure that we deliver our members the best possible returns at the lowest cost, we believe size and scale matter,” Stewart said.

“The two organisations share a real cultural and value alignment and an absolute commitment to putting our members first.”

She added that the merger could result in lower fees for members.

“The past 12 months has seen unprecedented consolidation in the Australian superannuation

industry, and I expect this will increase in the years to come,” Stewart said.

“Should this merger go ahead we will continue to provide for our members, while maintaining our presence and commitment to WA.” WA Super chief executive Fabian Ross said WA Super has been actively seeking a culturally aligned merger partner for the past few years.

“We recognise in the current superannuation environment that size can make a difference.

With size comes scale, which can have a significant impact on our members’ fees, returns and ultimately their long-term retirement savings,” Ross said.

“As such, we have determined that a merger with a like-minded super fund would add value not only to our members, but to Western Australians too, as it would enhance the delivery of financial services and education across WA.” In March 2019, WA Super was in merger talks with Statewide Super and Tasplan with a threeway merger that would create a $24 billion fund on the table.

However, in June those plans were dumped and Statewide said it would pursue other opportunities, with Statewide saying a three-way merger was too complex operationally.

First State Super is merging with VicSuper, with the merger to be effective from July 2021.

The merger has created a $113 billion fund.

First State Super merged with Health Super, a Victorian based fund serving health and community services workers, in 2011. fs

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News

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

01: John Haley

Gender diversity remains static

chief executive Willis Towers Watson

Continued from page 1 “That is, there were 108 UK funds run by managers named David or Dave in Morningstar Direct—and only 105 funds run by women of any name,” it said.

In 2000, women made up 19.4% of passive fund managers in the US, compared to only 13.2% in 2019. In active funds management, women made up 13.4% in 2000. Now, this figure sits at a disappointing 10.7%.

The fixed income arena isn’t much better, with female fund managers dropping from highs of 16% in 2000 to 11% last year. Similarly, equity fund managers dropped from 12.9% two decades ago, to 11% last year.

“The gender gap is a chasm in the fund industry. The cause is likely a complicated combination of structural barriers and implicit biases,” Morningstar said.

However, this is slowly starting to shift in some areas of the industry.

Although women remain underrepresented in funds management, Morningstar argues that the industry itself acknowledges the importance of diversity, pushing for greater female representation at the publicly-listed companies it invests in.

This, combined with a recent legislative mandate, has helped women rise up the ranks, nabbing positions on corporate boards.

It also found that female representation on boards had more than doubled over the past two decades. fs

Willis Towers Watson, Aon to merge operations Jamie Williamson

F

The quote

This combination will create a more in­novative platform capable of delivering better outcomes for all stakeholders.

Advice disclosure reforms proposed Continued from page 1 is entitled to and the total cost of the fees that will be charged.

This would also be applicable to pre-FoFA clients.

Lastly, ASIC recommends not allowing a fee to be paid from any account that is controlled by a separate entity without “express written authority” to the entity that controls the account.

ASIC also recommended changes to the SIS Act for superannuation trustees, following the recommendations from the Royal Commission that advice fees from super choice accounts be renewed annually.

The recommendation states that the deduction of any advice fee from super accounts, excluding MySuper accounts, should be prohibited unless the requirements about annual renewal, prior written identification of service and express written consent have been met.

ASIC said this recommendation is intended to “prevent super accounts being eroded through the deduction of inappropriate advice fees”.

The recommendation will require super trustees to be satisfied members have given consent for advice fees to be paid from their superannuation choice account.

The consultation is open until April 7.

Intra-fund advice costs are excluded from the recommendations because the Royal Commission did not find that any misconduct had arisen from such advice, ASIC said. fs

ollowing weeks of speculation, the two entities confirmed a merger will go ahead.

Aon and Willis Towers Watson have announced a definitive agreement to merge operations in an all-stock transaction with an implied combined equity value of about $121 billion (US$80 billion).

Global in nature, the deal includes Willis Towers Watson’s local business; however a spokesperson for the Australian arm could not provide any further comment.

Under the deal, the two entities will combine under the Aon name and focus on the core areas of risk, retirement and health. The headquarters of the combined business will be Aon’s existing London headquarters.

It’s not the first time a merger between Aon and Willis Towers Watson has been floated, with the former confirming it was in the process of formulating a deal in March 2019. Those talks collapsed shortly after.

Late last month Willis Towers Watson confirmed it was exploring options for part of its business, leading to speculation it was laying the ground work for a broader deal.

“The combination of Willis Towers Watson and Aon is a natural next step in our journey to better serve our clients in the areas of people, risk and capital,” Willis Towers Watson chief executive John Haley01 said.

“This transaction accelerates that journey by providing our combined teams the oppor-

tunity to drive innovation more quickly and deliver more value.”

The move sees the unification of two highly complementary businesses into a technologyenabled global platform that is more relevant and responsive to client needs, Aon said.

“This combination will create a more innovative platform capable of delivering better outcomes for all stakeholders, including clients, colleagues, partners and investors,” Aon chief executive Greg Case said.

“Our world-class expertise across risk, retirement and health will accelerate the creation of new solutions that more efficiently match capital with unmet client needs in high-growth areas like cyber, delegated investments, intellectual property, climate risk and health solutions.”

In terms of governance, Haley will take on the role of executive chair, with the business to be run by Case and Aon chief financial officer Christa Davies. The board of directors will be made up of a proportional number of current Aon and Willis Towers Watson directors.

Aon expects annual pre-tax synergies and other cost reductions of $1.2 billion (US$800 million) after three years.

This will be the result of consolidating business and central support functions and consolidation of infrastructure related to technology, real estate and third-party providers.

The transaction is subject to approval by shareholders and is expected to close in the first half of 2021. fs

HESTA appoints GM, internalises investments Elizabeth McArthur

The $57 billion industry superannuation fund has announced a shakeup to its investment leadership, announcing plans to internalise the management of several asset classes.

Steven Semczyszyn will lead development of an internalised Australian equities function at HESTA to be implemented by 2021 in his new general manager – growth role.

Semczyszyn was formerly chief investment officer for boutique equity fund manager JCP Investment Partners, overseeing assets of up to $11.5 billion across Australian equities mandates.

HESTA will also be internalising cash and fixed interest asset classes, chief investment officer Sonya Sawtell-Rickson said that program will be implemented in 2022.

“These changes mark the start of an exciting new chapter for our investment team,” Sawtell-Rickson said.

“Our forward strategy embraces a hybrid model – combining internal management alongside the best external asset management partners the world has to offer – to manage a growing and significant pool of assets.”

She added that the changes are designed to drive cost efficiencies and achieve long-term investment performance for members.

HESTA is recruiting for head of portfolio management and head of portfolio design roles as part of the internalisation plans. Both roles will report directly to Sawtell-Rickson.

The head of portfolio design will focus on the top down aspects of the portfolio, including portfolio construction and risk analysis, economic and market research, and strategic tilting.

The head of portfolio management will lead internal and implemented teams across growth, unlisted and defensive market segments.

“These roles will have pivotal leadership responsibilities, helping deliver the overall investment program and portfolio strategy, and will enhance an innovative, leading investment team with strong plans for growth in capability and capacity,” Sawtell-Rickson said.

HESTA is also seeking to add to its new portfolio design team, currently recruiting for a general manager – strategic tilting who will be responsible for managing dynamic asset allocation, rebalancing and overlay processes.

They will also work closely with the investment execution team to manage and minimise execution risks while ensuring portfolios are responsive to market conditions and opportunities. fs

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www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

Govt. moves to cut work test

01: Robert Sharps

head of investments T. Rowe Price

Harrison Worley

The government is moving to act on one of its election promises by cutting the work test.

Draft legislation released in the first week of March will allow Australians aged 65 and 66 to make voluntary super contributions without meeting the work test.

A month-long consultation period is officially underway for the government’s Treasury Laws Amendment (Measures for a later sitting) Bill 2020: Improving Flexibility for Older Australians, which will amend the Superannuation Industry (Supervision) Regulations 1994 in an effort to help older Australians boost their retirement savings by adding flexibility to the superannuation system.

In addition to removing the work test for Australians aged between 65 and 66 who wish to make voluntary contributions to their superannuation savings, the bill will also allow people aged 70 to 74 to receive spouse contributions by increasing the maximum age from 69 to 74.

Additionally, it will allow people aged 65 and 66 to access the bring-forward arrangements available to people under 65 years of age, who can make three years of non-concessional contributions through the arrangements.

Senator Jane Hume said the super system needed to keep up with the changing nature of Australia’s workplaces and those within them.

“This draft legislation reflects the Morrison Government’s ongoing commitment to ensuring all Australians have additional flexibility in how they save as they transition to retirement,” Hume said.

“The Coalition understands the realities of the modern workplace. Work patterns have evolved, and more women are rejoining the workforce than ever before. Our superannuation system needs the flexibility to match.” fs

Life insurer chief executive retires Jamie Williamson

The founding chief executive of one of Australia’s life insurance providers is retiring after more than 40 years in the industry.

Integrity Life has announced its chief executive Chris Powell will retire in the middle of the year, appointing chief financial officer Lesley Mamelok to the role in an acting capacity.

Powell is the founding chief executive of the insurer, having served in the top job for five years.

“Having spent the last five years fulfilling my entrepreneurial ambition to launch a disruptive, innovative new life insurer, I’m looking forward to a change of pace, but will continue to support Integrity in any way I can,” Powell said.

An executive search is being undertaken to appoint a permanent replacement.

“On behalf of the board, I would like to wish Chris well in his forthcoming retirement. Chris retires knowing that he has made an exceptional contribution to Integrity, having successfully driven the launch of one of Australia’s newest insurance companies,” Integrity Life chair Eric Dodd said.

Prior to joining Integrity Life, Powell served as interim chief executive of PHAROS Financial Group. fs

Active managers: Opportunities abound Eliza Bavin

W The quote

We are now able to buy into fantastic companies are very cheap prices because the excess vol­atility has led to this irrational stock behaviour.

hile COVID-19 may have some reeling from uncertainty, active managers are seeing it as their time to shine.

T. Rowe Price’s head of investments, Robert Sharps01, said while he is not seeing any wholesale change from portfolio managers in response to volatility, he is seeing some careful decision making.

“I am seeing some carefully implemented, very proactive ideas that are being backed by our research where we’re really trying to increase exposure to companies where the share prices have become detached from very strong longer-term fundamentals,” Sharps said.

Sharps said there are opportunities in securities that are starting to become disconnected from longer-term fundamentals.

“You have research notes that are highlighting opportunities in shares of transportation companies, airlines, hotels, gaming companies,” he said.

“You have research notes from credit analysts highlighting instances where we see unique opportunities among specific credits whether or not they are non-investment grade issuers in the US or emerging markets issuers in Asia.”

Investment opportunities in Asia, particularly China, are ripe for the picking, according

to Marco Li, TT International’s portfolio manager for the TT China fund.

“What we are seeing is China was first in, with dealing with the fallout from the virus, and it will be first out,” Li told Financial Standard.

“We are now able to buy into fantastic companies are very cheap prices because the excess volatility has led to this irrational stock behaviour.”

Li said the markets are also likely to see a lot more investment in China and emerging markets in the fallout from the virus because the US dollar is currently over-valued.

Li said active investors are using this opportunity, of low valuations, to put more money into companies that are going to be doing well in 2021.

“You need to be looking forward to next year, and understanding where you can capitalise on these valuations,” he said.

Sharps put it best, saying: “If you have a longer-term orientation, don’t let the psychology of fear take hold, ground your decision making in analysis and in research, that you can take advantage of opportunities that these sorts of market environments either have presented or will present as we work our way through what’s likely to be a quite challenging period for the next several weeks if not the next several months.” fs

BT transition not so super Kanika Sood

Some superannuation members are complaining of laggard customer service and reduced benefits, as BT transitions about 280,000 accounts to its new product.

In November, BT said it would migrate members in BT Lifetime Super – Employer Plan (LSEP) and BT Business Super to a new product called BT Super effective February 2020. The transition included about 280,000 members.

As a part of the transition, members under 35 years of age saw their death cover slashed by up to 75% (with a corresponding decrease in the premium amounts), fees for some members went up as much as 60 bps per year, and some accounts were charged a buy/sell spread.

As a part of the transition, members under 35 years of age saw their death cover slashed by up to 75% (with a corresponding decrease in the premium amounts), fees for some members went up as much as 60 bps per year, and some accounts were charged a buy/sell spread.

BT said the buy/sell spreads were charged to only about 7% of the accounts and it worked with underlying investment managers to reduce transaction costs where possible.

The changes coincided with BT pulling down its online service for the transition in January, meaning members looking to make changes (like opting out of death cover scaling) or to transact were left to BT’s customer helpline.

BT said it resourced its call centers to handle larger volume of enquiries and help transactions in the lead up to the

migration. However, the market volatility raised the call volumes its call centers received.

Their “average speed of answer” was one minute prior to migration announcement and in recent weeks has been around 13 minutes, according to the company.

Two members who called BT’s helpline told Financial Standard the wait for them was 45 minutes to an hour.

Some members also said BT’s initial communication about the changes did not include specific information on how the transition would affect them. They were instructed to login to their accounts to see the information, but in January, the online accounts were inaccessible.

BT has since sent members new passwords for the online login in a letter but is instructing members to call its customer service if they continue to receive error messages.

BT said its member communication was satisfactory and that it engaged with the regulators throughout the process. It also said omitting member-specific information from the communication was an standard industry practice and done for security reasons.

One member said BT’s online complaint form lead to an error message saying “Are you super lost? We’re sorry but we can’t find the page you’re looking for.”

A BT spokesperson said the complaint form is functional and has been.

Some BT members have been considering heading to the Australians Financial Complaints Authority (AFCA) regarding the lack of communication and product changes. fs

8

News

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

Small administrator eyes large funds

01: David Elia

chief executive Hostplus

Harrison Worley

Brisbane-based superannuation administrator IFAA is ready to broaden its focus beyond the mostly small and medium super funds it typically serves, as the addition of a new shareholder bolsters the firm.

Almost half of the equity in IFAA has been snapped up by New Zealand administration and consulting firm, MMC. With the Auckland-based firm onboard, IFAA managing director Neil Harvey is planning to broaden the firm’s remit, with corporate and retail super funds now in sight, as well as larger funds of all persuasions.

Typically, IFAA has concentrated on small to medium industry super funds.

The deal is set to ensure “technological synergies” will flow between MMC and its new subsidiary, with the New Zealand keen on exploring how IFAA’s “complementary capabilities” can bolster its client offering.

The company adamant its investment in IFAA is “passive”, though as part of the deal MMC executive chair, Robert Moss and director Philippa Weston will join IFAA’s board.

“Investing in the IFAA Group provides MMC with the opportunity to leverage our core technology platform, NeXus, into a new market,” MMC managing director Tom Reiher said.

“This will provide the Australian business with a superior technology solution, allowing our New Zealand clients access to the Australian market in future.” fs

Platform makes ESG move With ESG investing continuing to prove popular among investors, Praemium is taking steps to ensure advisers are able to meet demand.

The platform has rolled out an “industry first” suite of ESG options, including new screening functionality for advisers and the addition of an Australian Ethical Australian equities option to its separately managed account.

Praemium has moved to embed Sustainalytics ESG research and analysis within its integrated managed accounts platform, to provide advisers with a more intuitive way to tailor client’s portfolios to their specific ethics and values.

While advisers could previously use the platform to cater to some ESG demands by placing holding exclusions, Praemium believes the single stock blocking approach is both time consuming and too involved, given preferences needed continual updating to accommodate stock level changes.

Praemium now offers advisers the ability to automatically screen portfolios across nine screens, including tobacco, gambling, animal testing and three separate fossil fuel options.

Advisers using Praemium can also take advantage of Australian Ethical’s Australian Shares Portfolio, which is now available through the Praemium SMA. The portfolio offers investors access to an actively managed, diversified Australian share portfolio, which uses the 23 principles of the Australian Ethical Charter to guide it towards investments which make positive impact on the planet, people, and animals. fs

Super fund slashes fee Eliza Bavin

O The quote

Hostplus is pleased to be able to continue to innovate and leverage its scale benefits and cost disciplines for the benefit of members.

ne of Australia’s largest superannuation funds has dropped its pension fee by 40%, saving members $156 per year.

The $48 billion industry fund, Hostplus, has said will drop its pension fee from 1 April 2020, with the change set to reduce fees from $7.50 per week to $4.50 per week.

The news comes at a time when other major funds are increasing fees and Hostplus said its move will likely increase pressure on other parts of the super industry.

Hostplus chief executive David Elia01 said the lower pension fee will make Hostplus one of the lowest cost and best value pension product providers amongst major super funds.

“Hostplus’ growth, in both members and assets under management, has been a material factor in its successful investment program, which in turn has seen it deliver marketleading net returns to its members for over 30 years,” Elia said.

“That scale and performance has now contributed to the fund being able to realise and

pass on to its retired members this significant fee reduction.”

Elia said that Hostplus has maintained its core member administration fees at the current levels of $1.50 per week, or $78 per year, for the last 16 years.

It is also one of the very few funds that do not charge asset-based administration fees on either its superannuation or pension products.

“Unlike a straightforward, fixed, weekly dollar-based fee, asset-based fees which are a percentage of your account’s balance, are often charged in addition to fixed fees by many funds and, and typically increase as your account balance does,” Elia said.

“Hostplus is pleased to be able to continue to innovate and leverage its scale benefits and cost disciplines for the benefit of members.”

“Our super account fee freeze, and now a significant reduction in our pension administration fee, continues to support our market-leading performance in both fees and net return performance.”

Hostplus has around 1.2 million members and $48 billion in funds under management. fs

Thematic investing grows threefold Ally Selby

The global thematic funds landscape has increased almost threefold over the past three years, with assets under management swelling to $295 billion (US$195 billion) worldwide.

That’s according to the latest Morningstar report, which analyses the key trends emerging in the thematic funds arena.

At the end of 2019, there were 923 thematic funds in Morningstar’s global database, which select equity holdings based upon secular growth investment themes, like artificial intelligence or cannabis.

The most popular theme dominating the industry is technology, with US$97.3 billion in assets under management globally. Within technology, robotics and automation proves to be the most dominant theme.

“With over US$27 billion in assets, robotics and automation is the most popular theme globally, Morningstar said.

“Interestingly, North American funds account for just 6% of global robotics and automation assets, with the remainder divvied up 55%/45% between funds in Europe and rest of the world.”

Resource management funds, largely populated by water-focused strategies, take out second place, with US$25 billion in AUM. While funds with a “connectivity” theme; focused on internet of things and smart cities, are the third most popular category, with US$23.1 billion in AUM. Demand for these products grew more so in Europe and the rest of the world, rather than in the US. “European-domiciled thematic funds’ share of the global pie has expanded from 2% to 54% since the year 2000,” Morningstar said.

“Despite growing tenfold in size, the market share of thematic funds domiciled in North America decreased from 28% to 16% over the same period.

“While all regions have experienced net inflows over the

trailing five years, Europe and rest of the world have been the main beneficiaries, netting $45 billion and $36 billion in new flows over the period, respectively.”

Asset management style also differs between regions.

“Most assets invested in thematic funds globally are actively managed, including more than 90% of assets under management in Europe,” Morningstar said.

“Bucking the trend is North America, where over 80% of thematic fund assets are passively managed. This reflects the success of thematic ETFs in the region.”

In addition, most of the thematic funds globally (68%) have a growth bias, while only 9% have a tilt towards value stocks.

It’s a hard industry to crack, with mortality rates running high and most funds not beating the benchmark.

“Of the thematic funds launched globally prior to 2015, 69% have survived,” Morningstar said.

“Of those that have survived, just 41% and 26% have outperformed the MSCI World Index over the trailing five and 10 years, respectively.

“Taken together, these figures paint a bleak picture for investors. They suggest that the odds of picking a thematic fund that survives and outperforms global equities are firmly stacked against them.”

The dominant players in the industry are Pictet Asset Management and Nikko Asset Management.

In the report, Morningstar recommended thematic funds be used to complement rather than replace core holdings, due to their narrow exposure and high risk profiles.

“Some, like Pictet Multi Theme Fund, may be used as part of a core allocation, as they are broadly diversified and retain some of the characteristics of a broad global benchmark,” Morningstar said. fs

News

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

JBWere partners with cash platform JBWere has signed an agreement with a cash platform to benefit its 500-strong adviser network.

The wealth manager will use Cashwerkz’s term deposit and at call solutions via the latter’s online marketplace.

Cashwerkz’s platform has over 51 banks, neobanks and credit unions on its platform. It doesn’t directly manage the client money.

The two are currently in the process of a technology implementation program.

JBWere had $52.3 billion in funds under advice and $28.2 billion in funds under management at March, 2018.

The partnership extends Cashwerkz’s footprint in the private wealth space.

“We are very excited to be announcing this agreement with JBWere, one of Australia’s leading private wealth management businesses,” Cashwerkz executive chair John Nates said.

“JBWere have been advising clients since 1840 and are very well known for their advice quality, expertise, and focus on their clients’ best interests,” he said.

The platform has $1.1 billion in active funds on its platform as at January end and so far, users have invested $3 billion in funds through it.

In September last year, Cashwerkz chief executive Hector Ortiz stepped down into a head of sales role, as the company spun out business unit Trustees Australia. fs

01: Allyson Lowbridge

chief customer officer Australian Ethical

Climate activism not translating to investing Eliza Bavin

A The quote

With trillions invested in superannuation in Australia on their behalf, the potential here for transformative climate action is enormous.

Madison holds on to advisers Madison Financial Group has held on to its adviser numbers, as PwC and Seaview Consulting give prospective buyers a closer look at the advice group’s numbers on behalf of OneVue. Madison’s sale includes the advice group, but also three other businesses WealthPortal, AdviceNet and ProActive Portfolios. The three companies cover wealth management, licensing and compliance.

Madison’s advisers look after about $3.8 billion in funds under management and total in force premiums of $65 million on behalf of their clients, according to the sales flyer published today.

Madison’s revenue was not published.

PwC and Seaview have asked interested parties to register interested by email.

Indicative non-binding offers were due March 4. Prospective suitors will have to sign a confidentiality deed.

As the wheels turn, ASIC Financial Adviser Register (FAR) numbers show Madison’s advisers have stuck it out with the firm during the ordeal.

It had 101 active advisers at December end, before Sargon Capital’s Chinese lender forced it into administration after a default on making interests payments on a loan.

At the end of February, it had 107 advisers, according to ASIC FAR. At February 27, it had 107 advisers, according to ASIC FAR’s most recent dataset.

Proceeds from Madison’s sale will largely go to OneVue which has secured interest over the holding company in which Madison is held, for the $31 million owed to it by Sargon. fs

9

ustralia’s care for climate change has not translated into how they invest their superannuation and other investment, according to research from Australian Ethical Investment.

The research shows the vast majority of Australians (83%) believe climate change is occurring and being contributed to by human activity.

However, only 2% believe investing with an ethical super fund will have the greatest positive impact, the research found.

Australian Ethical said the research shows a lack of understanding about the impact of ethical investing as an important climate solution.

Allyson Lowbridge 01, chief customer officer at Australian Ethical said: “The findings reaffirm that most Australians are concerned about the climate crisis and are taking everyday actions to reduce their impact on the environment.”

“And yet these actions are so much more impactful when they’re not undermined by where their superannuation and other savings are invested.”

Lowbridge said the results show Australians think more about the environmental and ethical considerations of their toilet paper than about how their superannuation is invested.

“It seems that Australians are simply unaware of the power of their money,” she said.

“And with trillions invested in superannuation in Australia on their behalf, the potential here for transformative climate action is enormous.”

Stuart Palmer, head of ethics research at Australian Ethical said people who invest ethically are investing not only for their financial future, they’re investing for a future worth living in.

“By collectively moving our money, we can restrict the capital available to unsustainable business, such as coal mining and fossil fuel production, and make it more difficult for these types of companies to expand,” Palmer said.

“By both reducing demand for their shares and drawing attention to the harm they cause, individual investors can create powerful incentives for unsustainable businesses to do better.”

Research by CHOICE found that completely extracting investments from fossil fuels is made difficult by the fact that many of the major players are old fossil fuel companies.

CHOICE said while the renewable energy sector in Australia is growing, few companies have reached an “investable” scale.

Max Cunningham, executive general manager, issuer services and investment products at the Australian Stock Exchange said: “We’re keen to encourage more renewable companies to list. At the moment, renewables are a pretty small part of our market.”

CHOICE said fossil fuel-free super is a recent development and, as a result, fees can be higher than default super and have a larger impact on retirement savings. fs

Stanford Brown hires Deloitte director, acquires accounting firm Kanika Sood

The Sydney wealth and advice firm has hired a senior director from Deloitte, as it kicks off its accounting offering with an acquisition of a local practice.

Stanford Brown has appointed Dean Crossingham to head the accounting business. Crossingham was most recently a director in Deloitte’s family enterprise and commercial advisory and has 15 years of experience.

To kick off the unit, Stanford Brown has acquired a local accounting business Clem Hill & Associates, based in Sydney’s Crows Nest.

“We are delighted to welcome the staff and clients of Clem Hill & Associates to Stanford Brown, and to have fulfilled a longheld ambition to offer our clients tax and accounting services,” Stanford Brown chief executive Jonathan Hoyle said.

Stanford Brown has three main businesses: private wealth

multi-sector portfolio manager Soteria Capital and corporate wellness consultant BeneFit3.

Hoyle flagged the firm’s intention to expand into accounting in October last year, as first reported by Financial Standard.

The rationale was that having financial planning and accounting under the same roof is efficient and allow for concurrent planning (both use similar type of data), favored by clients, and provides better data security than using two different providers.

Hoyle said the firm would consider acquiring an accounting practice or hiring accountants to build the unit.

At the same time, Stanford Brown has also kept an eye out for advice practices up for sale, and in December announced the acquisition of one such firm from Godfrey Penbroke.

World Square Financial Services was founded by former NAB Private Bank financial adviser Robert Wiggins, and specialises in advising high net worth clients and families. fs

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News

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

Evans Dixon slashes staff

01: Kate Lardner

co-founder Healthy Futures

Ally Selby

Embattled wealth manager Evans Dixon has revealed it fired 20% of its staff, as it reports its underlying earnings were down 22% to $20.8 million.

The firm also cut 14% of its staff in its wealth advice business, 5% of its E&P businesses, 20% of its Australian funds management business and 47% of its US team in funds management.

The staff cuts are set to save the wealth manager an approximate $12 million in annualized fixed remuneration.

The full year earnings adjustments include $1.7 million in expenses related to employee termination costs following the firm’s operational review.

It also blamed the decrease on reduced contributions from its E&P and funds management businesses.

Revenue in Evans Dixon’s funds management business was down 11% from the same period to $31.2 million, while underlying EBITDA was down 22% to $7.9 million.

“The decline in underlying EBITDA compared to the prior corresponding period was driven primarily by the reduction in non-funds under management based revenues and the rationalisation of the US operations,” Evans Dixon said.

“Offsetting these declines was an increase in recurring funds under management based net revenues to $22.8 million, up 23% compared to the prior corresponding period.”

Evans Dixon announced a reduction in earnings per share, at 3.9 cents. fs

Unsatisfied HESTA members head for exit Elizabeth McArthur

A The quote

Fossil fuel companies are killing people and by owning them you are killing people.

ETF popularity soars 52% Latest insights from Morningstar show Australia’s ETF market grew 52% in 2019, reaching highs of $61 billion in assets.

It’s a far cry from two decades ago; the industry was worth $3 billion in 2010, and there were only 27 ETF products available for investors.

Morningstar manager research analyst Ksenia Zaychuk said she expects the sector to continue on this trajectory.

“It’s likely we will continue seeing the same growth in ETFs over the next 10 years,” she said.

There are now 213 ETFs in Australia, with products spanning a wide range of equities, fixed interest, multisector, and real estate.

Zaychuk said most surprising was an increase in fixed interest ETFs. “Fixed interest ETFs are a relatively new concept to the local market, there were none listed in 2010,” she said.

“With more than $4.3 billion in flows to those products in 2019, a lot has changed.”

Of the five new fixed interest products launched in 2019, two of these were active ETFs. “Such interest might be due to the strong performance from both the Australian and global fixed-interest markets; the Bloomberg AusBond Composite 0+Yr TR and Bloomberg Barclays Global Aggregate TR Hedged AUD indexes returned 7.26% and 7.19%, respectively, in 2019,” Zaychuk said. fs

n activist group who met with $50 billion industry fund HESTA following a protest have revealed that several from their group were so disappointed with the outcome of the meeting that they’re leaving the fund.

Healthy Futures is an organisation of health professionals who want to address the damaging health effects of climate change.

Healthy Futures co-founder Kate Lardner 01 wrote to Debby Blakey, chief executive of HESTA, airing the group’s concerns about the health consequences of Australia’s recent bushfire season.

“In light of these health impacts it is unconscionable that HESTA continues to invest hundreds of millions of dollars of healthcare workers’ money in fossil fuel companies,” the letter said.

“Fossil fuel companies are killing people and by owning them you are killing people. It is morally incumbent on you to divest from fossil fuels. Will you remove these investments to improve health and protect lives?”

Receiving no satisfactory response, Lardner and the group pushed ahead with a plan to protest outside HESTA’s offices and demand a meeting with Blakey.

That protest went ahead with “about 20” people turning up, according to HESTA. HESTA head of impact Mary Delahunty and general manager of media relations Sam Riley met with Healthy Futures co-founder Harry Jennens and one other person from Healthy Futures, declining to meet with all 20 protesters.

Speaking to Financial Standard, Lardner and Jennens said the outcome from the activist group’s

meeting with HESTA left them gridlocked.

Jennens said over 440 HESTA members have used Healthy Futures’ online tool to email the fund asking them to divest from fossil fuels.

“They said they think if they take money out of fossil fuel someone else will invest in those companies, but we think the power of divestment is stigmatisation,” Lardner said.

“We went back and forth on that issue and Mary Delahunty said that while we don’t agree on the process we agree on the end goal.”

Lardner said she asked Delahunty whether HESTA would contact the fossil fuel companies Healthy Futures are concerned about and get pledges from them to set emissions targets.

However, Delahunty said she could not make promises like that.

“So I think even the end goal we’re not in agreement on,” Lardner said.

“She was encouraging us to keep expressing our concerns but essentially their position will be continuing to engage in the companies to get better outcomes.”

Lardner said the example Delahunty used to illustrate engagement with fossil fuel companies being effective was BP, which committed to net zero emissions by 2050 in vague terms.

“I don’t think HESTA played a big part in BP making that declaration,” Lardner pointed out.

BP says on its website that net zero emissions across its operations by 2050 is an ambition and will be assisted by the deduction of carbon sinks.

“I was a bit confused that she encouraged us to keep going with the campaigns,” Lardner said of the meeting with Delahunty. fs

Pinnacle boutique eyes wholesale market Kanika Sood

A well-regarded infrastructure boutique, which recently coinvested with HESTA and First State, has opened its strategy to wholesale investors for the first time.

Palisade Investment Partners has set up a feeder fund for wholesale investors, which will invest in its flagship Palisade Diversified Infrastructure Fund (PDIF).

PDIF holds a portfolio of 20 assets based in Australia and New Zealand in sectors such as airports, ports, renewable energy and social infrastructure.

It delivered total return of 12.7% per annum, over five years to December end. Of this, 8.9% is gross annualised income.

Its usual investor base includes superannuation funds, charitable foundations, sovereign wealth funds and offshore pension funds.

The new wholesale vehicle, the Palisade’s Unlisted Infrastructure Trust (PUIT), has a minimum of $50,000.

Palisade is allocating $100 million to wholesale investors in PDIF. “We have seen the benefits that unlisted assets, and specifically unlisted infrastructure, can play in a diversified

portfolio in terms of diversifying away from traditional asset classes such as equities and fixed interest,” Palisade managing director and chief executive Roger Lloyd said.

“We are delighted to be able to provide access to Palisade’s infrastructure capability to a market segment which has not historically been able to access unlisted infrastructure.”

Lloyd was formerly Perpetual’s head of infrastructure.

Palisade was an investor in Sydney Metro Northwest since 2014, before closing the position in November. In December, Palisade partnered with HESTA and First State Super to a wind farm in South Australia for a total enterprise value of $1.1 billion.

Palisade managed $2.3 billion at December end, and has three main funds.

In addition to PDIF, which has been running since 2008, it runs the Palisade Australian Social Infrastructure Fund (PASIF).

PASIF has delivered 15.38% p.a. in gross returns, since its inception in May 2011.

The third fund is the Palisade’s Renewable Energy Fund (PREF) which has a focus on primarily local renewable energy assets. fs

Product showcase

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

11

01: Anthony Doyle

cross asset specialist Fidelity

An active approach to Asia will be key Here’s why your clients should be taking a long-term look at the global growth powerhouse that is Asia, in spite of current headwinds. sia’s spectacular rise – particularly that of A China – has been a hot topic of conversation for many years now.

Home to 60% of the world’s population, Asia’s GDP is twice the size of the US and the region currently contributes a third of the world’s global growth.

Further, China, India and Indonesia are expected to take three of the five top spots in the global economy by GDP by 2050.

Despite this, an allocation to Asia is still not a core component of most investors’ portfolios.

Drawing on 50 years’ experience in the region, Fidelity believes investors could gain substantially from a long-term, structural allocation.

Asia benefits from structural themes like great demographics and rising incomes with the latter in turn ensuring rising wealth and consumption, Fidelity cross asset class specialist Anthony Doyle 01 says.

“It’s so diverse and there’s so much change happening at the moment…It is an area of the world that investors, if they allocate to it, can benefit from a superior risk-adjusted return over the course of the long term,” he says.

One way of doing this is through the Fidelity Asia Fund, overseen by portfolio manager Anthony Srom.

The Fidelity Asia Fund, incepted in 2005, provides investors with access to a concentrated high conviction portfolio of between 20 and 35 companies across Asia.

It operates on a disciplined ‘one stock in, one stock out’ approach, which is designed to increase the prospect of each company making a meaningful contribution.

Those stocks are selected on the back of bottom-up analysis produced by Fidelity’s 40-strong team of analysts in the region, located in Shanghai, Mumbai, Singapore, Hong Kong and beyond.

“Having those analysts available and the research they produce available to the portfolio manager really allows us to do deep dives on each company and truly understand the potential for generating performance within the portfolio over the course of the medium to long term,” Doyle explains.

Doyle says this on-the-ground presence denotes a real competitive advantage, making it much easier to navigate the different regulatory and accounting standards in each country.

“Anyone that’s travelled through Asia will know how varied and diverse it is…It’s so important to be there on the ground to actually

meet with company management and truly understand the companies that you’re investing in,” he says.

And it’s paid off, with the Fidelity Asia Fund achieving an annual return of 14.2% per annum over the last five years.

The fund also saw a particularly strong 2019, celebrating a net return of 23.73% for the 12 months to 31 January 2020.

“We managed to generate good performance last year, which is really encouraging and our stock selection drove that performance,” Doyle says.

It’s an impressive result given the increased volatility in the region last year, particularly with the geopolitical tension between China and the US that resulted in trade tariffs being imposed.

Where some may have sought to focus their attentions elsewhere, Fidelity saw it as an opportunity to take some contrarian views.

“The Fidelity Asia Fund doesn’t have a style bias and often the stocks that enter the portfolio have a bit of a value, contrarian bias within them,” Doyle explains.

As a result of the trade tariffs in particular, sentiment around Chinese equities shifted into negative territory.

Going against the grain, Fidelity remained selectively positive and ended the year with a Chinese equity holding as its top performer.

In fact, it’s been the top performer for the last five years.

In 2014, when Srom took over the fund, it invested in state-owned Kweichow Moutai, the producer of the world’s most popular spirit, baijiu.

“To me it looked like a fundamentally sound company. Yes, you might get some short-term headwinds but negative sentiment is something that gets me very interested in an idea,” Srom explains.

The fund has gradually built its position from then, topping up during various dips.

And why is that?

Depending on its age, in Australia, a 500ml bottle of baijiu will set you back anywhere between $99 and $5869.

It’s the national drink of China, traditionally given as a gift or consumed on business occasions; put simply, baijiu is an institution in China.

For this reason, the majority of Kweichow Moutai’s revenues and sales come from the domestic Chinese consumption market.

“It goes to show you that there are companies in China where tariffs placed on exports will

The quote

It’s so diverse and there’s so much change happening at the moment…It is an area of the world that investors, if they allocate to it, can benefit from a superior risk-adjusted return over the course of the long term.

have less of an impact, particularly if those companies are generating their profits from rising consumption and wealth in China,” Doyle says.

That said, we can’t talk about China at the moment – or the rest of the world for that matter – without discussing coronavirus, or COVID-19.

With more than 90,000 confirmed cases, in late February we saw markets tumble roughly 11% in a matter of days as panic set in. It was the worst seven-day period seen since the Global Financial Crisis.

“It’s definitely an uncertainty for investors in China or emerging market investors, and now that cases have appeared in other developed nations the world is currently in risk-off mode,” Doyle explains.

It’s got investors splitting into two distinct camps: those that believe the impact will be short-term and those thinking the virus could develop further.

But Fidelity doesn’t trade on short-term news and neither should you.

Fidelity advocates for a long-term holding, specifically a minimum investment period of five to seven years.

“The companies we hold in our portfolio are quality companies that can ride out any kind of economic dislocation that may result from a short-term or potentially longer term hit to economic growth,” Doyle says.

Ultimately, it’s unlikely that the virus will really detract from the long-term structural themes the Fidelity Asia Fund is built on, he adds.

“The region is simply too large to ignore for Australian investors now and it is characterised by superior returns in that many of these companies will benefit from rising incomes, rising wealth and rising consumption,” Doyle surmises.

This is the region that will drive global growth in the coming decades and there are numerous different themes set to play out that investors can benefit from, he adds.

“It is truly a different type of market to what you might get in the ASX 200 and we think that Australian investors that take that long-term approach will stand a good chance of generating strong risk-adjusted returns going forward,” Doyle says. fs Brought to you by

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News

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

Raiz cuts AET amid Sargon saga The board of investment platform Raiz has dumped Australian Executors Trustees (AET) as its independent custodian, in what comes as the latest development in the Sargon saga.

Raiz has appointed Perpetual Corporate Trust as its new independent custodian, effective from February 27 this year.

“Perpetual Corporate Trust is a respected and leading provider of custody services,” Raiz said.

“Perpetual Corporate Trust is a member of the Perpetual Limited group which has provided trustee and custodial services since 1886.

“We will terminate our relationship with Australian Executors Trustees.”

Perpetual Corporate Trust has been appointed under a custody agreement, and will independently hold the assets of Raiz Invest’s Australia fund as its key service provider.

Perpetual will have no supervisory role in relation to the operation of the fund and has no liability to individual investors for omissions made in accordance with the custody agreement.

It comes after Sargon announced it had found a buyer for eight of its companies to an external, unnamed buyer in an exclusive sale agreement.

These include business units such as AET, Diversa Trustees, CCSL. Although the sale price is currently unknown, it is thought to be much less than the original purchase price paid by Sargon for the three aforementioned businesses ($94.6 million). fs

01: Robert Brown

chief executive ACSA

Northern Trust climbs custody league tables Harrison Worley

N The numbers

28.4%

Northern Trust increase in total assets under custody for Australia.

Industry models misleading Eliza Bavin

Super Consumers Australia (SCA) has taken a stance against industry-created retirement models, saying Australians deserve realistic retirement income standards.

In its submission to the Retirement Income Review (RIR) SCA said existing models pushed by the wealth management sector have serious flaws, making them inappropriate for an increasing number of people.

“Existing models overestimate what most middle-income retirees will need, and fail to model scenarios for people who rent a property or are still paying off their mortgage, a category of people likely to increase in coming generations,” SCA said.

“At best, industry-created models are misleading, and at worst they are self-serving by encouraging greater flows of money into the wealth management sector.”

SCA said the systematic undervaluing of work done by women means they are left with substantially lower superannuation balances at retirement.

“We think there should be a strong focus on modelling bolder policies that drive at the heart of the inequalities in the way women’s work is valued,” SCA said.

“In the superannuation space, we see a need for clear modelling on the impacts and benefits of paying superannuation on all forms of leave, and removing the $450 threshold.”

SCA also called for improved accessibility and quality of retirement planning advice, saying the advice market continues to fail people. fs

orthern Trust has almost 30% to its assets under custody in the second half of 2019.

The Australian Custodial Services Association’s latest asset servicing industry statistics show Northern Trust recorded a 28.4% increase in total assets under custody for Australian investors in the six months ending 31 December 2019, securing third spot overall.

The sector saw the value of assets under custody increase across both Australian and foreign investors.

J.P. Morgan continues to lead the way, taking care of more than $866 billion under custody for Australian investors, having recorded a $57.3 billion increase in the second half of last year.

NAB Asset Servicing maintained second position with $578 billion, but Northern Trust was the big improver, adding more than $127 billion to jump Citigroup, State Street, and BNP Paribas to become the third largest asset servicing firm for Australian investors.

ACSA chief executive Robert Brown01 said overall, the local sector saw an 8% increase in the value of assets under custody for Australian investors over the period, hitting $4.06 trillion.

“The figures are a composite from ACSA’s custody members. Key underlying client segments include superannuation funds, fund

managers, insurance companies, wealth platforms, government entities plus major charities and endowments,” Brown said.

“Accordingly, the statistics represent net flows and market valuation movements across the institutional investment sector.

“The bulk of total assets remains invested in Australia, although $1.23 trillion – just over 30% – is invested offshore. The data shows that an increased exposure to offshore markets is a long-term trend for Australian institutions. The corresponding figure at December 2009 was $396 billion or 22%.”

Brown said that while they weren’t currently included in the statistics, ACSA had noticed the “significant trend” of investors’ surging appetite to increase allocations to unlisted assets across equity, debt and infrastructure.

“For example, for funds that disclose their allocation benchmarks, the APRA Quarterly MySuper Statistics for December 31 2019 show unlisted equity allocation targets range from 0% to 12%. The asset weighted average was 3.5% as at the end of December last year,” he said.

“ACSA has work underway to better engage the broader market to improve systemic efficiency in custody and investment administration in response to these changing allocation patterns.” fs

Mid and small-caps outperform in 2019 Ally Selby

S&P Dow Jones Indices has released its annual SPIVA Australia Scorecard; a report measuring the performance of active funds against their respective benchmark indices – and mid and small-caps have come out on top.

Surveying returns from 829 Australian equity funds, 420 international equity funds and 115 Australian bond funds, the SPIVA Australia Scorecard found that the majority of Aussie funds performed better in 2019 than they did the previous year.

The majority of Australian general equities funds were outperformed by their benchmark (S&P/ASX 200), as were A-REIT funds (S&P/ASX 200 A-REIT), with 61.5% and 65.2% of funds underperforming their benchmarks, respectively.

In comparison, only 46.9% of Aussie equity mid and smallcap funds underperformed the S&P/ASX Mid-Small benchmark.

“The S&P/ASX Mid-Small gained 21.6% in 2019, while Australian mid and small-cap funds recorded larger net returns of 25.6% and 23.3% on equal- and asset-weighted bases, respectively,” S&P Dow Jones said.

“On an absolute and risk-adjusted basis, 46.9% and 43.1% of funds lagged the benchmark, respectively, with 3.8% of them being liquidated.

“Over the five and 10-year periods, 69.7% and 49.1% of funds underperformed the S&P/ASX Mid-Small on an absolute basis, respectively.”

The scorecard also found that smaller funds in this space outperformed their larger counterparts.

“The Australian mid and small-cap funds recorded lower assetweighted returns than equal-weighted returns for all measured periods, indicating that smaller funds in this category tended to perform better than their larger peers,” S&P Dow Jones Indices said.

“This trend has been consistently observed in the SPIVA Australia Scorecards.”

2019 wasn’t a fantastic year for large-cap Australian equity funds, with the majority underperforming the benchmark.

“In 2019, the S&P/ASX 200 recorded a total return of 23.4%, while Australian large-cap equity funds recorded a net return of 21.9% and 21.8% on equal- and asset-weighted bases, respectively,” S&P Dow Jones said.

“On an absolute and risk-adjusted basis, 61.5% and 67.9% of funds did not outperform the benchmark, respectively, and 1.8% of them were liquidated over the one-year period.

“Over the five and 10-year periods, 80.8% and 83.9% of funds underperformed the S&P/ASX 200 on an absolute basis, respectively.”

International equity funds similarly recorded disappointing results.

“In 2019, more than 70% of international equity funds underperformed the S&P Developed Ex-Australia LargeMidCap on absolute and risk-adjusted bases,” S&P Dow Jones Indices said.

The benchmark recorded gains of 28.1%, while international equity general funds posted average gains of 24.6%. fs

Opinion

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

13

01: Dawn Thomas

senior financial adviser Wealthwise

Embrace the change “We are being asked to be better.” hat is how I recently explained the new professional standards to a client, as we discussed the FASEA Code of Ethics.

The client, a man with a steely, interrogating gaze responded: “I like that.”

I can attribute the ability to advocate the Code of Ethics to studying for the ethics unit.

I wholeheartedly recommend that advisers complete this unit sooner rather than later because it helps prepare you for the new era that we are in.

The industry has been served with multiple requirements, aimed at raising our industry from an aspiring profession to a profession.

There are still numerous implementation challenges to overcome as we chase our ambitious status. Before I started the ethics unit, it appeared to be just another requirement. I expected the content to be dry and lacking of real world applications.

My first reaction to the code was a sense of being overwhelmed. I felt I knew nothing.

When I started engaging with the study material, I was captivated because it was both fascinating and comforting.

Fascinating to get into your own head, uncovering how simplistic drivers of human behaviour can be and how that determines our actions.

With at least another 25 years left in this industry that I love, it is comforting to know that we are absolutely heading in the right direction to earn the public’s trust.

Concepts are applied to realistic situations and challenge current thinking. The assessments were manageable, interesting and you could employ the learnings immediately.

I identified numerous take outs from the course, and here are the five most impactful ones.

T

1. Being ethical is not a straightforward assessment The unit unpeels how we have different ways of determining what is ethical and how biases can cloud our judgement.

Being able to recognise the different ethical frameworks maps out how people can come out with various views on whether something is ethical.

Concepts such as rationalism, forms of bias and ethical fading help an adviser to comprehend that the existence of an unethical action is not from one mere standalone event. It is insidiously from a small series of justified erosions.

It was valuable to understand biases that clients can bring to our meeting and how to skillfully navigate these situations; biases such as selfconfidence bias, where someone is overconfident about their knowledge, thinks they can control a situation or are unrealistic about outcomes.

2. Informed consent Standard 4 states that we can only act for a client with their free, prior and informed consent. The study material invites you to take a plunge into this topic by discussing how this has been applied to other professions. As with all other topics, it connects you to further research so you can achieve a rounded view.

As licensees look to mitigate risk, the adviser process has become heavily compliance focused.

This means that many essential documents can lack the clear, concise, language that is free of jargon which is one of the assessments AFCA makes when reviewing a complaint.

Clients trust us and sometimes, they forgo understanding areas of advice, in favour of trusting the judgement of their adviser.

The issue arises when their trust is misplaced. It is our job, as outlined by the Code of Ethics, to take the time to get clients to fully understand what they are undertaking.

More often than not, the complaints that AFCA received were derived from clients not giving informed consent. AFCA revealed that advisers who take into account essential considerations such as literacy and numeracy levels, are less likely to end up with a complaint.

In this compliance heavy environment, it is imperative not lose sight of the most important people in this process: the clients.

This relates to both members of a couple. A 2012 study conducted by the US National Bureau of Economic Research found that advisers were getting an incomplete picture of female clients and relying on assumptions instead to fill the gap.

Consequently, there were worse advice outcomes.

This requirement is particularly encouraging for our industry, because it is asking us to include everyone in the journey to financial empowerment. Leave no man or woman behind, and if you do, go back and try harder.

I paid particular attention to the other things I was doing in meetings to help clients understand better, such as my badly drawn diagrams. I became especially cognisant of how clients liked to learn. While these were things I did before, I do this now with more clarity, making note of how I am assessing my clients understanding.

3. Exploring Standard 6 of the Code Standard 6 requires advisers to consider the broad effects arising from the client acting on our advice and consider long term factors assess.

Simply put, ruminating and articulating big picture considerations. For example, you could set up the most perfect plan for a retired couple, however if their children are not insured, this can substantially affect those retirement plans if something unforeseen to their health.

4. Understanding the concept of a profession This helps us to gauge where we are now and how far we must go to achieve this coveted status. The Australian Council of Professions defines profession as a ‘disciplined group of individuals who adhere to ethical standards and who hold themselves out as, as are accepted by the public as possessing special knowledge and skills in a widely recognised body of learning derived from research, education and training at a high level, and who are prepared to apply knowledge and execute these skills in the interests of others. It is inherent in the definition of a profession that a code of ethics governs the activities of each profession’.

The quote

With at least another 25 years left in this industry that I love, it is comforting to know that we are absolutely heading in the right direction to earn the public’s trust.

5. Exploring the responsibilities associated with the code The code’s value of competence compels us to hone our judgement to assess that we have the skills to follow the required process and aid the client. The kicker is that – ‘the duty of competence is ultimately personal and cannot be outsourced to others’.

Powerful to perceive, that regardless of what is asked of you by your employer or licensee, the responsibility of competence, lies on the individual adviser.

If someone sees this unit as a mere requirement and the Code of Ethics as just another layer of compliance, they are missing the point.

I have observed that there is a disconnect in understanding of the new standards between advisers who have done the course versus advisers who have not.

Those who have done it are armed with extra tools to enhance their service offering to their clients.

With the extension of the FASEA study requirements to 1 January 2024, some advisers coming up for retirement may not plan to complete the unit.

Combining experience with the knowledge learned from the course, will enhance the guidance these advisers can give as they pass the baton to the next generation of advisers.

We are being asked to become a better version of ourselves for the benefit of the public and the industry.

So what of the impact of endeavouring to attain this?

As my client shook my hand towards the end of our meeting, he expressed with softened eyes: “That was the best financial planning appointment I have ever had.”

It assured me that I was on the right track, and that the time invested in the ethics unit was already making me a better adviser. fs

14

Feature | ESG

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

DON’T CALL IT A JOURNEY ESG doesn’t even need to be spelled out anymore.

Everyone knows what it stands for. But the worst cliché surrounding the movement is that it’s a journey. The reality is those who have yet to make any meaningful progress stand to be left behind. Elizabeth McArthur writes.

ESG | Feature

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

L

01: Jenn-Hui Tan

02: David Lunsford

03: Andrew Howard

global head of stewardship and sustainable investing Fidelity International

executive director and head of climate policy and strategy MSCI

head of sustainable research Schroders

ast year was the first year that the United Nations Principles of Responsible Investment (PRI) delisted companies that signed up with big promises of investing in a responsible manner.

Ten signatories were kicked out in 2019, and 69 are currently on the watch list.

The baseline that the PRI expects from signatories is to have a policy covering their responsible investment approach for the majority of their assets, a staff member to implement it and someone senior to oversee it.

So if signatories couldn’t, or wouldn’t, meet those basic requirements why did they sign up in the first place?

“We are on the edge of a fundamental reshaping of finance,” BlackRock chief executive and chair Larry Fink wrote in his annual letter to chief executives earlier this year.

“In the near future – and sooner than most anticipate – there will be a significant reallocation of capital.”

Fink used the letter to outline BlackRock’s plans to place sustainability at the centre of its investment approach and to exit thermal coal while launching new investment products to screen out fossil fuels entirely.

The investment giant aims to divest all companies that generate more than 25% of their revenue from thermal coal by the middle of 2020.

However, the letter was not clear about the fact that the exit of thermal coal would only apply to BlackRock’s active mandates – 73% of its US$7.4 trillion in assets under management is in indexed strategies.

The E in ESG – for environment – seems to be most commonly grabbing headlines.

According to Rainmaker analysis, there are 165 ESG options offered by 41 super funds in Australia. Ten years ago there were next to zero.

In the US there were just 65 investment funds (excluding unit trusts) with the words ESG, clean, environmental, impact, responsible, social, or sustainable in their names as of 31 December 2007.

By 31 December 2019, that number sat at 291.

This extraordinary growth is not without scrutiny.

The US Securities and Exchange Commission is calling for public comment on how funds are named, in an effort to reduce misleading fund names – with funds labelled as ESG, ethical, responsible, sustainable or impact an area of concern.

Fidelity International, with US $2.4 trillion in assets under management, made waves when it introduced a system for rating the ESG qualities a company possesses and said it would integrate that score into investment decisions.

Fidelity International global head of stewardship and sustainable investing Jenn-Hui Tan 01 apologises for using the “worst cliché in ESG” when he says, “it’s a journey”.

Alphinity IM portfolio manager Bruce Smith is blunt on where he thinks ESG stands right now.

“ESG has become pretty much universally adopted by investors in the last decade, although with varying degrees of rigour. You wouldn’t be taken seriously if you didn’t say you thought about ESG,” he says.

“It really is a licence to operate; just like we expect companies to do the right thing, investors expect fund managers to do the right thing.”

Recognising this, MSCI executive director and head of climate policy and strategy David Lunsford02 co-founded a start-up called Carbon Delta, which was acquired by MSCI in 2019.

Carbon Delta developed new ways to produce data around climate change risk.

Its acquisition by one of the most respected research houses in the world was a clear indication that investors want data on climate change and that ESG research capabilities are worth investing in.

Meanwhile, Schroders head of sustainable research Andrew Howard03 and his team have integrated ESG considerations across every investment desk at the $992 billion global asset manager.

“Climate change has become not just an environmental consideration but a business issue, a financial issue and an investment issue,” he says.

The growth in the number of ESG options is an indication that public opinion has swung in favour of ESG investing and Australian super funds are feeling the pressure from all directions.

It really is a licence to operate; just like we expect companies to do the right thing, investors expect fund managers to do the right thing.

Bruce Smith

15

Again, climate is front of mind.

Earlier this year, $85 billion industry fund UniSuper was hit with a divestment campaign organised by Market Forces.

The campaign has so far seen more than 10,000 people sign a petition requesting UniSuper divest from all fossil fuel companies.

Will van de Pol04 , asset management campaigner at Market Forces, explains the campaign against UniSuper was driven by members, not by the fund’s investment strategy.

“We did this campaign in response to really clear demand for it,” he says.

“But I think there are other funds with similarly engaged membership bases and we are already getting outreach from people saying ‘what about my super fund?’”

In the same week Market Forces ran full page ads in Australian newspapers requesting UniSuper divest, protesters gathered outside the offices of $50 billion industry fund HESTA. This time the activist group in question was Healthy Futures, a group of health professionals concerned about the impact of climate change on the health of the population. As HESTA is the industry fund for health professionals, the group feels the fund should be more concerned about climate change, taking into consideration things we currently take for granted like clean air and water and safe food.

First State Super is also in Healthy Futures’ crosshairs.

And it’s not just the public putting pressure on funds, APRA is calling on all entities it regulates to consider climate change risk.

It wrote to super funds saying climate change will be firmly on the agenda as part of its efforts to increase industry resilience.

Market Forces and those who support its campaigns are clear on what they want – divestment.

Divest or don’t J.P. Morgan global pensions executive Benjie Fraser 05 talks to the world’s biggest pension funds.

Of the total US$40-$50 trillion in defined benefit and defined contribution systems, 300 pension funds in the world are responsible for almost half that money.

Advance your ESG framework As you focus on investing responsibly, J.P. Morgan delivers everything you need to make it easier to manage your assets.

Learn more about J.P. Morgan Securities Services jpmorgan.com/securitiesservices

16

Feature | ESG

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

04: Will van de Pol

05: Benjie Fraser

06: Moya Yip

asset management campaigner Market Forces

global pensions executive J.P. Morgan

head of responsible investment Local Government Super

Ninety of those 300 rely on Fraser and his team at J.P. Morgan.

He says his clients care deeply about ESG and their concerns have only increased over the years.

“These funds are considering how they conduct themselves in terms of investments. They are forming a continued view of what it means to be an owner of assets, how you link with your asset manager and the underlying investee company,” Fraser says.

While signing up for the UNPRI has been an option for decades, Fraser sees a series of forces accelerating how seriously pension funds take ESG. “There are a lot of headlines around climate all over the world. But ESG is not only about the environment or climate,” Fraser says.

Regulatory pressures are another factor. Fraser has seen ESG integration accelerate since the Paris Agreement in 2015, particularly in Europe.

Europe has been something of a hub for forward-thinking on ESG, he says, with Article 173 mandating climate change related reporting for institutional investors in France and the European Union requiring occupational pension providers to evaluate ESG risk.

“The most systematic development of ESG goals has been in Europe but a number of the Australian funds have been early developers of negative screening,” he says.

Australia was one of the first markets in the world to move on tobacco divestment.

Local Government Super (LGS) first dipped its toes into ESG when it screened tobacco out of its Australian equities portfolio around 20 years ago.

The fund has a sustainability policy that informs all its investment decisions and a carbon neutral property portfolio which it prides itself on.

It also has a list of excluded stocks that is reviewed and sent to managers on a quarterly basis.

LGS head of responsible investment Moya Yip 06 says that while the funds negative screens include things like gambling, weapons and some of what it views as the worst fossil fuel stocks alongside tobacco – the issue members overwhelmingly care about is the environment.

“We get member enquiries, often around voting time, and around 95% of the enquiries we get are about climate change risk,” she says.

Even for Equipsuper financial planner Cara Sloshberg 07, environmental factors are the number one ESG enquiry from clients.

“Equipsuper’s heritage is in the electricity sector so we tend to have a lot of people who work in electricity, gas and mining as members.

I guess in some ways they tend to be less focussed on ESG just by virtue of the industries they work in,” she explains.

“I tend to find there is a group that are really engaged though, and they want to divest away from fossil fuels. It’s hard for them because there aren’t that many options.”

But negative screens and divestment aren’t the answer for everyone.

Mans Carlsson-Sweeny 08 , head of ESG research at Ausbil has seen a shift away from divestment to engagement.

And he agrues it makes sense, particularly if you’re an Australian equities manager.

“In a market like Australia, we’re a small country with a limited investment universe and we have good corporate access so investors are naturally incentivised to engage with companies,” Carlsson-Sweeny says.

“It’s not activism, it’s engaging in a consultative manner to improve companies and thereby improve their sustainability.”

Measuring success Carlsson-Sweeny and his team at Ausbil conduct their own proprietary ESG research.

“We don’t buy any ratings; we don’t get any third party data on ESG research. We think the Australian market is quite small and we can do it ourselves,” he says.

His issue with third party data and ratings is that they are often based on public disclosures by companies and, as an investor, it’s obviously desirable to be one step ahead.

Bottom-up, original ESG research pays off, Carlsson-Sweeny says.

“A few years ago, I was trawling through social media and I found some information about employees being underpaid at a particular franchise,” he says.

Not one to name and shame, Carlsson-Sweeny declines to point out which company he is referring to but says the stock was rather expensive at the time.

“We actually took a short position on that stock in one of our long/short funds because we thought that information would eventually come out in the media. Sure enough, it took about a year and then the media started to write about it and that stock tanked.”

Relying on company disclosures would not have produced that result as a company is pretty unlikely to disclose the underpayment of staff unless its hand is forced, he says.

Tan agrees.

“A couple of years ago we had a model where the ESG team did ESG research and then we went to the portfolio managers and we said, ‘look at our piece on climate change or supply chain or whatever, isn’t this interesting?’” he explains.

“We were reaching them only after they had made their stock selection decisions, only after they constructed their portfolios. So they had already come up with a view of how they want to buy the stocks.”

Fidelity’s proprietary ESG rating system asks companies between five to seven questions, which are unique to the sector and sub-sector.

The questions vary greatly from sector to sector, analysts looking at oil for example might be asked to look at how the company is prepared for

There are a lot of headlines around climate all over the world.

But ESG is not only about the environment or climate.

Benjie Fraser

future climate change regulation and how they are minimising health and safety risks.

Meanwhile, banks might be asked about their social license to operate, their corporate culture and how ESG is integrated into their lending practices.

“The main thing we try to do, and the reason we think this is the right direction, is it’s done by the investment team not by the ESG team,” Tan says.

“So our role changes, we are more consultants to other parts of the firm to help them integrate ESG.” Fidelity introduced its rating system in July 2019 with a goal to rate every company it has under coverage by the end of the year. That goal was met and Fidelity now has 3700 companies rated.

Fraser and his team at J.P. Morgan are also taking ESG more seriously as time goes on.

“We’re building on the data that we provide to asset owners to include ESG factors. In the end, our clients want better data on this to further assist a positive engagement with their fund managers,” Fraser says.

“We are quite excited about being able to give data to our clients with additional factors relating to ESG.” Fraser sees ESG as having well and truly moved to being something that should, at bare minimum, be integrated into the risk management process.

And as ESG grows, so too does the number of proprietary research systems. Howard and his team at Schroders call theirs SustainEx. “Companies are increasingly being held to account for the impact they have on society,” Howard says.

“Really, all we’re doing with SustainEx is asking if companies were handed a bill at the end of the year, or a credit note, that said ‘here is the impact you’ve had on society that you haven’t paid for’, how big would the bill be?”

SustainEx applies a dollar amount to the costs or benefits of ESG practices.

“What we’ve done is turn everything into dollars, which means we can compare across companies and integrate that analysis into investment decisions in a way that’s traditionally not that easy,” Howards says.

Still, Howard does see a place for off the shelf, third party research on ESG. “It would be a lot easier for us if we could use an off the shelf solution, we might have been able to go home a bit earlier,” he says.

“The problem we run into is there is no such thing as definitively good or bad ESG for companies or portfolios or sectors. There’s no consistent view of a company’s ESG profile.”

Tan agrees, saying Fidelity still looks at third party ratings alongside its own.

“We didn’t do this rating because it would save us costs. If anything it’s the other way around,” Tan says.

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Š2020 JPMorgan Chase & Co. All rights reserved.

This advert is for institutional and professional investors only and subject to the important disclosures and disclaimers at www.jpmorgan.com/pages/disclosures.

18

Feature | ESG

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

07: Cara Sloshberg

financial planner Equipsuper

“We still use third party ratings but we think they don’t give a full picture for a lot of reasons.

One is, there’s not a lot of agreement between the different rating providers.”

J.P. Morgan too uses data from many sources to assess complex ESG factors.

“Taking in vendor feeds to support our performance and risk analytics service is our bread and butter as a custodian,” Fraser explains.

“But, in addition, we’ll now introduce ESG factors.”

The interest in ESG saw MSCI ESG Research make 2800 of it’s ratings public as part of a campaign to increase ESG transparency and data for investors.

MSCI ESG Research rates companies on an AAA to CCC scale according to their exposure to ESG risks, using 1000 data points from company disclosures and alternative data sets, across 37 key ESG issues.

A separate rating, the MSCI Climate Valueat-Risk (Climate VaR) measure was developed

by Lunsford and his team.

“MSCI is putting an emphasis on climate change for a number of reasons,” he says.

For an idea of the scale of Lunsford’s project, Climate VaR uses a database of 600,000 company facilities and maps the climate risk to each facility.

The tool can even align a company’s behaviour to a degree of global warming.

The next big thing In her role, Mercer principal – responsible investment Jillian Reid09 takes a bird’s eye view of ESG integration.

She assesses the ways fund managers are integrating ESG into the investment process in order to feed that information back to institutional clients.

“When we research those strategies we need to maintain a focus on all the funda-

mentals we would ordinarily be looking at,” Reid explains.

“We differentiate by asking the portfolio manager for company examples, how it’s affecting their investment decision making and how it’s changing their investment process.”

She says she has to be wary of greenwash, having experienced incidents where someone in marketing at a fund could speak about ESG but the portfolio manager couldn’t.

“You have to be careful about what’s measurement and what’s marketing,” Reid says.

Reid points to Alphinity as an example of a fund manager with research that integrates the UN Sustainable Development Goals (SDGs) into its investment approach – but they are far from alone.

For Smith at Alphinity, ESG is a nuanced issue.

“There is no single correct way to think about ESG,” he says.

“For instance, is AGL a good ESG performer because it is planning to roll out a large amount of renewable energy? Or a bad performer because even in 2030 it will still be generating a significant proportion of its electricity by burning coal?”

The UN SDGs come up a lot in discussions about ESG investing. They are 13 goals with 169 metrics underneath them.

They have proven not only worthy global ambitions but a useful framework for super funds, asset consultants, fund managers and consumers when it comes to measuring the impact money can have.

Tan agrees that many are looking to the SDGs for a framework, and measuring impact is in Fidelity’s sights.

“I think the whole industry is looking for a standardised solution, or at least a set of metrics to start to quantify the non-financial

Understanding modern slavery Rachel Alembakis, managing editor, The Sustainability Report

From the end of this year, superannuation funds and fund managers with more than $100 million in revenue will have to report annually on their modern slavery risks.

The Modern Slavery Act includes eight types of exploitation – trafficking in persons, slavery, servitude, forced marriage, forced labour, debt bondage, deceptive recruiting for labour or services, and child labour.

Under the act, disclosures must describe the fund’s potential slavery risks, and how those risks are assessed and addressed.

The Australian legislation comes after the UK introduced similar measures to stamp out slavery.

“If you look at the UK template … you’ll see a lot of disclosures that are focused on policy

and procedure environment, assertions of zero tolerance – those sorts of things that an audit and risk committee will be comfortable with,” EY partner, climate change and sustainability services Adam Carrel says.

That is important to a degree, but it would be a shame if all of these reports just echo the UK experience, he adds.

“What I would be hoping to see in the first round of statements from the superannuation funds is a lot more transparency,” Deloitte Risk Advisory principal Leeora Black says.

“If they find instances of modern slavery in the entities they’re invested in, superannuation funds will have to take strong steps to deal with those instances and help the people who are the victims,” she says. fs

08: Mans CarlssonSweeny

head of ESG research Ausbil

You have to be careful about what’s measurement and what’s marketing.

Jillian Reid

09: Jillian Reid

principal – responsible investment Mercer

impact of some of the stuff that we’re doing,” he says.

“I’m not really sure that we’ve found the answer and that there’s consistency of data out there.”

At LGS, Yip is busy developing an impact measure that will speak to the fund’s members.

LGS already provides members with regular updates on how its investments align with the SDGs. For a super fund with many managers across many asset classes, it’s an ambitious undertaking.

“Our members care about sustainability, but they care more about returns,” she says.

But this, of course, isn’t a choice.

Fraser says his clients, some of the biggest pension funds in the world, are overwhelmingly of the view that ESG integration promotes better performance.

And, Fraser explains there is an additional factor in the Australian market that is applying pressure to the need to speed up ESG integration – choice.

Because Australia has a mandatory superannuation system but individuals can still largely choose their own funds, the factors that differentiate funds become very important.

“Because of the way the funds need to compete for members it will be interesting to see how ESG plays in the marketing to members and how members or member groups influence how boards now operate,” he says.

“That’s an additional factor among Australian super funds that I’m not seeing anywhere else at the moment.”

Sloshberg thinks Australia is “light years behind” the European pension funds that have led the way on ESG issues.

As an adviser, she often struggles to find the right solution for clients who care about the environment or any other ESG issues.

“I think there should be a rating system or a screening process that’s easy for members to be able to see and then everyone knows what that means,” she says.

So far, Sloshberg hasn’t found a solution that she can pass on to her clients.

Going forward, Reid says artificial intelligence and the ability to process data sets that are larger and messier than the kind of data the finance industry is used to will be key.

When it comes to climate change, MSCI’s Lunsford admits he remains an optimist.

In Lunsford’s opinion, it is absolutely essential that financial services get on board with the solutions to avoid climate catastrophe.

“The more that we increase the finance of global climate action, the more ambition that everyone will be able to take,” he says.

“The more finance that’s put on the table the more likely we will be to hit the two degree or one and a half degree target. We will not be able to increase ambition until the financial sector steps in and starts taking action.” fs

– SPONSORED POST –

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

19

01: Stuart Hoy

product manager, securities services, Australia and New Zealand J.P. Morgan

ESG takes many forms but shares a common foundation High-quality data is crucial to make robust ESG-based decisions, argues Stuart Hoy, product manager, securities services, Australia and New Zealand, J.P. Morgan. nvironmental, social, and corporate govE bitiur ernance renda (ESG) qui conse investing exceaquunt, is becoming suntureubiquitous E rios recte butmi, thecus. industry-wide approach is far from Pario uniform. dolorer spellab orendic idellaccum que nus It’set not aut just re nossum asset owners’ vellendam interpretation excerum num of what es adiESG consequ means amender that differs, eptatiusbut antthe et molorum underlyestrum nis eatur? ing datain itself.

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Feifei and Polychronopoulos, Ari, January Lenditi venimolut occabor porenis etofeta mint ² Business Roundtable, Business Roundtable Redefines the Purpose Corporation Promote ‘An Economy That Serves All Americans’, 2019 eum quito omnissi milibus dunte simillesAugust, quibus quas eosanda pa nus, ipsam qui comnis dolup©2020 JPMorgan Chase & Co. All rights reserved.

This content is for institutional and professional investors only and subject to the important disclosures and disclaimers at www.jpmorgan.com/pages/disclosures.

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20

Events | SMSFA Conference 2020

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

SMSF Association Conference 2020 In October last year, ASIC warned Australians considering their own self-managed superannuation fund that they should carefully consider the potential downsides of SMSFs. The regulator said SMSFs were not suitable for members with low fund balances or those with lower levels of financial literacy.

It was against this backdrop that the SMSF Association hosted its annual conference on the Gold Coast.

The conference brought together regulators, tax professionals, financial advisers and investment specialists with a message of resilience amidst industry upheaval.

As the conference got underway, the SMSF Association announced a change of leadership.

Andrew Hamilton was appointed chair of the association, taking the job from interim chair Robin Bowerman who stepped in to fill the void left by Deborah Ralston.

Ralston left her role at the SMSF Association in September 2019 to avoid any perceived conflicts of interest following her appointment to the government’s retirement income review.

The retirement income review was, of course, a major theme throughout the conference as those working in the sector wondered how it might impact them.

The 2020 conference kicked off with some predictions for what the SMSF sector might look like in 2030.

Rice Warner executive director Michael Rice, Challenger chair of retirement income Jeremy Cooper, Investment Trends chief executive Michael Blomfield and SMSF Association chief executive John Maroney took to the stage at the annual SMSF Association conference this morning.

Blomfield decidedly took a negative view of what 2030 might look like for the industry.

“I’m going to assume this thing got buggered up and we didn’t do the things we have to do to

put Australians and SMSFs in the right position for the future,” he said.

“Not enough Australians are getting financial advice. There are 10.4 million Australians who tell us they have a financial advice need that is not met.”

He said post Future of Financial Advice reforms, the number of Australians receiving financial advice has halved and those who are accessing advice have a net-worth twice as high as those who got advice in 2008.

“Australia has a brilliant, world-class accumulation system but the retirement isn’t there,” Blomfield said.

“This constant change, micro and macro adjustment, it has to stop. When you talk to an SMSF trustee the hardest thing they have to do is keep up with regulation. That’s crazy.”

Meanwhile, Rice predicted the SMSF sector will grow to $1 trillion by 2030; however, he wasn’t all positive in his outlook.

“We have far too many industry bodies and we get too many messages. For example, you have Industry Super Australia attacking SMSFs,” Rice said.

“I hope that in 10 years we might have one body representing all of super.”

Rice said MySuper will most likely evolve to be a product for “disengaged” Australians, especially younger people who aren’t thinking about retirement.

He predicted a shift away from MySuper to choice products that are aligned to MySuper products - saying these will suit those who want to stay in a product with low fees but have a different risk profile.

“I’m bullish on the SMSF segment. It may drop in market share, because of the overall strengthening of the system, but it will still grow strongly in real terms,” Rice said.

Cooper took a different tact, saying he wants to see a bigger focus in the industry on spending capital and celebrating outflows, saying that is the very point of a retirement system.

I’m bullish on the SMSF segment. It may drop in market share, because of the overall strengthening of the system, but it will still grow strongly in real terms.

Michael Rice

He also said that he sees the future of SMSFs as being through platforms.

“In exchange for giving up a bit of your privacy,” Cooper cautioned.

“The relationship between inflows and outflows in the SMSF sector is already deeply negative.

“But this is not the problem. This is just a sector that is already more deeply in retirement than the APRA sector.”

The Australian Financial Complaints Authority (AFCA) used its session at the conference to provide an update on the state of financial advice complaints.

Ian Donald and Shail Singh, both ombudsmen at AFCA, said investments complaints only make up about 5%, with the vast majority of AFCA’s work focussed on credit complaints.

About 2700 complaints related to investments and advice were received in 2019.

“Given the amount of advice given in a 12 month period, I think that’s a low number,” Donald said.

Singh added: “That’s important to show because the perception and what’s in the media is a different story, you’d think it’s a lot higher.”

About 29% of complaints in the category were resolved by financial firms without AFCA having to do anything.

In the Australian Tax Office’s regulatory update, ATO assistant commissioner – SMSF Segment Dana Fleming said that in the financial year so far, 95 SMSF trustees have been directed to educate by the ATO, whereas in 2018-19 only 45 were and in 2017-18 just 32.

Similarly, the ATO gave direction to rectify to 31 SMSFs in 2017-18, 34 in 2018-19 but in the year to date for 2019-20 that number is already up to 74.

Enforceable undertakings appear to be a bit of a different story. In 2017-18 there were 138 - in 2018-19 131 and in the year to date just 58.

To address the numbers being referred for education, the ATO is building an online SMSF

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

trustee course, which will go through all the things trustees need to know – and it’ll be free.

Fleming explained the ATO has not toughened up its enforcement approach in the wake of the Royal Commission as APRA did with its shift to “constructively tough” enforcement and ASIC with its “why not litigate” approach.

However, the ATO’s review of its enforcement after the Royal Commission found a lack of consistency in the application of enforcement powers.

Additionally, after ATO enforcement action on SMSFs, a significant portion of those SMSFs’ subsequent compliance was below the level of the general SMSF population.

“So our enforcement was, in effect, ineffective,” Fleming said.

“I think there’s room for improvement in our enforcement approach and how we use our powers.”

She said the ATO has taken a number of actions to improve its consistency in case outcomes and post-enforcement action process.

Later in the conference, the ATO and SMSF Association extended their strategic partnership that enables ATO employees to be seconded to the SMSFA to gain greater understanding of the SMSF sector.

ATO deputy commissioner of superannuation James O’Halloran joined Maroney on stage at the final day of the SMSF Association conference to announce the strategic partnership would be renewed.

“Both organisations feel it’s been very helpful in our relationship. We’ve been able to use it to benefit our members and SMSF trustees more broadly,” Maroney said.

“As a concrete example of what this means, the ATO will offer secondment arrangements whereby its staff can come work with [the SMSF Association] to further professional development and help us work better for our members.”

O’Halloran added that the SMSF Association and the ATO do not always see eye to eye, but the formal agreement remains important.

“We have some pretty candid discussions about what we disagree on, but at least they’re happening rather than the issues not being discussed,” O’Halloran said.

SMSFA Conference 2020 | Events

The Assistant Minister for Superannuation, Financial Services and Financial Technology also spoke at the conference.

Senator Jane Hume delivered a gushing address to the SMSF Association conference – promising the government is supportive of the SMSF sector.

“A growing number of people are establishing SMSFs at a much younger age,” Hume said.

“Most importantly, it’s driving competition.

We’re seeing some APRA funds respond to this by developing products with features that are similar to SMSFs.” She said that much of the government’s work is around supporting disengaged super members, but it is also the role of government in a compulsory super system to ensure choice.

“The system should also allow flexibility for people to move between these stages of choice,” Hume said.

“So we’re thinking of ways to support that movement.”

Hume said that while the Productivity Commission found low returns for SMSFs with balances below $500,000, fintechs may have a role to play in changing that.

The minister said that fintechs have the ability to drive down the cost of investing while maintaining returns.

“This is the stuff I get excited about. This is the stuff that drives costs down for trustees and I know that the SMSF industry is supportive of things that drive costs down for trustees,” she said.

Another highlight of the conference came at a breakfast discussion panel for SMSF auditors.

Super Sphere director Belinda Aisbett, Elite Super director Katrina Fletcher and ATO director Kellie Grant formed a panel to address the issues facing SMSF auditors.

The ATO’s recent efforts to stamp out SMSFs lying about audits and misusing auditor numbers was one of the topics the audience was interested in.

The ATO ramped up its efforts to discourage SMSF Auditor Number (SAN) misuse since 2017, when it started sending each SMSF auditor a list of funds claiming to be audited by their SAN.

A growing number of people are establishing SMSFs at a much younger age.

Jane Hume

21

“What was interesting was only 50% of auditors responded to our 2017 mail out,” Grant said.

“For 2018 only 40% responded. We were hoping there’d be a higher rate.”

Fletcher found tax returns with audit reports falsified for an SMSF with her name and signature forged on them.

Whoever did the forgery went so far as to find Fletcher’s signature and falsely duplicate it.

“In those serious cases of SAN misuse where they’re forging auditor signatures or even retaining audit fees and not going and arranging an audit we refer them through to the Tax Practitioner Board,” Grant said.

Grant said in those serious cases the ATO is pursuing prosecution, with “a couple” of cases open at the moment.

“We hope to see a result on these cases later this financial year. Hopefully if we get some kind of decent outcome that can act as a deterrent,” she said.

Rounding out the conference, Maroney took to the stage to give a final address.

He called for stability and engagement amid the changes the SMSF sector and broader financial advice industry are facing.

Maroney referred to the recent bushfire crisis and coronavirus, discussing a turbulent start to 2020.

“We were hit by those bushfires fuelled by one of the longest droughts in Australia’s history.

The nation faces a long-term project to rebuild communities and lives,” Maroney said.

“Meanwhile, a virus that originated in an inland city in China is now having a global impact.”

This precarious start to 2020 after “a relatively positive 2019”, Maroney said, shows why it’s so important to get policy around retirement for Australians right – to provide stability and certainty.

“It’s not difficult to become despondent about policy change,” Maroney said.

The government’s retirement income review remains front of mind for the SMSF Association, Maroney said.

“Your association will fully engage during and after the review,” he said.

“I do not think it will become another example of industry failure. fs

22

News

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

01: Stacey Cunningham

president New York Stock Exchange

Global stocks plunge as COVID-19 fears accelerate, oil crashes Ally Selby

G

lobal markets, already feeling the burn from the spreading COVID-19 virus, have tumbled further, after Saudi Arabia sparked an oil price war which saw oil futures plunge more than 30%.

Nearly $140 billion was wiped from the S&P/ ASX 200 on March 9, as the benchmark fell 7.3% or 455 points. It was the biggest intraday percentage fall for the local benchmark since the Global Financial Crisis.

The S&P/ASX 200 has fallen 19.6% from its February highs. A 20% drop marks a bear market.

In the first 10 minutes of trade one March 11 the S&P/ASX 200 fell 3.6% or 215 points.

Although it officially entered bear market territory, Dow Jones and S&P 500 futures are pointing to a rise on Wall Street tomorrow, which is helping drive buying sentiment locally.

At the time of writing, the S&P/ASX 200 regained some of these losses, trading down 0.61%.

On March 9 in the US, the New York Stock Exchange triggered a temporary trading halt after stocks plunged 7% at the open. It was the first time a temporary halt has been implemented since October 1997.

Trading stopped for 15 minutes, and afterwards, continued on a decline that would see the S&P 500 shed more than 2000 points. At the end of trade, the S&P 500 fell 7.6%, the Dow Jones Industrial Average fell 7.79%, and the Nasdaq Composite fell 7.29%.

NYSE president Stacey Cunningham01 said the trading halt served to help build market resilience during times of volatility and fear.

“Shortly after today’s market open, the market-wide circuit breakers halted trading for 15 minutes,” she said.

“Market-wide circuit breakers enforce a trading pause so that investors have time to absorb information, better understand what’s happening in the market, and make decisions accordingly.”

If the S&P 500 falls 7% from the previous day’s close, the circuit breakers trigger a 15 minute trading halt, Cunningham said, while this is halted again if the 500 falls 13% before 3.25pm.

If the benchmark falls 20% trading is halted for the rest of the day.

Oil markets are crashing at their worst rate since the Gulf War of 1991, after the OPEC cartel failed to agree on supply cuts aimed to address a slump in global demand caused by the COVID-19 outbreak.

Russia refused to back plans to cut production, and in retaliation, Saudi Arabia launched a price war for greater market share, slashing oil prices to US$4-7 a barrel and reportedly lifting production.

The US West Texas Intermediate (WTI) crude and global Brent Crude benchmark slid 24.59% and 24.1%, respectively on Monday.

Currently, WTI is trading up 8%, while Brent crude is trading up 8.95%.

Moody’s Analytics energy economist Chris Lafakis predicts oil prices will remain persistently low for months.

“The collapse in cooperation between Saudi Arabia and Russia has triggered a plunge in oil prices that shows no sign of abating,” he said.

“With COVID-19 already savaging demand for travel and transportation, the last thing oil producers needed was a supply shock that would hit their pocketbooks even more. The world is now drowning in a glut of crude oil that appears likely to persist for months.

“Even if the coronavirus scare fades, excess supply from Saudi Arabia and Russia will persist... we will likely be looking at low oil prices for the rest of 2020.”

Meanwhile in the UK, the FTSE 100 suffered its biggest intraday fall since 2008, with benchmark bond yields dropping below zero for the first time. Germany’s DAX fell 7.94%, while Italy’s bourse fell 11.17%.

It came as Britain announced its fourth death from the coronavirus, with 373 confirmed cases. Meanwhile the Italian government placed the entire country on lockdown with confirmed coronavirus deaths now at 631, and more than 10,149 confirmed cases of the virus.

IG market analyst Kyle Rodda said global markets conditions are “panicked”.

“Already vulnerable amid the unfolding coronavirus crisis, Saudi Arabia’s pledge to flood global oil markets with extra supply kicked market participants in the guts at precisely the worst possible time,” he said.

“The tumble in global stock markets looks familiar to what’s been experienced the last three weeks. But there was a difference to yesterday’s sell-off.

“Market fundamentals have changed again, and they’ve changed for the worse.”

Similarly, Origin Asset Management partner John Birkhold said the spreading COVID-19 virus had triggered a mass sell-off.

“We are seeing wealth destruction on an epic scale triggered be the increasing reality of a global pandemic,” he said.

The quote

The problem with a long-run bull market is that investors forget what can happen when things go badly.

“Since February 20, when the ASX hit a record high of 7289.7, it has lost $440 billion in market value.

“Local damage is however dwarfed by global wealth contraction with the US market alone losing US$5.7 trillion from its all-time highs a mere three weeks ago.”

Birkhold said the long-running bull market, which near reached an 11-year run, clouded investors views of the risks involved in equities.

“The problem with a long-run bull market is that investors forget what can happen when things go badly. The last few weeks have been a stark reminder of the implicit downside potential of equity markets,” he said.

“With the increasing likelihood of a global recession, all market participants could get badly hurt, particularly if trading on margin.”

He recommends investors with a long-term view hang on tight.

“For Australians, who’ve gone over 20 years without a recession, it’s easy to forget what can happen when things go bad,” Birkhold said.

“Long-term investors need to remember that in turbulent waters, it’s usually best to stay in the boat rather than trying to change strategies. However, investors need to be able to withstand another drop, particularly given that markets typically fall 30-40% during recessions.”

It comes as Prime Minister Scott Morrison told a crowd of business leaders at the AFR’s Business Summit the economic impact of the coronavirus in Australia could be worse than the Global Financial Crisis.

This, he argued, is due to our close proximity and trading reliance on China, pointing to the slowdown (and shutdown in some cases) in business and consumer activity in China and its domino effect on supply chains around the world.

The impact of COVID-19 on our economy would only be made worse if the virus had a significant impact on the health of our workforce, Morrison said.

Morrison said the government was primarily focused on controlling the biological impacts of the disease, rather than its economic waves.

While on the economic front, the government aims to “keep people in jobs, keep businesses in business and ensure we bounce back stronger on the other side,” he said. fs Editors note: All figures relating to confirmed coronavirus cases and deaths sourced from the World Health Organisation as at March 12.

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To request a demonstration call 1300 884 434 or visit www.financialstandard.com.au and click ‘FS Aspire CPD’

24

Between the lines

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

TAL loses super fund mandate

01: Shawn Brayman

founder and chief executive PlanPlus Global

Jamie Williamson

TAL has lost another group insurance mandate following a comprehensive review by the super fund’s trustee.

Members of Freedom of Choice, an offering under the AMG Super umbrella, have been notified that TAL will no longer provide their group insurance from 1 April.

Equity Trustees Superannuation as trustee for the product has appointed Hannover Life Re to take over the mandate.

Freedom of Choice said the change will result in a reduction in premiums for the majority of members and improvement in a number of policy terms and definitions for death, TPD and income protection cover.

“Whilst every effort has been made to reduce premiums for all members, a small number of members may experience an increase in some premium rates,” Freedom of Choice said.

Some members may also perceive the changes to policy terms and definitions as unfavourable, it said.

Recent data released by the Australian Financial Complaints Authority showed that when it came to life insurance, TAL was the subject of the most complaints in the six months to 31 December 2019.

This was followed by AMP Life, OnePath Life and Westpac Life. fs

Morningstar boosts financial planning capabilities Ally Selby

The quote

This is a logical fit for our growth plans to better serve an expanded client base with unbiased research, consultancy and online tools.

Morningstar will acquire a Canadian financial planning and risk-profiling software firm, in a bid to expand its advice capabilities world-wide.

Morningstar has acquired PlanPlus Global, whose FinaMetrica Profiler risk software is currently available in the US, Canada, UK and Australia.

The terms of the acquisition were not disclosed, however, the transaction is expected to close in the second quarter.

It comes off the back of the research firm’s acquisition of Australian cloud-based adviser software firm, AdviserLogic, in November last year.

Morningstar will continue to offer the firm’s FinaMetrica Profiler as a stand-alone tool in the global markets that it is offered today.

AdviserLogic will remain Morningstar’s core financial planning offering in Australia.

PlanPlus Global founder and chief executive,

Shawn Brayman01, said the acquisition comes off a 10-year relationship with the global research house.

“We have been working with Morningstar for more than a decade to provide investment product data to our users around the world,” he said.

“So we’ve seen firsthand how Morningstar’s mission to empower investor success aligns with our commitment to put clients’ interests first, and we share a belief in evidence- and researchbased solutions.”

He said Morningstar was the perfect partner to help leverage PlanPlus Global’s capabilities.

“When it comes to finding a large, strategic fintech partner that can help us scale our solutions in the marketplace and enhance the value to our users globally, Morningstar is the perfect fit,” he said.

The firm’s 40 employees, as well as its leadership team, are expected to join Morningstar in Canada. fs

Back in black, suspend SG he cheapest highest impact way to stimulate T Australia’s economy would be to suspend compulsory employer superannuation contributions.

Brumbie

By Alex Dunnin alex.dunnin@ financialstandard .com.au www.twitter.com /alexdunnin

This proposition was put forward by the economic rationalist columnist Adam Creighton writing in News Limited newspapers earlier this month. Creighton has been a long-time critic of Australia’s compulsory superannuation system and his proposition probably didn’t attract too much attention. But this doesn’t make it a dumb idea.

Last financial year Australia’s employers contributed $98 billion into their employees’ superannuation accounts. These employer contributions were 75% of the $130 billion paid in total contributions.

In the same financial year the Australian Bureau of Statistics tells us that a grand total of $815 billion was paid in wages across the economy. This implies that the compulsory 9.5% of wages they pay in superannuation contributions is about $77 billion.

As an aside, this reveals a fun fact: Australians last financial year paid 16% of their wages as superannuation contributions. Anyone who thinks increasing SG to 12% will lift national savings is dreaming. But it will change the distribution of who owns those national savings.

If the Australian government was to announce a suspension or temporary reduction in employer paid superannuation contributions rates as a de facto way of stimulating the economy, we wouldn’t be the first country to try this.

In 1998 in response to the Asian Financial Crisis the Singapore government did exactly the

same thing. And if you think Australia’s superannuation contributions at 9.5% on their way to 12% are high, then brace yourself for what I’m about to tell you.

In Singapore, compulsory contributions into their Central Provident Fund (CPF) are 37%.

Employees pay 20% and employers 17%. When the CPF started in 1955, contributions were just 10% of wages but in 1967 they began rising sharply before eventually peaking at a mindnumbing 50% in 1985.

Singapore’s CPF plays a central role in their economy, much more so than Australia’s superannuation system does in ours. This is because CPF has three elements: it’s a retirement account, home saving fund and a health insurance fund.

And because it attracts such massive capital inflows the Singapore government uses it as a source of finance. Or rather, the Singapore government modified the CPF, that was first established by the British when Singapore was still a colony, shortly after independence to become their major source of capital.

The CPF is a major buyer of Singapore government bonds, capital which the Singapore government uses for nation building and to pay for the construction of apartments which it then sells to Singaporeans.

The downside however is that the CPF in 2019 paid an interest rate, equivalent to what in Australia we’d refer to as the investment return, of just 3.5%. This was less than one quarter the

average MySuper return for the same period.

Most Singaporeans who buy apartments don’t borrow the money from banks but from their CPF account. In 2019, statistics published by the CPF indicate members withdrew an estimated AUD 11 billion to buy apartments. This was equivalent to one quarter of CPF contributions last year.

As a result, there’s no point in Singapore’s central bank, the Monetary Authority of Singapore, cutting bank mortgage interest rates to stimulate their nation’s economy. Instead the government – albeit rarely - manipulates the CPF contribution rate.

Singapore is meanwhile no soft-touch when it comes to wage theft and particularly unpaid CPF contributions. If an employer fails to pay their contributions they will face late penalties of 18% per annum that commence from the first day of the following month after the contributions are due.

They could also cop a fine of up to AU$4500 and/or up to six months jail. Repeat offenders may be fined AU$9000 and/or get 12 months in jail. Employers who fail to pay the CPF contributions after deducting them from their wages face up to seven years jail. These types of penalties should be introduced in Australia.

The Morrison government isn’t crazy-brave enough to suspend super contributions. But if the government gets desperate and really needs to find a way to stimulate the economy yet still deliver its beloved surplus, this is how it could be done. Giddyup. fs

News

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

25

Executive appointments 01: Carol Schwartz

EQT bolsters board Carol Schwartz01 has joined Equity Trustee’s board as a non-executive director.

Schwartz is currently a non-executive director on the boards of the Reserve Bank of Australia, Qualitas Property Partners and the Trawalla Group, the last of which, she founded herself.

Along with her family, Schwartz established philanthropy vehicle Trawalla Foundation in 2004 to fund “exceptional individuals and organisations focused on strengthening gender equality, creativity, sustainability and social justice”.

EQT chair Jeff Kennett said Schwartz’s excellent reputation precedes her.

“Schwartz has outstanding leadership credentials and is well known and highly regarded in business and the not-for-profit sector,” he said.

“She has an excellent reputation as an advocate for good governance in every organisation with which she is associated.

“She is recognised as an advocate for women in leadership and frequently called on for her insights into social enterprise, business, finance, gender equality and governance.”

Schwartz is also the founding chair of the Women’s Leadership Institute Australia, and also of Our Community, both of which she is still currently chair.

Previously, Schwartz served on the boards of Stockland and the Australian Chamber Orchestra.

She was also previously the chair of Creative Partnerships Australia.

Schwartz said EQT was a great cultural fit.

“I believe in companies that have a purpose beyond commercial success,” she said.

APN Property Group nabs former BlackRock fundie Danielle Carter will serve as an independent non-executive director on the boards of both APN Property Group and APN RE. The real estate manager said Carter would bring a wealth of experience to the board.

“Danielle has more than 25 years’ combined real estate and financial services industry experience,” APN said.

“Danielle has held a number of senior roles, most recently as the chief investment officer at financial advisory firm Strategic Financial Management.”

Prior to her role at Strategic Financial Management, Carter spent a brief period with boutique fund manager SG Hiscock & Company as a joint portfolio manager of unlisted property.

Prior to this, she spent 11 years with BlackRock as a fund manager. At BlackRock, Carter was responsible for the firm’s Australian listed, unlisted and direct real estate assets, which totaled approximately $1.2 billion.

She spent a year in New York previous to her role with BlackRock, working as a senior consultant at Ernst & Young’s real estate advisory group.

Carter also spent three years working with the firm’s assurance and advisory property and

QIC appoints lead investment duo QIC has appointed a new chief investment officer and deputy chief investment officer to its rebranded global multi-asset division.

A spokesperson for QIC has confirmed the global multi-asset division is being rebranded to state investments, focused on the manager’s governmentrelated interests.

Effective March, Jim Christensen has been appointed state chief investment officer of QIC state investments, alongside Allison Hill as deputy state chief investment officer.

Christensen has been managing director of the global multi-asset team since January 2016.

As state chief investment officer, Christensen will be responsible for formulating and implementing the division’s business and investment strategies. He will also lead the development of new products.

He will retain his role within the global multiasset team, ensuring fiduciary accountabilities and investment objectives are met.

Meanwhile, Hill has also been promoted to the state investments leadership team, having joined QIC in January 2018 as director of investments within the global multi-asset team.

She will work alongside Christensen, developing investment strategies and new products.

Hill was previously chief executive of DMP Asset Management, which later merged with SG Hiscock.

She is also a former Frontier Advisors senior consultant, and worked in business development for Colonial First State and BT Funds Management.

tourism team in Melbourne and Sydney.

APN chair Chris Aylward said the board welcomed Carter to its ranks.

“On behalf of the board we welcome the addition of someone of Danielle’s calibre to our board,” he said.

WealthO2 appoints national BDM Wealth management platform WealthO2 has appointed a national business development manager, set to help build awareness of the quickly growing service.

Former Lonsec senior BDM, Greg Schapkaitz, has nabbed the newly created role, and will report directly to co-founder and managing director Shannon Bernasconi.

Bernasconi said the appointment comes off the back of unprecedented structural changes within the advice industry.

“In each year for the past two years, some 25% of financial advisers have either left the industry or changed licensee,” she said.

“During this time, WealthO2’s growth has been in the most part through referral.

“In this environment, Greg’s appointment helps WealthO2 maintain a well networked BDM resource, to explain the benefits of WealthO2’s unconflicted, low cost alternative to the product platforms and wraps.”

Bernasconi said Schapkaitz’s proven business track record would make him an asset to the team.

“Greg is a welcome addition to the team and brings over 20 years’ experience in sales, administration and management in financial services, and a proven track record of achieving business objectives,” she said.

Prior to his role with Lonsec, Schapkaitz was the director of Schapkaitz Sales Consulting, where he was responsible for providing tailored consulting solutions to sales professionals, SMEs and institutions.

Before founding his own business, Schapkaitz spent eight years with AMP and SuperConcepts in sales and SMSF administration senior roles.

He also spent more than four years with BT Financial Group as the NSW/ACT state manager securitor and licensee select, where he coached advice professionals on how to make their business more scalable, saleable and profitable.

Spitfire loses top executives Spitfire has lost both its chief executive and chief product officer within months of them joining the platform provider.

Former chief executive John Shuttleworth left the business in December last year after being appointed to the top role only two months prior.

Former chief product officer Anil Sagaram has also departed seven months since joining.

Shuttleworth, a former BT Financial Group executive is now a self-employed consultant and investor.

Shuttleworth spent close to 15 years at BT, having held a number of leadership positions before leaving the company in late 2018.

A spokesperson from Spitfire told Financial

02: Mike Baird

Standard that Shuttleworth’s departure was amicable and mutually agreed.

“Spitfire was delighted to have appointed John,” the company said.

“However, with the benefit of hindsight, both parties agreed that his appointment was a little early for someone with his background and at the stage of Spitfire’s development.”

The spokesperson said Laurence Milne, founder and an executive director of Spitfire has stepped in as the current acting managing director.

Meanwhile, Anil Sagaram has left his position of chief product officer at Spitfire this week after joining the platform provider in July last year.

Sagaram had also moved from BT, where he had been working for 11 years prior to taking his position at Spitfire.

The company said: “Anil left Spitfire with intentions to set up his own fintech business.

Spitfire is totally supportive of Anil’s move and wishes him well.”

Financial Standard understands Sagaram was initially brought into the company to help drive the creation of its super product, and the decision to leave has coincided with the company’s decision not to proceed with the creation of a super product.

Baird exits NAB Mike Baird 02 announced he will be leaving NAB, effective April 15.

NAB said it supports Baird’s decision to leave his position as chief customs officer – consumer banking to “take a break” before searching for new opportunities.

NAB group chief executive Ross McEwan said: “Mike has been a tremendous leader, challenger of convention and staunch advocate for customers in his time at NAB.” “He has always spoken up for doing the right thing and been a voice for the broader community.”

“I am pleased that he has been part of my leadership team but understand and accept the reasons for his decision to leave.”

Baird joined the bank in 2017 to lead the corporate and institutional bank, moving into the consumer banking role in 2018.

Baird said he had experienced three rewarding years working with the former NAB chief Andrew Thorburn, McEwan and the board through one of the most challenging and disruptive periods for Australian banks.

“I have thoroughly enjoyed working with Ross and I know the culture and structural changed being considered will be strong foundations for NAB’s future,” Baird said.

“I have an open mind about what I will do next and will use the time to determine where I believe I can make the best, most fulfilling contribution to business and the wider community.”

Anthony Waldron, an executive general manager in Baird’s team, will act as chief customer officer of consumer banking, subject to regulatory approvals, while the bank searches for a permanent replacement. fs

26

International

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

NZ blacklists fossil fuels from super

01: Steven Seagal

actor

Ally Selby

The New Zealand government has hardened its stance on climate change, barring fossil fuel producers from default accounts in its voluntary super system.

Approximately 690,000 New Zealanders in default KiwiSaver accounts will no longer have exposure to investments in fossil fuels and illegal weapons, with the changes coming into action by June 2021.

Default providers are funds allocated to people who do not choose a fund when they join KiwiSaver.

Commerce and Consumer Affairs Minister Kris Faafoi said the changes reflect the NZ government’s stance on climate change.

“This reflects the government’s commitment to addressing the impacts of climate change and transitioning to a low-emissions economy,” he said.

“It also makes sense for the funds themselves given that there is a risk of investing in stranded assets as the world moves to reduce emissions.”

Climate Change Minister James Shaw argued previous governments had allowed New Zealanders’ super savings to contribute to the climate crisis.

“No New Zealander should have to worry about whether their retirement savings are causing the climate crisis,” he said.

“That’s why our government is moving default KiwiSaver funds away from fossil fuels, putting people and the planet first.” fs

Why PMI gets ESG points Elizabeth McArthur

Ariel Investments chief investment officer Rupal J. Bhansali shared her contrarian views on ESG investing and why Phillip Morris International makes the cut.

“Because we are risk aware managers we are going to be ESG aware,” Bhansali said.

“We believe in engaging not excluding or eliminating, which is how a lot of people practice ESG.” Bhansali, who was in Australia to speak at a Women in Super event, broached a taboo topic – tobacco in portfolios.

“We have to understand that unfortunately there are 1.1 billion smokers in the world. People don’t realise that it’s nicotine that is addictive but it’s not nicotine that’s harmful,” she explained.

Rather, the act of burning tobacco and the combustion of the various chemicals in cigarettes is what harms smokers.

“There is a tobacco company that did all the clinical research on this issue for years on end, they spent $6 billion on research and development and came up with this revolutionary new product,” Bhansali said.

The product she was referring to is Phillip Morris’ IQOS, a vaping system designed to help people quit smoking.

IQOS was approved to be sold in the US, with the US Food and Drug Authority noting that it was in the interest of public health to make the stop smoking system available.

“Here you’ve got a company that is doing what you want from ESG, which is getting to a better place,” Bhansali said.

“If you insist on having a tobacco-free portfolio you can’t encourage that behaviour.”

Bhansali said IQOS is doing well in the market and millions of smokers have switched to the product. fs

Hollywood actor charged by US regulator Eliza Bavin

T The quote

Celebrities are not allowed to use their social media influence to tout securities withou appropriately disclosing their compensation.

he US Securities and Exchange Commission charged a prominent actor for failing to disclose payments he received for promoting an investment in a bitcoin offering.

The SEC found Steven Seagal01 had not disclosed that he was promised $380,000 (US$250,000) in cash and $1,140,000 (US$750,000) worth of bitcoin tokens from Bitcoiin2Gen (B2G) for his promotions.

Seagal made posts to his social media accounts encouraging the public not to “miss out” of B2G’s initial coin offering (ICO).

The SEC said Seagal put out a press release titled “Zen Master Steven Seagal Has Become the Brand Ambassador of Bitcoin2Gen” and B2G released its own which included a quote from Seagal saying he “wholeheartedly” endorsed the ICO. “These promotions came six months after the SEC’s 2017 DAO Report warning that coins sold in ICOs may be securities,” the SEC said.

“The SEC has also advised that, in accordance with the anti-touting provisions of the federal securities laws, any celebrity or other

individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion.”

Kristina Littman, chief of the SEC enforcement division’s cyber unit said investors were entitled to know about the payments Seagal received or was promised to endorse the investment so they could decide whether he may be biased.

“Celebrities are not allowed to use their social media influence to tout securities without appropriately disclosing their compensation,” Littman said.

The SEC’s order found Seagal violated the antitouting provisions of the federal securities laws.

Without admitting or denying the SEC’s findings, Seagal agreed to pay a total of $477,084 (US$314,000) in disgorgement, pre judgement interest and penalties.

In addition, Seagal also agreed not to promote any securities, digital or otherwise, for three years.

Seagal has starred in more than 50 films, including Under Siege and Above the Law. In 2018 he was also named by Russia as a special envoy to the US. fs

Aussie at center of fraudulent coaching scheme Eliza Bavin

An Australian has been named by the US Federal Trade Commission (FTC) as being at the center of a massive international business coaching scheme that “swindled” veterans and the elderly out of millions.

Matthew Lloyd McPhee ran a scheme known as My Online Business Education (MOBE). It promised consumers financial freedom via a 21-step program so investors could run their own online marketing business.

An ongoing investigation came to head last month when, under the terms of a final order, founder McPhee – an Australian citizen living in Malaysia – was ordered to surrender over $24.5 million (US$16 million) from his personal and company accounts with MOBE agreeing to pay over $26 million (US$17 million).

McPhee will also be required to surrender his foreign real estate interests, including his ownership shares of resorts in Fiji and Costa Rica, to MOBE’s court-appointed.

The proposed order would also permanently ban McPhee from selling business coaching programs and investment opportunities.

The FTC’s complaint, filed in 2018, alleged that MOBE, a Malaysian company, lured consumers

to join its online coaching program by promising a pathway to online entrepreneurship and vast riches on the internet.

These consumers were then charged tens of thousands of dollars for “worthless program membership upgrades” and forced to sell the same memberships to other to earn commissions.

According to the complaint, MOBE used online ads, social media, and live events to target US consumers and “swindled” hundreds of millions of dollars, which the company then transferred to its various offshore bank accounts.

MOBE offered a money-back guarantee which made investors believe the investment was risk-free, the FTC said. The FTC alleged MOBE would refuse refunds and only honour them if the investors threatened to go to regulators.

Director of the FTC’s bureau of consumer protection, Andrew Smith, said: “MOBE falsely promised consumers that it could teach them how to start a successful online business and earn six-figure incomes working from home, and consumers lost millions of dollars as a result.”

“With this action, we’ve put an end to the MOBE scheme, but consumers should be on guard for any work-at-home pitch promising substantial income.” fs

Products

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

27

Products 01: Sarah Bolouri

TCorp launches new bond The investment manager of the New South Wales public sector has launched a new benchmark bond with a coupon rate of 2%, set to mature in March 2033.

It’s the first fixed interest benchmark bond that the NSW Treasury Corporation has released since September last year, which only had a coupon rate of 1% and vested in February 2024.

Currently, TCorp only has two other fixed interest bonds that mature post-2033, however, there are now six fixed-interest bonds that mature in a decade or more’s time.

TCorp has appointed Commonwealth Bank, National Australia Bank and UBS AG Branch as joint managers of the bond.

Further pricing on the 2% 8 March 2033 bond is due out later today.

TCorp head of funding and balance sheet Fiona Trigona said the new bond would further lengthen NSW’s debt profile.

“I’m delighted to announce this new benchmark bond, which will help meet TCorp’s strategic objective to lengthen the debt profile of the state,” she said.

It comes after the investment manager made its first offshore issuance in Euros in February, releasing a 30-year EUR60 million fixed rate note.

The Euro bond was priced at 0.609% and is due 24 February 2050.

Trigona said the new Euro bond would diversify TCorp’s investor base.

“Previously we’ve issued in Sterling, Swiss and Yen, and we are delighted to have added Euro to the mix,” she said.

“This transaction represented a great opportunity to issue into a tenor to complement our strategy of lengthening the debt profile while diversifying the investor base.

“In Europe, there is more appetite for this type of debt.”

InPayTech’s ClickSuper grows InPayTech’s superannuation payment solution has picked up new payroll provider clients, as cybercrime continues to threaten the super sector.

The payment technology company has confirmed seven new payroll providers have joined the firm’s integrated payroll network, ClickSuper.

According to InPayTech, the newly inked deals have driven growth in the firm’s customer portfolio.

InPayTech said it developed ClickSuper to ensure employers could protect the data of their employees when making superannuation payments as small businesses expressed concernes with the confidentiality of employee data. The network integrates the Single Touch Payroll and SuperStream systems, and offers “frictionless” communication for payrolls and super funds through the use of a single application programming interface (API. This allows the service to process compliance and payment requirements such as super and salary payments under one process.

“We’ve cracked the code on customer

Morningstar cuts Pendal fund Morningstar has dropped coverage on Pendal’s global equities fund which recently swapped out an external manager for Pendal’s in-house investment team.

In November, Pendal announced it would pull $460 million from AQR Capital Management across three funds, and handed their investment management to its global equities team Ashley Pittard.

The changes were slated to come into effect around February 21.

At the time, Morningstar put the funds under review, saying they were familiar with Pittard’s style of investing from his time at Paul Moore’s PM Capital but did not have a rating on the strategy at the time.

The rating house said it was dropping coverage on the Pendal core global share fund.

“Morningstar will cease qualitative research coverage of Pendal Global Share on or about 3 April 2020 in order to reallocate our analysts to research other funds,” it said in a note to clients.

engagement via a frictionless communication ecosystem that enhances security of data transfers, improves employee and member engagement, reduces SuperStream processing costs and times with low cost technology,” InPayTech chief executive Dean Martin said.

“It ultimately serves as a communication channel for funds, payrolls, employers and the ATO, simplifying the process for employers and payrolls whilst limiting the increasing risk of identity theft and data breaches arising from sharing sensitive employee data.”

Clime launches new SMA portfolios Clime Investment Management has launched four new separately managed account portfolios to help diversify self-directed investors’ wealth amid skyrocketing volatility.

Investors can now access Clime’s balanced (35% defensive, 65% growth), growth (22% defensive, 78% growth), and high growth (7.5% defensive, 92.5% growth) multi-asset portfolios, as well as an Aussie equities portfolio which contains 20 ASX-listed companies.

The four portfolios will provide a managed portfolio solution to self-directed investors; those who managed their own wealth rather than seeking professional financial advice.

Clime got into the wealth advice industry in 2018; amid the Royal Commission, however Clime chief executive Rod Bristow said he wouldn’t change a thing.

“Stepping into private wealth advice at that time, there was a whole series of constraints that we had to deal with, so we built the business cognizant of those constraints,” he said.

“We were very fortunate here at Clime that we didn’t have a private wealth business, so we were able to build one from scratch.”

Clime built a new wealth advice solution, reliant on technology and data storage.

“We know all the interactions our private wealth advisers are having with clients, and part of that came from the fact that we were launching that solution at such a difficult time for the whole industry,” Bristow said.

The shift in advice in the self-directed market has a lot to do with Gen X and Gen Y, Clime argues.

“If you think about the amount of wealth that generation is holding; by 2030 they’re going to hold about 70% of the wealth in the Australian market,” Clime chief operating officer Sarah Bolouri01 said.

“That generation has grown up with technology and share trading platforms and so forth. Obviously, the cost of advice is limiting depending on the amount of wealth they want to actually invest and manage their financial future.

“So having a technology solution like Clime Direct actually made sense. Whilst it was originally just a subscription model; a virtual portfolio, now they can take advantage of the research, look at everything that our investment team are doing and effectively have that as their portfolio, whether it’s a part of their superannuation solution or just an investment.”

02: Jacqui Lennon

To underpin its direct portfolio investment solution, Clime also announced it had partnered with Aussie fintech OpenInvest. The fintech has developed online managed portfolio technology, as well as an online application process and detailed reporting.

Allianz Retire+ partners Allianz Retire+ is partnering with a goals-based advice technology outfit to offer advisers more certainty when building retiree portfolios with its Future Safe investment product.

Allianz Retire+ has partnered with Investfit to create a portfolio construction tool which demonstrated how its seven-year retiree investment product Future Safe can be combined with a client’s other investments “to provide greater certainty for outcomes”, and ensure clients are confident about their retirement goals.

Investfit uses stochastic modelling, which runs portfolio simulations based on different financial position and goal data – including age, asset allocation, legacy and life expectancy – to “a desired level of confidence”.

The tool allows for variances in investment returns from year to year, taking into account the possibility of a sequence of poor returns across a number of years. It then projects the variations, and takes into account correlations between interest rates, inflation, property prices and share prices.

Advisers can model a large number of possible strategies, instead of just one based on a risk questionnaire or selected by default.

Allianz Retire+ head of product and customer experience Jacqui Lennon 02 said the new tool could help ensure retirees can live more comfortably, noting the number one fear they experience is directly related to their ability to fund the rest of their life.

“The number one fear retirees have is running out of money, in fact, they fear that more than death,” Lennon said.

“So that is the number one risk we need to manage”.

Lennon said traditional financial advice is often modelled against expected average investment returns, which “offer about a 50% chance of achieving the projected retirement outcomes”.

“That’s one in two clients that will have an outcome worse than what was presented,” Lennon said.

“This tool is completely unique in its ability to offer advisers an extremely accessible way to give retirees greater peace of mind, while improving adviser efficiency in producing almost instantaneous results for hundreds of portfolios.”

Investfit founder and chief executive James Claridge said the firm was excited to partner with Allianz Retire+.

“The team at Allianz Retire+ have developed Future Safe, a solution that enables retirees to continue to gain exposure to returns linked to Australian and global shares whilst limiting the downside risk, which might otherwise threaten their retirement outcomes,” Claridge said. fs

28

Economics

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

The crash we have to have Benjamin Ong

s this the stock market crash we have to have?

Imarket The great reboot from the overvaluation in stock prices prompted by cheap interest rates that punished savers and drove investors to go look where their capital could get higher returns?

The global freezing (of economic activity) wrought by coronaphobia is shaking what has become an orthodoxy since the Global Financial Crisis that central banks are the new masters of the universe.

Grexit, the Jasmine Revolution, North Korea’s missile launches, Brexit and Trump’s trade war – and other challenges inbetween – proved no match for central bank money Throw enough money at the problem and the problem will go away. ZIRP (zero interest rate policy), NIRP (negative interest rate policy) and QE (quantitative easing) worked, sending most equity markets worldwide into record highs.

Coronaphobia – the fear of being infected by the virus as distinct from the disease itself – has exposed the limit to central bank power.

Health is wealth. Sure, low and negative interest rate push equity prices higher but there won’t be any wealth effect if consumers stayed home, don’t travel, don’t attend school or don’t report for work – and even if they braved it out, find that their places of employment are shuttered anyway.

Coronaphobia is proving claims made during the GFC that governments and central banks should have let the global economy reboot – i.e., go into the recession it had to have – back then, thereby perpetuating “moral hazard” – the belief that certain companies are too big to fail and thus needed saving.

Sure, some companies will still fail but most would be more circumspect in their attitude to-

ward risks – and investors too – had central banks not intervened and let the mechanics of the free market do its job in restoring equilibrium.

The world would have been in a recession, a depression even, but the growth that follows would have stronger foundations.

But nah, low and lower interest rates it is ... and QE. To repeat, it punished savers and sent investors to seek higher yields, moral hazard and lower rates for longer have reduced risks anyway.

One such high risk investment is junk bonds.

It offers relatively higher yield to the investor and relatively lower cost for the issuer.

Financial Times notes that energy companies are the biggest issuers of junk bonds, accounting for more than 11% of the US high-yield market.

This, too, has been turned on its head by the latest development in the oil market. Brent crude oil prices slumped by 23.7% to US$34.54 following unexpected news that, instead of agreeing to cut oil production at their March 6 meeting, OPEC+ talks collapsed (due to Russia’s dissent) and Saudi Arabia announcing an increase in production and offering discounts to its oil customers instead.

The drop in oil prices should be a balm for global economic activity reeling from coronaphobia. Cheaper oil prices raises household disposable income and lowers costs of running factories and businesses.

Then again, until a COVID-19 vaccine is discovered or, at least, the number of infected cases slows, lower interest rates and cheaper oil would do little to prod consumers to go out, mix and mingle and spend. The same goes for factories and businesses.

Stock markets will remain under downward pressure until prices fall low enough to attract bargain hunters. fs

Monthly Indicators

Feb-20

Jan-20

Dec-19

Nov-19

Oct-19

Consumption Retail Sales (%m/m)

-

-

-0.54

1.02

0.11

Retail Sales (%y/y)

-

-

2.66

3.25

2.24

Sales of New Motor Vehicles (%y/y)

-

-12.52

-3.76

-9.75

-9.11

Employment Employed, Persons (Chg, 000’s, sa) Job Advertisements (%m/m, sa) Unemployment Rate (sa)

-

13.53

28.72

37.06

-22.44

0.71

4.05

-5.57

-1.78

-1.14

-

5.29

5.08

5.17

5.31

Housing & Construction Dwellings approved, Tot, (%m/m, sa)

-

-

-0.14

6.03

-5.34

Dwellings approved, Private Sector, (%m/m, sa)

-

-

-0.18

10.93

-6.28

Housing Finance Commitments, Number (%m/m, sa) -

-

-

-

-

Housing Finance Commitments, Value (%m/m, sa)

-

-

-

-

-

Survey Data Consumer Sentiment Index

95.52

93.38

95.10

97.00

92.80

AiG Manufacturing PMI Index

44.30

45.40

48.30

48.10

51.60

NAB Business Conditions Index

-

2.61

2.71

4.33

4.19

NAB Business Confidence Index

-

-0.82

-2.48

-0.09

1.83

Trade Trade Balance (Mil. AUD)

-

-

5223.00

5518.00

Exports (%y/y)

-

-

8.27

5.13

4.95

Imports (%y/y)

-

-

5.84

-2.73

1.49

Dec-19

Sep-19

Jun-19

Quarterly Indicators

3965.00

Mar-19 Dec-18

Balance of Payments Current Account Balance (Bil. AUD, sa)

-

7.86

4.67

-1.75

-6.45

% of GDP

-

1.56

0.94

-0.36

-1.34

Corporate Profits Company Gross Operating Profits (%q/q)

-3.45

-0.61

4.46

2.07

3.71

Employment Average Weekly Earnings (%y/y)

3.24

-

3.02

-

Wages Total All Industries (%q/q, sa)

0.53

0.53

0.54

0.54

2.48 0.62

Wages Total Private Industries (%q/q, sa)

0.45

0.92

0.38

0.39

0.46

Wages Total Public Industries (%q/q, sa)

0.45

0.83

0.46

0.46

0.46

Inflation CPI (%y/y) headline

1.84

1.67

1.59

1.33

1.78

CPI (%y/y) trimmed mean

1.60

1.60

1.60

1.50

1.80

CPI (%y/y) weighted median

1.30

1.30

1.30

1.40

1.80

Output

News bites

Australia wages and unemployment The coronavirus succeeded in prompting an RBA rate cut where earlier reports of continued lacklustre growth in wages and a pick-up in the unemployment rate failed. Annual growth in total wages remained unchanged at 2.2% in the December quarter from the previous quarter. This would impair households’ ability to pay down debt and/or increase spending, more so, given the latest update on the Australian labour market.

The unemployment rate increased to 5.3% in January from 5.1% in December. The underemployment rate increased to 8.6% from 8.1% in December, suggesting that the flat wages growth seen in the December 2019 quarter would remain flat going forward, at best.

RBA cuts rates The RBA cut the official cash rate by 25 basis points to a new record low of 0.50% at its March 3 meeting

“to support the economy as it responds to the global coronavirus outbreak”. In his published statement, governor Philip Lowe declared:“The coronavirus has clouded the near-term outlook for the global economy and means that global growth in the first half of 2020 will be lower than earlier expected … The coronavirus outbreak overseas is having a significant effect on the Australian economy at present, particularly in the education and travel sectors. The uncertainty that it is creating is also likely to affect domestic spending”, and promised that “the board is prepared to ease monetary policy further to support the Australian economy.”

China PMI The first read on the coronavirus’ impact on China is out, and it’s worrisome. The official NBS Manufacturing PMI dropped to a reading of 35.7 in February from 50.0 in the previous month. This is the lowest level on record and is below market expectations for a decline to 46.0. Lockdowns, quarantines, disruptions to supply chains and travel restrictions also took the services sector down with the official NBS Non-Manufacturing PMI in China plunging to a record low reading of 29.6 in February 2020 from 54.1 in the previous month.

The corresponding readings from Caixin were not as severe – manufacturing down to 40.3 from 51.1 in January; services down to 51.8 from 52.5 – but the message is the same, slowing factory and services activity in the country. fs

Real GDP Growth (%q/q, sa)

-

0.44

0.62

0.52

Real GDP Growth (%y/y, sa)

-

1.74

1.61

1.72

0.16 2.14

Industrial Production (%q/q, sa)

-

0.19

1.36

0.69

0.49

Survey Data Private New Capex, Total, Chain, Vol, (%q/q, sa)

Financial Indicators

-2.79

-0.44

-0.93

-1.76

1.51

28-Feb Mth ago 3mth ago 1yr ago 3 yrs ago

Interest rates RBA Cash Rate

0.75

0.75

0.75

1.50

1.50

Australian 10Y Government Bond Yield

0.82

0.95

1.00

2.10

2.72

Australian 10Y Corporate Bond Yield

1.62

1.74

1.81

3.02

3.36

Stockmarket All Ordinaries Index

6511.5

-8.27%

-6.52%

4.14%

13.03%

S&P/ASX 300 Index

6395.6

-7.99%

-6.17%

4.54%

12.97%

S&P/ASX 200 Index

6441.2

-7.91%

-6.16%

4.41%

12.76%

S&P/ASX 100 Index

5345.3

-7.88%

-6.12%

5.27%

12.69%

Small Ordinaries

2728.2

-8.90%

-6.59%

-1.32%

16.11%

Exchange rates A$ trade weighted index

57.00

A$/US$

0.6448 0.6753 0.6765 0.7115 0.7689

60.30

60.00

60.70

66.70

A$/Euro

0.5870 0.6138 0.6146 0.6248 0.7236

A$/Yen

69.55 73.70 74.10 79.20 86.02

Commodity Prices S&P GSCI - commodity index

358.44

400.39

420.34

426.35

402.22

Iron ore

82.93

93.60

84.42

87.33

91.50

Gold WTI oil

1609.85 1574.00 1454.65 1319.15 1255.60 45.26

53.33

58.12

57.21

Source: Rainmaker /

54.00

Sector reviews

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

Australian equities

Figure 1: Wage price index 5.0

Figure 2: Household debt to disposable income 200

ANNUAL CHANGE %

Total

4.5

PERCENT

175

Public

4.0

Private

150

3.5 125

3.0 100

2.5

Prepared by: Rainmaker Information Source: Rainmaker /

75

2.0

50

1.5

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Barely getting by Ben Ong

T

he Statistician’s Wage Price Index report showed total wages grew by 2.2% in the year to the December 2019 quarter – unchanged from the previous quarter and the slowest annual growth rate since the June quarter of 2018.

Private sector wage growth also remained unchanged at 2.2% while wages growth in the public sector decelerated to 2.2% from 2.5% (could it be that the Morrison government is reining in expenditure on public servants’ pay rises to ensure a budget surplus?).

Anyways, wages may still be growing but this masks the fact that the growth in nominal wages is being eaten up by inflation. Growth in real wages – nominal wages growth less headline inflation (no use using the core measure here because wages are spent on all items, volatile or not) – has weakened to 0.4% in the December 2019 quarter from 0.7% in the previous one.

International equities

This would impair Australians households’ ability to pay down debt – household debt to disposable income stood at 186.5% in the September 2019 quarter (latest available) – and that long hoped for acceleration in consumer spending – retail sales had been growing between 2% and 4% over the past five years compared with boom time conditions when it grew between 6% and 9%.

Not only that, those without or with less debt are lifting their savings – the household savings ratio jumped to 4.8% in the September 2019 quarter (latest available) from 2.7% in the June quarter – and are continuing to do so as ME Bank’s latest survey show.

The ME Household Financial Comfort Report (released this month) found that “…more households saving, less overspending, and comfort with short-term cash savings is on the rise”.

“The number of households saving each month increased 3 points to 51% in the past six months – its equal highest level since the survey began, with

the estimated average amount savers are putting away increasing 7% to $862 per month. Meanwhile, the estimated average amount over-spenders drewdown on savings or credit each month decreased 28% to $453 per month.”

And that, ladies and gents, is after the Morrison government’s tax cuts in July last year and the Reserve Bank of Australia’s three 25 basis point rate cut each in June, July and October – indicating that both monetary and fiscal policies have still to get ahead of the curve.

The problem for the RBA is that the more it cut rates, the greater the sense that “something’s really, truly wrong with the economy” among households – prompting them to save even more and spend less, least of all thinking of borrowing even at zero interest rates.

It’s now up to the myopic duo of Scott (Morrison) and Josh (Frydenberg) to take up the RBA’s offer to borrow – given very low interest rates – and spend. fs

Figure 1: CBOE VIX index

Figure 2: S&P 500 Forward P/E ratio

50

20

INDEX

RATIO

18

35

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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].

Australian equities CPD Questions 1–3

1. What is the year on year growth in Australian total wages in the December 2019 quarter? a) 2% b) 2.2% c) 2.25% d) 2.3% 2. Which measure of wages growth decelerated in the year to the December 2019 quarter from the previous quarter? a) private sector wages b) public sector wages c) total wages d) all of the above 3. Real wages growth slowed in the December quarter. a) True b) False

45 40

29

16

30 14

25

12

20

Prepared by: FSIU Sources: Factset Prepared by: Rainmaker Information Source:

15

10

10

10Y ave 5Y ave

8

5 2011

S&P500 P/E

2012

2013

2014

2015

2016

2017

2018

2019

2020

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Wall Street sneezes Ben Ong

I

t may have started in China and is working infecting its way around the planet but the coronavirus hadn’t had much impact on equity markets until it hit investor sentiment on Wall Street.

Several days of selling have taken returns on the S&P 500 index down to negative 8.6% in the first two months of 2020 and the Dow to minus 11.0%.

As that old saying goes: “When Wall Street sneezes, the rest of the world catch a cold.”

The CBOE VIX index has risen by 191.1%, suggesting that fear has nearly trebled since the opening trade of this year.

To put this in perspective, the VIX index’s present reading is the highest since August 2015. It was also China that instilled fear and a sell-off in the markets at the time – triggered by the PBOC’s devaluation of the yuan – and growing concerns that the slowdown in its economy is deepening.

Some would claim that the deleterious impact of the coronavirus on the globe is worse than at the height of the tariff wars between Beijing and Washington and Fed rate hikes, others would disagree.

I think the impact would depend on how long and how far and wide the virus spreads before it’s contained.

Fed officials think so too. Fed vice chairman Richard Clarida noted that the Fed is monitoring progress of the coronavirus while Dallas Fed president Kaplan admitted that there’s still a lot of uncertainty surrounding the disease. However, both stressed that the Fed is able and ready to adjust policy if developments turn for the worse for the US domestic economy.

This should provide comfort not only for US investors but equity markets everywhere for just as the Fed pause in early 2019 – followed up by three rate cuts during the

year – delivered strong equity market gains around the world last year, the US central bank’s readiness would, at the very least, limit losses.

Not only that, the recent correction on Wall Street is not only weeding out the semi-believers but it’s also reduced the level of overvaluation in the US equity market. Factset data shows that the S&P 500’s forward P/E ratio has fallen to 16.63 times earnings from a record high of 19.1 times and is now equal to its five-year average of 16.64 times.

Wait there’s more. The reported drop in new cases in China suggests that the infection may have reached terminal velocity (for lack of a better phrase) in the country, something that’s expected to develop in other affected countries.

And if these aren’t enough, governments have already implemented or are preparing fiscal responses. fs

International equities CPD Questions 4–6

4. Which US equity index registered negative returns in the first two months of 2020? a) S&P 500 index b) Dow Jones Industrials index c) both a and b d) neither a nor b 5. What is the S&P 500’s five-year average forward P/E ratio. a) 15.6 b) 16.6 c) 17.6 d) 18.6 6. The Fed is ready to adjust policy if developments turn for the worse. a) True b) False

30

Sector reviews

Fixed interest CPD Questions 7–9

7. Which country is considered COVID-19’s epicentre in Europe? a) Germany b) Hungary c) Italy d) Spain 8. Which sector contributed to the improvement in the IHS/Markit Eurozone composite PMI in February? a) Manufacturing sector b) Services sector c) Both and b d) Neither a nor b 9. The European Commission announced a new aid package worth €232 million in the fight against COVID-19. a) True b) False Alternatives CPD Questions 10–12

10. According to the World Health Organisation (WHO), which country has the highest number of COVID-19 infection? a) China b) Italy c) Iran d) South Korea

Fixed interest

Go to our website to

Submit

All answers can be submitted to our website.

Figure 1: Markit Economics Eurozone PMI

Figure 2: ECB interest rates

62

2.25

INDEX

1.75

Marginal lending facility

1.50

56

1.25

54

1.00

Repo rate Deposit facility

0.75

52

0.50

50

0.25 Manufacturing

48

Prepared by: Rainmaker Information Prepared by: FSIU Source: Sources: Factset

RATE (%)

2.00

60 58

46

0.00

Composite

-0.25

Services

-0.50

44

-0.75

MAR17

JUL17

NOV17

MAR18

JUL18

NOV18

MAR19

JUL19

NOV19

MAR20

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

COVID-19 solves overtourism in Europe Ben Ong

B

e careful what you wish for.

Many European countries and their citizens have long been complaining about the growing problem of overtourism in their respective cities. Italy, for one, has introduced new rules and regulations prohibiting sitting on the Spanish steps, riding bikes in Venice, eating snacks on the street of Florence, etc. and is considering installing barriers around the Fontana di Trevi.

The spread of COVID-19 gave Europeans what they wished for, a reduction in tourist numbers. Italy – considered the virus’ epicentre in Europe – has reportedly locked down 12 towns (so far) to stop the spread of the coronavirus.

But it’s spreading across Europe. According to the European Centre for Disease Prevention and Control, as of February 25, 276 cases and seven deaths have been reported in the EU/EEA and the UK. • 229 cases in Italy (three imported, 226 locally acquired),

Alternatives

11. By how many basis points did the PBOC cut its one-year loan prime rate? a) 10 bps b) 20 bps c) 30 bps d) 50 bps 12. The PBOC raised the five-year loan rate on February 20. a) True b) False

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

• 16 cases in Germany (two imported, 14 locally acquired), • 13 cases in the United Kingdom (12 imported, one locally acquired), • 12 cases in France (five imported, seven locally acquired), • three cases in Spain (three imported), • one case in Belgium (imported), • one case in Finland (imported), • one case in Sweden (imported).

• Six deaths have been reported in Italy; one death has been reported in France.”

This doesn’t include the latest cases reported in Switzerland and Croatia.

Just before the virus broke out in Europe, IHS Markit reported that the Eurozone Composite PMI increased to 51.6 in February 2020 from 51.3 in the previous month — beating market consensus of 51 and is the fastest rate of expansion since August 2019 – due to improvements in both the service and manufacturing sectors.

The ECB would surely help, if it could. But with the current policy rate at zero, there’s little scope to do more. Besides the problem caused by the coronavirus is a supply-side problem.

Lower interest rates stoke demand but would do little to boost supply – demand could rise but there’ll be less factories operating/less workers working, adding to the overseas disruptions to the supply chain.

The European Commission’s new aid package worth €232 million announced on February 24 is a step in the right direction and clever at that for its designed not only to shield Europe but contribute in finding a cure to the global problem — €114 million will support the World Health Organization (WHO); €100 million will go to urgently needed research related to diagnostics, therapeutics and prevention; helping the weak link that could exacerbate the disease in Europe — €15 million are planned to be allocated in Africa; as well as looking after its citizens. fs

Figure 1: Shanghai composite index

Figure 2: PBOC 1-yr loan prime rate

3400

5.6

INDEX

RATE%

5.4 3200

5.2 5.0

3000

4.8 2800

4.6 4.4

2600

Prepared by: Rainmaker Information Prepared by: FSIU Source: IEA / Sources: Factset

4.2 4.0

2400 JAN19

APR19

JUL19

OCT19

JAN20

2015

2016

2017

2018

2019

2020

China’s COVID-19 countermeasures Ben Ong

R

eports that COVID-19 is not only multiplying but is infecting more countries outside of Mainland China has sent financial markets into a tailspin.

The World Health Organisation (WHO) reports that, as at February 28, the virus has infected 52 countries with 83,652 cases confirmed globally (78,961 of which are in China) and 2858 deaths (2,791 in China).

These numbers will continue to multiply for as long as a cure isn’t found and the more infections and deaths multiply, the longer China will remain in lockdown, with the resulting slowdown in economic activity infecting the rest of the world.

This is underscored by the ‘Nikkei Asian Review’s’ report that, “The government of Hubei Province, the epicenter of the coronavirus outbreak, said Thursday it will extend its business shutdown for a third time, this

time to March 10, more than a month and a half after the Lunar New Year holiday was slated to end”.

Needless to say, the shutdowns would again be extended if things don’t get better by then.

However, in a seemingly perverse reaction, the Shanghai Composite index has rebounded by 10.7% from the one-year low of 2,746.61 points recorded on the 3 February (following reports that the COVID-19 death toll has overtaken SARS), taking its 2020 year-to-date loss from a steep 10.0% (on the third of Feb) to a mere 0.3% three weeks hence.

What gives? What gave is the People’s Republic of China’s politburo and central bank got going. Apart from the government’s drastic action at quarantining cities and regions infected by the virus, the People’s Bank of China (PBOC) cut its benchmark one-year

loan prime rate (LPR) by 10 basis points to 4.05%and the five-year rate from 4.8% to 4.75% on the 20th of February.

This followed the PBOC’s injection of 1.2 trillion yuan (US$174 billion) into the money markets reduction in its one-year medium-term facility rate from 3.25% to 3.15% three days earlier.

In addition, as The New York Times published, “China will cut some pension contributions and insurance fees to help companies cope with the coronavirus, while firms in Hubei province, the epicenter of the outbreak, won’t have to pay pensions, jobless and work-injury insurance until June”.

“Before the end of June, firms can apply for delaying their payments to the state-run housing provident fund and unpaid repay loans to the provident fund due to the virus’s impact will not be treated as overdue, the cabinet said.” fs

Sector reviews

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

31

Property

Property

CPD Questions 13–15

Prepared by: Rainmaker Information Source: Mozo

atest Mozo insights show the Bank of Mum L and Dad is the fifth biggest home lender in Australia, lending an average of $73,522 to their children, and it’s got one in four parents at risk of financial hardship.

On a national scale, it’s equated to $92 billion over the last two years. This places it ahead of ING and Suncorp.

Commonwealth Bank sits firmly in the top spot at $442 billion.

“The property market in Australia is incredibly challenging for younger generations to break into with property prices surging by 395% in the last twenty five years. For this reason the Bank of Mum and Dad has become an essential player in our nation’s housing market,” Mozo director Kirsty Lamont said.

Overall, 64% of parents are sharing their savings with their children for this purpose, with 34% cutting back on expenses to make it happen.

About 16% are using the equity in their own homes and 13% are delaying retirement. Sadly, 4% are resorting to selling assets.

Bank of Mum and Dad the fifth largest home lender Jamie Williamson

“Many parents are feeling the pressure to help their children purchase their first property and for some, this is causing a real strain, especially when they find themselves working for far longer than they’d envisioned or repayment deals are reneged on,” Lamont said.

Allowing kids to live at home rent-free is the most common form of assistance. This is followed by 32% that have provided money for a deposit, 14% acted as guarantor and 10% helped pay the loan repayments.

Of those that acted as guarantor, 26% said their child had defaulted on their loan and one in five had missed repayments. Of those parents that requested to be paid back, close to 20% said it hasn’t happened.

As a result of their generosity, one in four parents said they are at risk of financial hardship and stress.

And it’s not just property parents are helping out with; 46% have helped buy a car, 39% have paid for educational costs, 33% are assisting with ongoing bills and 26% have paid for household items.

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The Bank of Mum and Dad’s growth as a lender may be due to a wider inbalance within the Australian economy, the research suggests.

“It could be argued that such a dominance in family assistance is feeding into a greater inequality in this country with many first home buyer hopefuls without financial aid remaining locked out as property prices rise faster than they can feasibly save a deposit,” she said.

“Income to property ratios have changed dramatically in the past twenty five years. At present, the cost of buying a property is 7.2 times the annual income of a typical household, whereas 25 years ago it was 1.6 times the annual household income.”

In January 2019, the Bank of Mum and Dad was seen as the ninth-largest source of home loans in Australia.

The new Banking Code of Practice was expected to reduce the instances of children borrowing from their parents as it increased scrutiny of loan applicants relying on their parent’s money. fs

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14. Which of the following is cited as the most common form of assistance provided by parents to their children? a) Buying a property for the children to live in b) Allowing children to live at home rent-free c) Encouraging children to experience the rental market before buying d) Giving children an early inheritance lump sum 15. The new Banking Code of Practice was expected to reduce the instances of children borrowing from their parents. a) True b) False

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13. Which of the following statements accurately reflects the commentary? a) The Bank of Mum and Dad is a declining player in Australia’s housing market b) Recent data shows that adult children are now less inclined to rely on the Bank of Mum and Dad c) Acting as a home lender has left one-infour parents at risk of financial hardship d) Only 2% of parents surveyed reported that their children haven’t paid back loans when requested

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32

Profile

www.financialstandard.com.au 16 March 2020 | Volume 18 Number 05

AN ENDURING MODEL Once a civil servant, Pinnacle Investment Management managing director Ian Macoun has built one of Australia’s most successful multi-boutique funds management businesses. He tells Kanika Sood how it came to be. here are many multi-boutique funds manT agement businesses in Australia, but few come close to the scale of Pinnacle Investment Management.

With more than $61 billion in assets across its funds management affiliates, its nearest competitor in terms of scale is legacy giant Challenger’s Fidante Partners, in an industry that has many successful but smaller players.

The Sydney-based operation has, over the last 14 years, attracted restless fundies from the big banks looking to branch out on their own.

The business is the brainchild of managing director Ian Macoun who has risen from being a humble civil servant to one of the top executives in Australian funds management.

Macoun grew up in Rockhampton, Queensland. He studied a bachelor of commerce at University of Queensland after winning a bonded scholarship from the state.

On finishing university, he found himself at the Queensland state treasury, where he would spend over a decade of his life.

“It was a fantastic place to start a career because they gave young people a lot of responsibility, and you’re working on really important things and you could see [that] you could make a difference to people’s lives,” he says.

Young Macoun thought he wanted to become a head of the treasury. This wasn’t a far-fetched goal, given that over the years he has risen to the rank of first assistant under the treasurer.

But life had other plans.

The government set up QSuper (which is now exploring a merger with Sunsuper) to manage the “investable balances” that the state treasury was accumulating from public sector superannuation schemes, worker compensation schemes and other government investment funds.

Within the treasury, Macoun had already overseen the investing of these funds, and as QSuper took off, he began to oversee its investments.

“It might have been a couple of billion or something, which we wouldn’t think is all that much now, but it was a huge amount of money then... the amounts were starting to grow very rapidly because that was the beginning of Keating’s compulsory super,” he says.

“And we said, ‘oh my goodness, this is going to be really serious so let’s think about the best way to invest this money’.”

Macoun recommended the best way for QSuper to handle its investments would be to set up a body specialised in investing.

And that became QIC, or Queensland Investment Corporation, which has since grown to be an $80 billion investing juggernaut, and a major player in private and unlisted markets investing.

Macoun was involved in writing the legislation for QIC, and the team decided to lock out the politicians from investing decisions and stack the board with corporate Australia’s mas-

ters of the universe; including former AMP chief executive Alan Coates and Jim Kennedy, who later manned the boards of Commonwealth Bank and Santos.

By this time Macoun was 33 years old and ready to go back to his treasury dreams, but QIC’s newly-fangled board still needed his services.

“I thought my job was to make sure the board was established and operating well, and then they’d go and recruit a chief executive from the private sector and I’d get back to my job in treasury,” he recalls.

“They said, look you have articulated the vision for this — because I needed to work with them enough to make sure they understood what the government’s objectives were with it – and to cut a long story short, they asked me to be the chief executive for QIC.” He still had an eye out for the treasury job but building QIC was too much fun, and he ended up spending almost half a decade in the role.

“I loved it so much, and there was so much to do. We really started from a blank sheet of paper, which was a great opportunity to set things up,” he says.

Five years into the job, in 1993, he was approached by a person he describes as an “executive search character”.

Macoun didn’t return the recruiter’s call for three days, until his assistant pointed out it may be worth talking to the guy as QIC might be able to use him for its own recruiting.

The recruiter talked Macoun into moving to Sydney to run Westpac’s funds management business, back when BT was still a competitor.

“I could spend an hour just talking about how that all happened, and how my wife every now and then gets angry with me and says we were supposed to come to Sydney for five years, and here we are 26 years later,” he laughs.

In the early 1990s, Westpac was rebuilding itself under the leadership of its American chief executive, Bob Joss, and Macoun led the funds management business for four and a half years.

“I decided that if I was going to stay in investment management, you had to be excellent at it.

There is no point in doing something if you are not going to be excellent,” he says.

He had come to believe that to build an enduring funds management business, the fund managers had to have a good environment, which banks didn’t necessarily provide, and the infrastructure support (i.e distribution, sales, back office and client services).

Macoun ended up talking to IOOF to take over its Aussie equities and fixed interest investment decisions, and turn them into boutiques.

He brought in John Murray, whom he had hired into the Westpac business from Maple Brown Abbott, and housed the IOOF teams in a new multiboutique business called Perennial Value.

“We were very successful and it proved our theory about boutiques. But IOOF

I decided that if I was going to stay in investment management, you had to be excellent at it.

There is no point in doing something if you are not going to be excellent.

Ian Macoun

was demutalising and their shareholders said it should own all of IOOF,” Macoun recalls.

Macoun ended up leaving, while Murray, who was 15 years older, stayed. IOOF got a bigger stake in Perennial, which it held on to until 2019 when the management bought it back.

Over the years, Macoun admits, he has had some misses. And he has built a playbook for him and Pinnacle’s directors on what does and doesn’t make fund managers work.

“I’d love to say that it’s a red flag if these people are extremely confident, but I can’t say that because they’re all extremely confident. If they weren’t, they wouldn’t have achieved the success they have,” he says.

In his spare time, Macoun loves audio books and has a pile of recommendations. One that sticks out is King of Capital, which tells the story of how Steve Schwarzman built Blackstone into a resilient, diversified investment house.

At 65, succession is the elephant in the room, much as Kerr Nelison had to hand over the reins at Platinum Asset Management.

“I am sort of continuing to bulk up the management team, we have expanded it and we’ve got a lot of good experience there,” he says.

“And so at the right time [there] will be succession but for the time being, that’s not the foreseeable future because I am very much enjoying it.” fs