Super Review Magazine - March 2010

T H E L E A D I N G I N D E P E N D E N T J O U R N A L FO R T H E S U P E R A N N U AT I O N A N D I N S T I T U T I O N A L F U N D S M A N A G E M E N T I N D U S T RY March 2010

Volume 24 - Issue 2

Bringing SMSFs into the fold The Government will find itself under pressure to bring SMSFs under APRA jurisdiction in circumstances where even those servicing the sector believe SMSFs require closer and more consistent supervision.

6 COOPER REVIEW Industry bands together to begin fight back

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12 CMSF PREVIEW Remembering the lessons of the past to prepare for the future

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14 FUND PERFORMANCE Retail master trusts enter greener pastures

18 EQUITIES OUTLOOK Fund managers refuse to get carried away For the latest news, visit superreview.com.au COMPANY INDEX

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capable of monitoring the majority of SMSFs”.

It said that as a result, [the ATO] relied heavily on approved auditors to manage SMSF compliance.

“It is therefore critical for approved auditors to possess the necessary knowledge and skills required to undertake their duties, especially in relation to the specific Superannuation Industry (Supervision) Act (SIS) regulatory requirements,” it said.

The submission said that the anecdotal evidence, and statements made by the ATO, suggested this was not always the case.

While IFSA has not supported removing SMSFs from the ATO’s regulatory supervision, it has argued that there should be stronger oversight by the regulators of SMSF service providers.

PriceWaterhouseCoopers (PWC) reflected the broad industry view when it claimed the current system of shared regulation by APRA and the ATO, together with all superannuation funds being subject to the same supervisory legislation, “results in inefficiencies and some confusion”.

It said the current SIS legislation is often difficult to interpret in relation to SMSFs and it is sometimes unclear whether

ressure is mounting on the Federal Government via the Cooper Review to have self-managed superannuation funds (SMSFs) moved under the regulatory oversight of the Australian Prudential Regulation Authority.

While the Superannuation Professionals’ Association of Australia, which provides specific industry coverage of SMSFs, is highly resistant to having the sector removed from the regulatory jurisdiction of the Australian Taxation Office (ATO), a majority of submissions filed with the Cooper Review support common regulatory oversight of superannuation, including SMSFs. Support for common regulatory oversight is strongest among industry fund submissions, with the Investment and Financial Services Association (IFSA) and planning groups supporting continued regulation of SMSFs by the ATO. However, even with respect to IFSA and the planning groups, there is a strong push for the trustees of SMSFs to be held to higher standards.

Even Commonwealth Bank Wealth Management’s submission to the review has argued that notwithstanding further resourcing of the ATO to better supervise SMSFs, “the ATO is not 3

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In some instances the ATO has been unable or unwilling to provide guidance to trustees on the operation of the rules to SMSFs.

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certain provisions apply to SMSFs or are meant to apply only to larger funds.

“In our view, in the absence of a separate Act governing the supervisory rules for SMSFs, some redrafting of the SIS legislation, or separate guidance, would provide greater clarity on which rules apply to SMSFs and which do not,” the PWC submission said. “It is also our view that there should be one regulatory team devoted to SMSFs. We believe that the ATO could more effectively regulate the SMSF sector if the supervisory legislation was better distinguished between the rules applying to SMSFs and those applying to other funds.

“Overall, in our experience, the regulation of SMSFs by the ATO has been largely effective, but in some instances the ATO has been unable or unwilling to provide guidance to trustees on the operation of the rules to SMSFs, or to exercise discretion on certain supervisory matters without also considering APRA’s position.” SR 23

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COMPANY INDEX AGEST ................................................................................................................................3 AMP ................................................................................................................................3, 8 Asset Super ........................................................................................................................3 Association of Superannuation Funds of Australia................................................................6, 8 AustralianSuper............................................................................................................3, 6, 9 Australian Custodial Services Association ..............................................................................6 Australian Institute of Superannuation Trustees ..................................................................4, 6 Australian Prudential Regulation Authority ............................................................................9 Australian Securities and Investments Commission..................................................................9 Australian Tax Office ............................................................................................................9 AXA Asia Pacific ..................................................................................................................8 Bank of New York ................................................................................................................3 CareSuper ..........................................................................................................................3

Cbus ..................................................................................................................................3 Chant West ......................................................................................................................3, 8 Colonial First State ..............................................................................................................3 Corporate Superannuation Association ..................................................................................6 Elders Limited......................................................................................................................9 Financial Planning Association ..............................................................................................6 First State Super..................................................................................................................3 HIH Royal Commission..........................................................................................................4 Hillross ..............................................................................................................................8 Hostplus..............................................................................................................................3 Investment and Financial Services Association........................................................................6 MasterSuper........................................................................................................................9 Mercer ................................................................................................................................3

Newton Investment Management ..........................................................................................3 NGS Super ..........................................................................................................................3 OneSteel..............................................................................................................................4 Plum ..................................................................................................................................3 REST ..............................................................................................................................3, 6 Russell ............................................................................................................................3, 4 Self Managed Super Fund Professionals’ Association of Australia..............................................9 Senate Standing Committee on Economics..............................................................................9 Sunsuper ............................................................................................................................3 Towers Watson ................................................................................................................8, 9 UniSuper ............................................................................................................................3 Victorian Funds Management Corporation ..............................................................................4

Wednesday 7 April 2010, Roseville Golf Club The Super Review Charity Golf Tournament is not just about getting out of the office and onto the green stuff to talk business...

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It’s also about getting together with your industry peers to have some fun and, at the same time, raise some much needed money for kids in need.

Ultimately, the success of the day will be owed to the support of our sponsors and the money raised for The Inspire Foundation.

In addition to a day of fun and fellowship with your clients, there will be the opportunity to win team and individual prizes for feats such as nearest to the pin, longest drive and, of course, the Editor’s Bradman Award. In fact, the Super Review Charity Golf Tournament represents good value for both serious (handicap) golfers and social players. Everyone has an opportunity to WIN!

We will go out of our way to ensure your support is recognised.

If you have any queries please contact Heather Lawson on (02) 9422 2791 or email heather.lawson@reedbusiness.com.au

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Industry funds provide best value proposition MASTER trusts may have out performed other sectors of the superannuation industry last year, but the latest Chant West data reveals that not-for-profits have continued to dominate the list of top-rated funds.

Chant West principal Warren Chant acknowledged that retail master trusts outperformed industry funds for the first time in four years, during 2009. However, he said that while investment was very important and accounted for 40 per cent of his company’s overall methodology, Chant West did not rate funds higher or

lower on the basis of just one year’s performance.

He said the reason notfor-profit funds achieved higher ratings was to be found in their overall value proposition.

“The better industry funds have relatively low administration fees, excellent investment processes, lowcost insurance and an increasing range of member services including some excellent member education,” Chant said.

The Chant West analysis listed the top 10 personal super products, in alphabetical order, as being: AGEST,

AustralianSuper, CareSuper, Colonial First State FirstChoice Wholesale, First State Super, Hostplus, NGS Super, REST, Sunsuper and UniSuper.

The Chant West data revealed that the top funds for medium-sized corporate super plans were AMP Signature, AustralianSuper Corporate, Mercer, Plum, Russell and Sunsuper Corporate.

Looking purely at investments, the top 10 funds were AustralianSuper, CareSuper, Cbus, First State Super, Hostplus, Mercer, NGS Super, REST, Sunsuper and Unisuper. SR

In search of the right exit strategy FINDING an appropriate exit strategy from fiscal stimulus policies represents a key challenge for governments and authorities around the world this year, according to the head of Bank of New York Mellon’s fixed income specialist company, Newton Investment Management, Paul Brain.

Brain has used his latest analysis to suggest that 2010 will be the year of exits and that just like the Greeks at Thermopylae in 480 BC, the emphasis for governments will be on covering their exits.

He said that while the enormous fiscal and monetary policy efforts of 2009 appeared to have been sufficient

to turn the world economy around, the bill for previous excesses still needed to be paid.

“The tricky balancing act for authorities in 2010 will be to pay for those excesses while avoiding a capital shortage similar to that which occurred in 1994,” Brain said.

“We have argued repeatedly that, saddled with debt, the Western Governments cannot contemplate anything but a fiscal exit.”

Referring directly to the current sovereign debt problem in Greece, Brain said there were two difficulties with a fiscal exit strategy: when to apply the pain and ensuring that markets trust the strategy. SR

Russell extends service offering RUSSELL Investments has added 20 new specialists as part of a range of expanded services in response to increased client demand and growth in core service lines.

“The changes mark an important new phase for Russell’s business in the local market,” said the managing director for Russell Investments in Australia and New Zealand, Chris Corneil.

“Against the backdrop of a changed global financial services and investing landscape, our growing team of specialists is focused on developing innovative solutions, revisiting and redefining old models, seeking new

and exciting investment opportunities and finding better ways to serve customers,” he said.

Chris Corneil

Key appointments include director of actuarial and benefits consulting Steve Schubert as managing director, superannuation, replacing Linda Elkins; and Geoff Peck, Russell’s director of superannuation, who has been appointed managing director, government and institutions.

Russell’s core services expansion includes six new positions that will be added to investment consulting, the addition of an exchange traded funds team and the addition of five new retail roles in response to increased self-managed superannuation fund demand. SR

Warren Chant

Merger talk moot on Asset Super ASSET Super has confirmed that it has been in discussions with a number of superannuation funds around the question of a merger, but its chief executive, John Paul, has denied that an announcement is imminent.

Suggestions have been circulating that Asset Super has been in discussions with both NSW’s First State Super and Queensland’s Sun Super, but Paul has declined to confirm or deny the status of talks with either fund.

“We are aware of reports that we are in discussion with various parties,” he said. “But any discussions we’ve had or are having are subject to confidentiality.”

Paul added that the investment performance outcomes that prompted suggestions of the need for a merger on the part of Asset Super were no longer a central issue given recent improvements in returns.

He said while some discussions had taken place, it would be “presumptuous in the extreme” to suggest any outcomes had been reach. SR MARCH 2010

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HIH judge tough on conglomerates PARENT companies of investment conglomerates and financial corporations should create smaller group structures and be made directly responsible for their subsidiaries’ actions, according to Justice Owen, the commissioner of the HIH Royal Commission. Speaking at a luncheon of the Australian Institute of Superannuation Trustees, Justice Owen suggested that large group company structures with greater numbers of subsidiary companies had contributed to corporate collapses in the past.

“What did all these [failed corporate companies] have in common?

The number of subsidiaries they had.

Was it necessary to have group structures as large as that, and did the fact that there were so many companies in some of those groups contribute to their collapse?” he asked.

The way those large group structures had been used in the past decade was inappropriate, he said.

Responding to a question from Super Review, Justice Owen suggested that the parent company in a group structure be

made directly responsible for the obligations of its subsidiary companies.

“That does have its problems ... but it’s one of the subjects that I think we need to debate,” he said.

Justice Owen also said that the larger the group company structure was, the easier it became (innocently or deliberately) to hide the true financial position of a conglomerate.

It was also too easy for a large conglomerate to simply cast aside a troubled subsidiary, or for a company to phoenix into a new corporation with

Mercer defends super tax concessions MERCER has released new research that it claims disproves suggestions that superannuation tax concessions have led to high-income earners receiving the lion’s share of government support for retirement income.

Instead, Mercer said its research suggested that, taking into account both the super tax concessions and the aged pension, total government support for retirement income is remarkably equal across a variety of income levels.

Commenting on the research, Mercer partner for

David Knox

retirement, risk and finance David Knox said it cast new light on the debate around the cost and equity of superannuation tax concessions.

“Much of the criticism of tax concessions fails to take into account the direct link between the level of retirement and savings and reliance on the age pension,” he said.

“When considering the cost of superannuation tax concessions, looking at the tax concessions only tells half the story.”

Knox said that while the research confirmed that those

with higher incomes or receiving higher salary increases did receive a higher level of superannuation tax concessions, they were also likely to receive a lower level of government-funded aged pension.

“What is interesting is the overall cost to the Government is roughly the same regardless of whether the funding is weighted towards tax concessions for a higher income earner or providing the age pension to a person who needs to top up their income in retirement,” he said. SR

Russell launches new funds RUSSELL Investment is urging clients to consider increasing their exposure to liquid alternatives.

The company said that with the aim of enhancing investor diversification and protection against inflation, it had rotated its flagship multi-asset portfolio, Russell Pooled Superannuation Trust – Balanced Opportunities Unit, into three new alternative asset sector funds.

It said the rotation had increased balanced opportunities’ alternative strategies exposure by 7 per cent in the past three months.

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portfolio manager Andrew Sneddon said the company had taken a “right strategy, right time” approach to alternatives.

The company said that to allow investors to implement alternative strategies it had launched three new sector funds with an alternatives focus: the Russell Commodities Fund, the Russell Global Listed Infrastructure Fund and the Global Strategic Yield Fund.

Russell Investments has also consolidated its relationship with OneSteel via a corporate superannuation outsourcing mandate.

Russell announced that the OneSteel fund would tuck into the Russell Super Solution Master Trust.

The mandate represented the next step in an ongoing relationship that had seen Russell providing trusteeship, administration and investment management services.

Russell had been working with OneSteel since 2001 and described the mandate as representing one of the largest master truss mandates in Australia.

The OneSteel fund has around 5,000 members and $1.1 billion in funds under management. SR

the troublesome company remaining part of the conglomerate, Justice Owen said.

A group structure also caused a “recurring nightmare” of directors making decisions in the interests of the group when they should have been focusing on the interests of the group member, and that created problems, Justice Owen said.

‘Outside’ directors also made bad investment and lending decisions based on group strength, when the focus of their attention should be on the individual companies’ situations, he added.SR

Ratings agencies criticised RATINGS agencies are likely to emerge as one of the bigger losers from the global financial crisis because of some of the ratings they handed particular products, according to the chief investment officer of Victorian Funds Management Corporation (VFMC), Justin Pascoe.

Addressing an Asset Allocation Summit in Sydney, Pascoe signalled that the performance of the ratings agencies in the lead-up to the global financial crisis had persuaded the VFMC to change its approach and to place greater reliance on other methods.

He said the global financial crisis had served to highlight the manner in which ratings agencies were paid and the conflict issues that then arose, particularly where it could be suggested that they had received payments for particular ratings.

“I do not think ratings agencies will get their reputations back very quickly,” Pascoe said. SR

Justin Pascoe

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Cooper: the industry fights back THE Cooper Review into superannuation is now confronted by a phalanx of industry organisations expressing concern about its proposed changes to the ‘choice architecture’.

What is more, this united front of opposition now ranges from the industry funds movement to financial planners.

The Australian Institute of Superannuation Trustees, the Association of Superannuation Funds of Australia, the Corporate Superannuation Association and the Investment and Financial Services Association recently issued a joint statement that was critical of the Cooper approach;

and, the Financial Planning Association (FPA) has expressed similar concerns.

The combined statement from the four superannuation industry bodies called on the Cooper Review panel to reconsider its choice architecture recommendations on the basis that the remit of the review panel had been to “renovate the super house” – not to bulldoze it.

For her part, chief executive of the FPA Jo-Anne Bloch said the Australian superannuation system was world-class and only needed subtle policy changes – not a completely new product structure.

She said that instead of focusing on such radical concepts, the review panel “should focus on obvious impediments such as different governance and regulatory systems and the unlevel playing field between superannuation sectors when it comes to financial advice, disclosure and choice”.

Bloch said the FPA had also argued in its submission in support of the significance of self-managed superannuation funds (SMSFs) in the provision of retirement planning for Australians.

The FPA claimed that further intervention in the SMSF environment would threaten the success of SMSFs as a superannuation option. SR

Pressure builds for fund mergers THE financial crisis is likely to drive small super funds to merge in an attempt to achieve lower costs and better performance for their members, but such mergers will not achieve the scale benefits super funds are looking for, according to the Australian Super general manager, growth and new opportunities, Paul Schroder.

“My sense is that there are a number of small funds thinking of merging with

[other] small funds, [but] two small funds joining together just makes another small fund,” Schroder said.

“You go through the trauma of joining with another small fund [just] to remain a small fund,” he said.

While there were instances of two small funds joining together, eventually they would have to make another move to achieve economies of scale, Schroder said.

He added that we were

coming to a time when small and medium funds would be challenged by the “pure pressure” of costs and performance.

Schroeder warned that super funds could no longer afford to focus on a single industry.

“If you are a small fund that is very dependent on one industry, then if the industry suffers difficulty your membership growth and contribution levels are going to be

under pressure,” he said.

The financial crisis had exposed a lack of communication skills in the smaller funds, which were unable to reassure their members about the strength of the super fund, according to Schroder.

“We all had the bad event, but the larger funds are better resourced to deal with it,” he said.

Australian Super recently won a $650 million tender for MasterSuper. SR

REST raising young members’ awareness

Damian Hill

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RETAIL industry fund REST has launched a new education push on the back of the fund’s own analysis that revealed that as many as 300,000 of its members have not even provided their tax file number.

The fund announced that the problem demographic was 18 to 30 year olds, with many of the same people also not taking advantage of the potential benefits which flowed from consolidating their superannuation accounts or making voluntary contributions.

Commenting on the new education push, REST chief executive Damian Hill said that if people engaged in their superannuation at a younger age they would be in a much better position when it came to retirement.

“By getting organised now, they can boost their eventual super payout by many thousands of dollars,” he said. “All they need to do is take a few minutes to sort out their super in three easy steps – provide their TFN, make extra contributions and consolidate their super.” SR

Jo-Anne Bloch

Custodians flag further consolidation THE Australian Custodial Services Association (ACSA) is flagging further consolidation across the financial services industry.

The chairman of ACSA, Bryan Gray, claimed the global financial crisis had established a new world order for Australia’s investment and financial services community, driving further consolidation as well as a raft of new regulation.

“A key change we are noticing is the convergence of institutional services across the traditional bank and custody divide,” he said. “Major global bank providers are bringing their own operations together to provide traditional treasury, prime broking and cash clearing services alongside the spectrum of custody and securities services that have been developed to support Australia’s superannuation and institutional investment community.”

Gray claimed this would create greater efficiency for larger institutional clients as well as benefit custodians, which could integrate previously segregated businesses to create a seamless solution for clients. SR

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Profitable AMP still keen on AXA

Craig Dunn

AMP has declared its continuing interest in acquiring AXA Asia Pacific at the same time as reporting a 27 per cent increase in net profit attributable to shareholders of 27 per cent to $739 million.

The company pointed out that underlying profit stood at $772 million and was down 5 per cent on the previous year.

AMP chief executive Craig Dunn said: “AXA remains strategically attractive to us. We are continuing to consider our position and will do what is in the best interests of shareholders.”

His comments came at the same time as he acknowledged that industry

consolidation was continuing to gather pace and that AMP expected the competitive landscape to continue to shift.

The AMP chief executive said while market volatility still existed and a full recovery would take some time, the company believed that over the medium to long-term the fundamentals for the wealth management sector remained very attractive.

Looking at the company’s divisional results, Dunn said AMP Financial Services had delivered a good result with operating earnings up 2 per cent to $648 million on the back of strong banking and insurance results.

He said total net cash flows had risen 17 per cent to $1.7 billion and that the resilient net flows had reflected the strength of mandated superannuation and increased flows from the acquisition of Rabo Financial Advisers.

In contemporary wealth management, Dunn said operating earnings had risen 5 per cent to $278 million as a result of a strong performance from AMP Bank.

He also pointed to tighter cost controls across the division, which had been achieved at the same time as aligned planner practices AMP Financial Planning and Hillross had grown by 26 planners to total 811. SR

Modest growth in equities predicted FUND managers are predicting modest global economic growth and higher equity returns in 2010 but are less positive about bond and credit markets, according to a survey conducted by global professional services firm Towers Watson.

Managers anticipated overall returns on global equities of 10 per cent, up from 6.7 per cent in 2009, with the high expectations driven by emerging markets. Expectations of returns in non-Japanese Asian markets were 14.5 per cent, compared to around 8.5 to 9 per cent for most Western markets.

“The overall picture we get from this influential group is one of recovery, with established Western markets lagging the emerging markets on most measures,” said the global head of investment at Towers Watson, Carl Hess.

There was “an increase in the expected propensity of investors to take risk in 2010 and managers’ commensurate bullishness about risky assets”, as well as a view that government policies would be conducive to market stabilisation and economic growth, he added.

Responses revealed significant uncertainty about yields on both short and long-term corporate and government securities, while credit markets were likely to remain unpredictable for the foreseeable future.

Real gross domestic product growth was expected to be around 1.5 to 3 per cent in Western markets, and up to 7 per cent in parts of Asia. Unemployment was thought to have peaked but was expected to remain high by historic standards, and all marketplaces were thought to have reached the bottom of the housing market, with the exception of the US. SR

Equities pause sees industry funds regain lead SUPERANNUATION funds lost ground in January after finishing 2009 on a high, although funds across the board have still recorded strong growth for the financial year to date, according to Chant West data.

Growth funds (those with a 61 to 80 per cent allocation to growth assets), which are the default option for most members, have grown 10.4 per cent this financial year despite shrinking 2.2 per cent in January.

The slow start to 2010 was due to a 6.2 per cent contraction in the Australian share market for the month, while international shares also retreated, according to Chant West.

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“The markets were probably due for a breather after running up so strongly towards the end of 2009,” said Chant West principal Warren Chant.

“We had a strong Christmas rally, which was unlikely to be sustained into the New Year,” he said.

These results highlighted the value of diversification, he added. Growth assets in the funds weren’t limited to listed shares and property, with many having a diverse mix including unlisted infrastructure, opportunistic property and private equity – “so they are able to cushion the blow when share markets fall”, Chant said.

These assets feature more heavily in industry funds than master trusts, and it was the stronger performance of these assets that led to industry funds outperforming master trusts in January for just the second time in the past 11 months, Chant said. SR

Chris Bowen

Govt to streamline disclosure THE Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, has announced the Government is streamlining long-term superannuation disclosure requirements.

The move would enable members to receive more useful and accessible information and would exclude exit statements, allow the industry to use inserts to provide five-year performance information until June 30, 2011, exempt traditional funds and allow approved deposit funds and pooled superannuation trusts to provide annual reports online.

Pauline Vamos, the Association of Superannuation Fund of Australia’s (ASFA’s) chief executive, welcomed the Government’s announcement as a clear victory for the industry.

“This is a clear indication that this Government is willing to listen and is looking for pragmatic outcomes that provide a benefit to members without placing unnecessary costs on the industry. The next step is to provide income benefit projections for fund members in their annual statements.

The industry wants to find a way to show people what they will get in retirement both with and without the age pension so that they can benchmark themselves against the Westpac-ASFA retirement standard,” she said. SR

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Angst at ATO approach to SMSFs THE Self-Managed Super Fund Professionals’ Association of Australia (SPAA) has criticised the Australian Taxation Office (ATO) for listing new self-managed super funds (SMSFs) under a new category of ‘Registered - status not determined’ in the Super Fund Look Up system, claiming it created the impression that new SMSFs were not compliant.

The ATO created the category in January this year, and

explained it would indicate they were newly-formed funds that have not yet lodged their first annual return.

But in a media briefing at the SPAA conference in Melbourne, SPAA chairman Sharyn Long said the ATO’s explanatory notes of the new category suggested that these funds would not be compliant with regulation until they lodged their first return.

“The first thing most people who set up a SMSF do is apply

to roll over their existing superannuation entitlements out of [a] large fund – and large funds rely on Super Fund Look Up to determine if the [SMSF] is a compliant fund,” she said.

Larger super funds could refuse to roll over funds into a new SMSF, saying that it wasn’t compliant with regulation, Long said.

The notes suggesting a fund might not yet be compliant were also inconsistent with

APRA not ready to relax THE Australian Prudential Regulation Authority (APRA) will not be dialling down its supervisory oversight in a belief that the worst of the global financial crisis is over.

That is the message from the chairman of APRA, John Laker, who has told the Senate Standing Committee on Economics that while Australian financial institutions weathered the crisis better than most, it was not a time for “hats in the air”.

“Certainly, APRA is not ready to dial down the level of its supervisory intensity,” Laker said.

Discussing global regulatory reforms, Laker made clear that APRA was conscious of ensuring that changes within the Australian environment did not unduly hamstring the local industry.

“While the need for global reform is unquestioned, prudential regulators do not wish to introduce measures that impose an overall burden greater than the sum of the parts,” he said. “That would thwart global recovery efforts or would have unintended consequences.”

Sharyn Long

Global equities window of opportunity closes THE best opportunities to reap returns from undervalued global equities have passed, according to a new analysis released by Mercer.

The head of Mercer’s Dynamic Asset Allocation team in Australia, David Stuart, said the company had brought its global equity rating back to ‘fair value’ from ‘undervalued’ as the growth in global equity markets slowed over the past quarter.

“We remain optimistic that corporate earnings will continue to recover but the markets have now built in a reasonable amount of expectation around good news in future earnings, and this has squeezed out the potential for above average returns,” he said.

Stuart said Mercer also believed equity markets were in for a bumpy ride with many risks still facing global economies, meaning the case to be overweight global equities was no longer as strong. SR

John Laker

The APRA chairman said the regulator was participating actively in a study of the impact of the reform proposals and would be feeding in relevant information from a number of Australian approved deposit-taking institutions “to ensure that we understand fully the implications of the reform proposals for Australia”. SR

AustralianSuper picks up MasterSuper mandate AUSTRALIANSUPER has reinforced its position in the Australian market with its corporate superannuation division picking up the mandate for the former Elders Limited fund MasterSuper.

The mandate was confirmed by the executive officer

current regulation, Long said.

When a new SMSF is formed, it is automatically a compliant fund unless it breaches a provision of the Superannuation Industry Supervision Act, she said.

“We have absolutely no concern with the fact that processes are meant to be quite rigorous. It’s just that some of the processes that have been asked for don’t make a lot of sense,” said SPAA chief executive Andrea Slattery. SR

of MasterSuper, Mark Sladden, who said the decision had followed an extensive tendering process.

He said the decision meant the fund would be able to offer its members the benefits that a fund the size of AustralianSuper could bring.

MasterSuper boasts around 12,500 members and $650 million in funds under administration.

The mandate would bring AustralianSuper’s corporate business to 45,000 members and $1.9 billion in funds under administration. SR

Make forecasts mandatory LEADING consultancy Towers Watson has suggested the Australian Securities and Investments Commission (ASIC) make the provision of retirement income projections mandatory from 2012.

In an analysis published in February, the company noted ASIC’s proposal for a voluntary projection regime but argued that it should be both mandatory and inclusive of age pension projections.

It pointed out that the age pension was the so-called ‘first pillar’ of the Australian retirement income system and that if it were excluded from forecasts, fund members would not only be denied

important information but might focus too keenly on voluntary contributions.

“While we recognise that including the age pension increases the complexity of retirement projections, it should be possible for the Australian Government Actuary to establish a table which shows each level of superannuation retirement income and the corresponding combined income, including the age pension,” the Towers Watson analysis said.

It said this would substantially reduce both the workload of providers and the risk of error in providers determining the combined amount. SR MARCH 2010

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Alien concepts The chairman of the Cooper Review, Jeremy Cooper, has promised not to introduce a policy cane toad, but to do so he must understand what alien concepts really are.

Mike Taylor

he chairman of the Cooper Review into Superannuation, Jeremy Cooper, made an important promise to the recent annual conference of a specialist self-managed superannuation funds (SMSFs) body, the Superannuation Professionals’ Association of Australia (SPAA).

Cooper promised that his panel’s deliberations would not result in the introduction of a policy “cane toad” to the SMSF sector. He did so in the context of how the cane toad was introduced to the Queensland sugar cane industry in the 1800s and the serious unintended consequences that have resulted.

Cooper should give a similar undertaking to the broader superannuation industry

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in circumstances where some of the proposals being canvassed by his review panel are clearly trying to remake the wheel.

Acts of unity are rare across the various organisations that seek to represent the superannuation industry. Thus Cooper should accept the significance of four of those organisations putting aside their rivalry to present a united front to his panel’s proposals regarding the architecture of the industry.

That united front took the form of a joint submission signed off by the Association of Superannuation Funds of Australia (ASFA), the Australian Institute of Superannuation Trustees (AIST), the Investment and Financial Services Association and the Corporate Super Association.

In short, every element of the industry was represented, from industry and corporate funds through to retail master trusts.

The joint submission warned that instead of just

EDITORIAL Managing Editor – Mike Taylor Ph: (02) 9422 2712 Fax: (02) 9422 2822 email: mike.taylor@reedbusiness.com.au Features Editor – Angela Faherty Ph: (02) 9422 2210 Fax: (02) 9422 2822 email: angela.faherty@reedbusiness.com.au Contributing Reporter – Damon Taylor email: damon.taylor@c-e-a.com.au Ph: 0433 178 250 ADVERTISING Senior Account Manager – Suma Donnelly Ph: (02) 9422 8796 Mob: 0404 118 729 Fax: (02) 9422 2822 email: suma.donnelly@reedbusiness.com.au

SUPERREVIEW

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MARCH 2010

“renovating the house” with respect to superannuation, as originally envisaged by the former Minister for Financial Services, Superannuation and Corporate Law, Senator Nick Sherry, the review panel appears inclined towards demolishing the house and starting again.

The joint submission then went on to defend the existing architecture and the manner in which it met the needs of both those members who were fully engaged and those who can be deemed disengaged.

Some commentators suggest that the joint submission compiled by the industry organisations represents an overreaction because the Cooper Review panel has simply been seeking to provoke debate rather than being doctrinaire.

The problem with this analysis is the unconventional approach Cooper has adopted to the entire review process and some of the statements he has made.

Those statements have appeared to say more about his own views on the future of the industry than they do about the broad tenor of the submissions his panel has received.

Indeed, any reading of the submissions received by the Cooper panel over the first two phases of the review suggests that virtually no one wants to throw the baby out with the bathwater. Quite simply, there is absolutely no evidence of a call for radical change.

While there have been calls for changes and improvements, they have suggested that these changes and improvements be at the margins of the existing regime.

Perhaps just as importantly, beyond obviously politically-motivated agendas, there have been no calls for radical changes to the existing SMSF regime and certainly no broad acceptance that such funds should be pushed under the regulatory umbrella of the Australian Prudential Regulation Authority.

The Rudd Government has not made a good start to 2010 in terms of maintaining positive political perceptions and it needs to be careful that the debate being generated around the Cooper Review and, indeed, the still secret Henry Review do not serve to

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undermine confidence in superannuation as an attractive investment option.

There is plenty of evidence to suggest that even the small changes announced to superannuation arrangements in the last Federal Budget undermined confidence. It is therefore not a leap to suggest that the canvassing of radical change resulting from the Cooper recommendations will have a similarly adverse impact.

As was succinctly pointed out by the four industry organisations when filing their joint submission to the Cooper Review, the original Government objective was to ‘renovate’ the Australian superannuation system rather than to initiate a radical redesign or rebuild.

Perhaps, on that basis, it is time for the Cooper Review to step back within the bounds of convention and, by doing so, develop a set of recommendations that reflect the views of all the major stakeholders.

If Cooper does not want to introduce a policy cane toad into the Australian superannuation industry he should closely examine the history of the cane toad in Australia and accept that what appears to work in one environment is not necessarily suited to another. SR

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12 CMSF PREVIEW

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CMSF – looking forward, The Conference of Major Superannuation Funds is now 20-years-old and there can be no better occasion on which to examine what the industry may look like in another two decades.

T

his year marks the 20th anniversary of the first Conference of Major Superannuation Funds (CMSFs) at which the former Treasurer and then Prime Minister, Paul Keating, signalled what proved to be the policy foundations for Australia’s current superannuation regime.

Little wonder then that this year’s CMSF is focusing not just on the past two decades of superannuation but is themed ‘The Next 20 Years’.

Indeed, the chief executive of the Australian Institute of Superannuation Trustees, Fiona Reynolds, will be seeking to establish the tenor of that theme when she and the national secretary of the Australian Workers’ Union, Paul Howes, use the conference’s opening plenary to examine what the superannuation sector might look like in 20 years’ time.

Interestingly, the conference schedule draws parallels between Howes as a young labour leader with the Keating of two decades’ ago, but whereas 20 years’ ago Keating was in a position to help set the agenda for superannuation, this year’s CMSF is being held at a time when the agenda is being debated by a government inquiry – the Cooper Review.

That fact will make the presence of the chairman of the Cooper Review, Jeremy Cooper, all the more interesting when he addresses the second plenary of the conference just a few hours after Reynolds and Howes discuss their views of the future possibilities for the industry.

The second plenary will be made all the more interesting because SUPERREVIEW

*

MARCH 2010

While Cooper will be the focal point, he will be engaging with a panel that includes one of the men who helped advise the Hawke/Keating Government in its delivery of the superannuation guarantee.

Fiona Reynolds

while Cooper will be the focal point, he will be engaging with a panel that includes one of the men who helped advise the Hawke/Keating Government in its delivery of the superannuation guarantee – the chairman of State Super, Don Russell.

Also on the panel will be the chair of Media Super, Gerard Noonan, and a trustee director of First State Super, Cristina Cifuentes.

It will be one of the few occasions where Cooper will have been confronted by a panel with the experience brought by Russell, Noonan and Cifuentes, and it seems likely that the Cooper Review chairman will have many of his publicly stated positions put to the test.

A few days later, the views of the industry on the Cooper Review will be canvassed in a plenary session that will involve Reynolds, the chief executive of the Industry Super Network, David Whiteley, the chief executive of the Association of Superannuation Funds of Australia, Pauline Vamos, and the chief executive of the Superannuation Professionals’ Association of Australia, Andrea Slattery.

CMSF PREVIEW 13

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looking back Consolidation questioned WITH a number of mergers having already occurred and discussions continuing between superannuation funds around the possibility of more, this year’s Conference of Major Superannuation Funds will see three fund chief executives and a chairman discussing the benefits and deficits.

In a breakout workshop session focusing on fund consolidation and cooperation, the chairman of Media Super, Gerard Noonan, will come together with the chief executive of FirstSuper, Graeme Russell, the chief executive of Vision Super, Rob Brooks, and the chief executive of Quadrant Super, Wayne Davy.

Noonan is expected to bring a particular level of insight to the session in circumstances where Media Super is the product of the merger, last year, of the journalist and entertainmentbased JUST Super and the printing industries-based Print Super.

The discussion is expected to not only canvas the difficulties in under-

Rob Brooks

taking mergers between funds but whether, in fact, the additional scale that is achieved actually delivers the sorts of benefits the parties want.

The discussion also comes at a time when the chairman of the Cooper Review, Jeremy Cooper, has canvassed the probability of a future Australian superannuation industry made up of fewer but larger funds. SR

Hot Sessions MONDAY

11:20am – 12:20pm Workshop 1C Tax in super: Role of the proactive and competitive trustee Speakers: Ramani Venkatramani, general manager, Australian Prudential Regulation Authority, and Graeme Arnott, chief operating officer, First State Super

2.35pm – 3.30pm Workshop 2C Medicare and the new clearing house Speaker: Mark Jackson, general manager, compliance and general programs division, Medicare Australia TUESDAY

9.50am – 10.45am Workshop 3C Beyond the GFC – Getting the balance right

Speaker: Michael O’Neill, chief executive, National Seniors Australia

11.15am – 12.15pm Workshop 4A Intra-fund advice – Your opportunity to give members what they really need Speakers: Debby Blakey, executive manager – member advice, HESTA Super Fund, and Joanne Caruana, manager employer services, Equipsuper WEDNESDAY

9.50am – 10.40am Workshop 5E Regulatory updates – ASIC Speaker: Louise du Pre-Alba, senior executive leader – superannuation funds, Australian Securities and Investments Commission

MARCH 2010

*

SUPERREVIEW

14 SUPER FUND PERFORMANCE

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Fund returns in transition Last year may well be remembered as the year in which the retail master trusts outperformed the industry funds but, taken over the long haul, the data still favours the not-for-profit funds. f the collapse in equity markets in 2008-09 served to reveal the degree to which most retail master trusts are unduly exposed to listed investments, 2009-10 has revealed the degree to which some industry funds have suffered due to their overexposure to unlisted investments.

The result? Retail master trusts broadly outperformed industry funds in the second half of calendar 2009.

However, the degree to which the performance of the master trusts is only as good as the performance of equities markets was reflected by their less than stellar performance in the opening months of 2010 – a period during which industry funds reasserted themselves.

Superannuation is, of course, meant to be a longterm investment, and most experienced commentators argue that looking at superannuation fund returns over anything less than 12 months is irrelevant and that you can really only gain a sensible appreciation of relative performance by looking over three, five and even 10 years.

And it is this fact that has coloured the approach of research house Chant West in generating its 2010 fund ratings – an analysis

I

SUPERREVIEW

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MARCH 2010

that acknowledges the relative outperformance of the retail master trusts through 2009, but then points to industry funds being the better bet over the longer haul.

“We don’t rate funds higher or lower just on the basis of one year’s performance.

Otherwise we’d have downgraded a lot of master trusts when they performed relatively poorly in 2008 and then upgraded them based on last year’s performance,” explains Chant West principal Warren Chant.

“It doesn’t work like that,” he says. “What we look for is the quality of their investment philosophy, process and people, including their in-house resources and external asset consultants.

That doesn’t move just because markets move against you in the short-term.”

Chant says the reason notfor-profit funds achieved higher ratings in the analysis is to be found in their overall value proposition.

“The better industry funds have relatively low administration fees, excellent investment processes, low cost insurance and an increasing range of member services, including some excellent member education,” he says.

Chant says it was the total package offered by industry

funds that resulted in them scoring highly.

While the Chant West 2010 fund ratings deal with a compilation of factors, including fees, investment processes and service offerings, the tables published in this edition (pages 14 to 17) are based on investment returns to the end of December.

As such, the performance tables dealing with growth place Colonial First State

First Choice Moderate in the lead position over one year with a return of 24.2 per cent, followed by BUSS(Q) with a return of 21.7 per cent and then Russell Balanced with 21.7 per cent.

However, when the data is looked at over a five-year period, CBA OSA Mix 70 emerges in top spot with a return of 6.8 per cent, followed

by Catholic Super Mod Aggressive with a return 6.5 per

cent and Catholic Super Balanced with 6.4 per cent.

Taken over three and fiveyear returns, the data indicates that more not-forprofit funds appear in the top-10 data on returns than retail master trusts. However, the returns generated by those retail master trusts that consistently rank in the top 10 exhibit less volatility than the not-for-profit funds. SR

SUPER FUND PERFORMANCE 15

www.superreview.com.au

High Growth (81 - 100%) Net returns for periods to 31 December 2009 Fund

Asset Consultant

Option Size %

% of Growth Assets %

$m AGEST Growth

Frontier

AMP FD Growth

Mercer

1,240

89.0

AMP RIL Growth

Mercer

53

86.0

3 Months %

119

93.0

2.4

6 Months %

1 Year

2 Years

%

(39)

13.9

(35)

12.6

3.3

(7)

15.8

(22)

2.3

(40)

16.7

(13)

% pa

3 Years % pa

5 Years % pa

-2.9 (30)

% pa

(42)

-8.4

(35)

20.5

(11)

-8.0

(34)

-3.2 (33)

4.4 (24)

19.4

(18)

-6.2

(16)

-2.2 (22)

5.4

3.0 (39)

Aon Growth

Russell

208

85.0

0.2

(47)

14.3

(32)

16.4

(33)

-7.3

(28)

-2.8 (28)

ARIA PSSap Aggressive

Internal

46

88.0

2.8

(23)

13.7

(37)

16.4

(32)

-7.5

(30)

-1.1

Asgard SMA Growth

Advance

n.a.

83.0

2.8

(24)

15.8

(23)

17.7

(29)

-6.5

(22)

(12)

-

7 Years

(12)

-

-

6.7 (23) -

-

5.3 (35) -

-

Standard Deviation 5 yrs 10.5 10.3 9.6

-

-

-2.5 (26)

4.6

(21)

6.6 (26)

9.9

10.3

Asset High Growth

Mercer

503

91.5

3.3

(6)

17.3

(8)

18.4

(23)

-6.9

(24)

-3.2 (32)

4.0 (30)

6.3 (28)

AustralianSuper High Growth

Frontier / JANA

1,502

88.5

2.9

(21)

13.2

(39)

12.5

(43)

-8.4

(36)

-2.0 (19)

5.1

7.6

(10)

8.9

Aviva PS High Growth

Mercer

131

85.0

2.5

(37)

19.6

(2)

23.2

(4)

-6.7

(23)

-2.3 (23)

4.5 (23)

-

-

11.5

(14)

AXA SD Growth

ipac

458

85.0

2.8

(22)

16.3

(19)

19.1

(20)

-8.5

(38)

-3.7 (37)

3.6 (35)

5.8 (34)

10.5

BT MM Growth

Watson Wyatt

420

84.0

3.5

(2)

19.2

(4)

23.6

(2)

-8.7

(40)

-4.6 (41)

2.9

5.8 (33)

12.4

BUSS (Q) High Growth

Frontier

73

92.5

4.2

(1)

11.9

(43)

13.0

(41)

-5.8

(12)

0.1

(5)

6.6

(3)

-

-

9.1

CareSuper Growth

JANA

159

90.0

3.1

(12)

14.8

(29)

18.6

(21)

-5.0

(5)

0.2

(4)

6.3

(5)

8.4

(6)

8.8

Catholic Super & Ret Growth

Mercer

309

85.0

2.9

(15)

15.0

(28)

17.6

(30)

-5.8

(11)

-1.8

(17)

5.1

(15)

-

-

9.5

Catholic Super Aggressive

JANA

223

96.0

2.9

(19)

17.3

(10)

24.3

(1)

-5.2

(7)

0.3

(2)

6.8

(2)

8.9

(1)

10.8

(41)

CBA OSF Mix 90

Watson Wyatt

n.a.

90.0

2.6

(35)

14.1

(34)

17.8

(27)

-4.4

(3)

1.0

(1)

7.1

(1)

8.5

(4)

8.9

Cbus High Growth

Frontier

436

95.0

2.6

(34)

17.3

(9)

23.0

(5)

-6.2

(17)

-0.9 (10)

5.9

(8)

7.8

(8)

11.0

EISS High Growth

Mercer

n.a.

90.0

3.4

(5)

15.9

(21)

18.2

(25)

-9.8

(42)

-4.8 (44)

3.0 (38)

5.9 (32)

11.2

Equipsuper Growth

JANA

41

85.0

2.7

(27)

14.3

(33)

16.7

(31)

-4.7

(4)

-0.5

(8)

-

-

-

-

-

ESSSuper High Growth

VFMC

7

95.0

2.9

(16)

10.0

(47)

9.2

(45)

-

-

-

-

-

-

-

-

-

Fiducian Growth

Fiducian

FSS (NSW) High Growth

JANA

GESB Super Growth

Mercer

39

Health Super LT Growth

Watson Wyatt

3,451

HESTA Shares Plus

Frontier

n.a.

HOSTPLUS Shares Plus

JANA

123

ING OptiMix Growth

OptiMix

Intrust Super Growth Legal Super Assertive LGSS High Growth Media Super Growth

101

81.0

2.4

(38)

18.6

(6)

20.2

(12)

-8.6

(39)

-4.0 (39)

3.8 (32)

6.8 (22)

11.1

1,253

90.0

2.2

(41)

13.3

(38)

14.9

(36)

-6.4

(20)

-2.0 (20)

5.0

7.6

9.6

85.0

3.1

(11)

17.5

(7)

20.9

(10)

-7.4

(29)

85.0

3.2

(8)

14.7

(30)

18.2

(24)

-5.7

(10)

-1.2 (13)

90.0

2.9

(20)

15.0

(27)

18.5

(22)

-5.2

(6)

-0.4

85.0

2.6

(29)

13.1

(41)

15.7

(34)

-5.9

(14)

0.1

1,269

81.0

2.8

(25)

18.7

(5)

22.8

(6)

-6.5

(21)

JANA

n.a.

90.0

3.1

(10)

16.6

(15)

19.6

(15)

-9.1

JANA

1,898

85.0

2.7

(28)

15.3

(26)

13.9

(38)

-7.9

Mercer

n.a.

90.0

3.5

(3)

16.4

(17)

18.2

(26)

-10.1

(43)

-4.6 (42)

3.2 (36)

6.3 (29)

11.2

Frontier

202

85.0

2.6

(32)

11.8

(44)

13.7

(39)

-6.1

(15)

-1.2 (14)

5.3

(13)

7.3

(14)

8.2

Maritime Super Growth

JANA

1,264

90.0

2.6

(30)

12.2

(42)

10.8

(44)

-10.3 (44)

-4.6 (43)

3.8 (33)

6.9

(21)

9.0

Mercer High Growth

Mercer

645

85.0

1.7

(45)

16.1

(20)

19.5

(17)

-6.2

(19)

-1.9

5.0

(16)

7.3

(15)

10.3

Mercer High Growth Plus

Mercer

30

85.0

1.6

(46)

16.6

(14)

22.3

(8)

-6.2

(18)

-2.0 (21)

-

-

-

-

MLC Assertive

MLC

73

85.0

3.1

(13)

16.8

(12)

19.8

(14)

-7.6

(31)

-2.8 (29)

-

-

(17)

(12)

-

-

-

-

-

5.7

(9)

7.6

(11)

9.0

(7)

5.7

(10)

7.8

(9)

9.2

(6)

6.5

(4)

8.7

(3)

8.7

-1.6 (16)

4.9

(18)

7.5

(13)

10.6

(41)

-2.9 (31)

3.9

(31)

7.3

(16)

10.9

(33)

-2.7 (27)

4.1

(29)

-

-

9.7

(18)

-

4.2 (27)

6.7 (24)

10.8 10.7

MLC Horizon 5

MLC

5,969

85.0

3.1

(9)

16.9

(11)

19.9

(13)

-7.2

(27)

-2.5 (25)

4.5 (22)

6.9 (20)

MTAA Balanced

Access

4,409

95.0

0.2

(48)

4.5

(48)

-9.3

(47)

-14.0

(47)

-5.6 (45)

3.0 (40)

6.1

(30)

7.1

MTAA Growth

Access

182

97.0

0.0

(49)

3.8

(49)

-12.0

(48)

-12.3

(46)

-3.6 (36)

4.4 (26)

6.9

(19)

6.5

NGS Super High Growth

JANA

14

85.0

2.6

(33)

15.6

(25)

21.3

(9)

-2.3

(1)

-

-

-

-

-

-

-

Optimum High Growth

Intech

32

90.0

2.6

(31)

16.5

(16)

22.5

(7)

-7.1

(26)

-4.2 (40)

3.2 (37)

Plum Pre-Mixed Assertive

MLC

828

83.0

2.8

(26)

16.3

(18)

19.2

(19)

-6.9

(25)

-2.4 (24)

4.6 (20)

6.4 (27) -

11.5

-

10.4 10.7

QSuper High Growth

QIC

952

85.0

2.2

(42)

13.8

(36)

15.0

(35)

-8.4

(37)

-3.5 (35)

4.2 (28)

7.9

(7)

REST High Growth

JANA

254

95.0

2.9

(18)

14.4

(31)

17.7

(28)

-4.3

(2)

0.3

6.2

(6)

8.9

(2)

8.6

Russell Growth

Russell

575

90.0

3.5

(4)

20.7

(1)

23.3

(3)

-7.7

(32)

-3.3 (34)

4.4 (25)

7.1

(18)

12.1

Suncorp High Growth

Intech

23

90.0

3.0

(14)

19.2

(3)

-

-

-

-

-

-

-

-

-

Tasplan LT Growth

Mercer

54

90.0

2.9

(17)

15.7

(24)

19.6

(16)

-5.4

(8)

-1.3 (15)

5.4

(11)

7.1

(17)

9.8

-

(3) -

UniSuper Growth

UniSuper

3,032

85.0

2.6

(36)

13.1

(40)

14.0

(37)

-5.6

(9)

-0.7

(9)

5.9

(7)

8.5

(5)

8.3

Vision Super Growth

Frontier

119

83.0

2.0

(44)

11.2

(45)

13.5

(40)

-5.9

(13)

-1.1

(11)

4.7

(19)

6.6 (25)

7.7

Westscheme Trustees Selection

Access

2,580

97.0

2.0

(43)

10.2

(46)

3.5

(46)

-10.8 (45)

6.0

7.9

Number of funds

-3.8 (38)

3.7 (34)

(31)

49

49

48

47

45

41

35

41

Upper Quartile

90.0

3.1

16.7

20.0

-5.9

-1.1

5.4

7.7

10.8

Median

88.0

2.8

15.6

18.2

-6.9

-2.3

4.6

7.1

9.9

Lower Quartile

85.0

2.5

13.7

14.7

-8.4

-3.3

3.9

6.5

8.9

Vanguard High Growth

90.0

2.4

16.9

18.9

-7.9

-3.3

4.7

7.1

11.3

12.3

Tax exempt funds Super SA High Growth Vanguard High Growth (before tax)

Russell

545

94.0

3.1

17.0

21.4

-10.3

-4.1

4.7

8.0

90.0

2.6

18.8

21.0

-9.0

-4.0

4.6

7.3

12.5 Source: Chant West

MARCH 2010

*

SUPERREVIEW

16 SUPER FUND PERFORMANCE

www.superreview.com.au

Growth (61 - 80%) Net returns for periods to 31 December 2009 Fund

Asset Consultant

Option Size

AGEST Balanced AMP FD Balanced AMP RIL Balanced Aon Balanced ARIA CSS ARIA PSS ARIA PSSap Trustee Choice Asgard SMA Balanced Asset Medium Growth Auscoal Growth AustralianSuper Balanced AustSafe Balanced Aviva PS Growth AXA SD Balanced BT MM Balanced BUSS (Q) Balanced Growth CareSuper Balanced Catholic Super & Ret Balanced Catholic Super Balanced Catholic Super Mod. Aggressive CBA OSF Mix 70 Cbus Moderate Growth Cbus Core Strategy CFS FirstChoice Growth EISS Diversified Equipsuper Balanced Growth ESSSuper Growth Fiducian Balanced FSS (NSW) Diversified GESB Super Balanced Growth Health Super MT Growth HESTA Core Pool HOSTPLUS Balanced ING OptiMix Balanced Intrust Super Balanced JANA Assertive JANA Moderate Legal Super Moderate LGSS Diversified LUCRF Balanced Maritime Super Balanced Media Super Balanced Mercer Growth Mercer Growth Plus MLC Growth MLC Horizon 4 MLC Moderate NGS Super Diversified Optimum Growth Plum Pre-Mixed Moderate QSuper Balanced REST Core REST Diversified Russell Balanced Russell Balanced Opps Suncorp Growth Sunsuper Balanced Sunsuper Growth Tasplan Balanced UniSuper Balanced United Capital Growth Vision Super Balanced Growth

$m Frontier Mercer Mercer Russell Internal Internal Internal Advance Mercer Mercer Frontier / JANA JANA Mercer ipac Watson Wyatt Frontier JANA Mercer JANA JANA Watson Wyatt Frontier Frontier Mercer Mercer JANA VFMC Fiducian JANA Mercer Watson Wyatt Frontier JANA OptiMix JANA JANA JANA JANA Mercer Watson Wyatt JANA Frontier Mercer Mercer MLC MLC MLC JANA Intech MLC QIC JANA JANA Russell Russell Intech Mercer Mercer Mercer UniSuper United Frontier

% 1,861 6,346 172 664 4,634 11,142 1,500 n.a.

548 1,526 25,237 930 227 1,380 1,068 1,416 2,223 2,818 1,945 65 n.a.

93 12,589 2,707 n.a.

1,411 135 169 11,617 293 2,080 n.a.

6,266 3,146 n.a.

224 535 763 n.a.

2,205 949 1,911 4,961 89 1,887 6,003 1,826 2,513 107 486 14,727 15,573 189 2,004 73 30 11,014 1,256 1,130 6,377 945 1,634

Number of funds Upper Quartile Median Lower Quartile Vanguard Growth Tax exempt funds GESB (WSS) Growth Super SA Balanced Super SA Growth Vanguard Growth (before tax)

Mercer Russell Russell

821 5,359 5,728

% of Growth Assets % 72.0 75.0 74.0 70.0 78.0 78.0 78.0 70.0 70.0 80.0 73.0 73.0 70.0 70.0 71.0 75.0 75.0 74.0 70.0 80.0 70.0 63.0 76.5 80.0 70.0 70.0 80.0 69.0 70.0 70.0 65.0 72.5 74.0 70.0 75.0 80.0 73.0 75.0 70.0 78.0 70.0 76.0 70.0 70.0 79.0 70.0 70.0 70.0 79.0 70.0 67.5 74.0 80.0 70.0 70.0 79.0 70.0 80.0 70.0 70.0 69.5 73.5

3 Months % 1.7 3.0 2.1 0.0 2.5 2.5 2.5 2.6 2.7 3.0 3.2 3.8 2.2 2.5 3.1 3.2 2.6 2.4 2.4 2.6 2.4 2.0 2.1 2.9 3.0 2.3 2.5 2.1 1.8 2.0 2.8 2.3 2.3 2.5 2.8 2.1 2.0 3.1 3.2 2.0 3.2 2.3 0.9 1.3 2.9 2.8 2.7 2.1 2.3 2.5 2.5 2.9 2.8 3.0 3.4 2.5 2.7 2.8 2.6 2.3 2.5 1.6

75.8 71.5 70.0 70.0

75.0 68.0 78.0 70.0

6 Months

1 Year

2 Years

62 14.5 12.6 11.3 13.9

61 17.1 14.9 11.4 15.7

61 -4.0 -5.0 -5.8 -4.3

58 0.3 -0.7 -1.6 -1.0

56 5.6 5.1 4.4 5.0

50 7.7 7.0 6.6 6.9

56 8.8 7.9 7.1 8.7

2.7 2.8 2.8 2.3

15.6 13.5 14.4 15.4

18.8 16.8 18.0 17.5

-6.6 -7.1 -8.8 -4.9

-2.0 -2.2 -3.2 -1.3

4.9 4.8 4.6 5.2

7.4 7.5 7.7 7.3

10.3 9.5 10.7 9.7

(44) (52) (27) (43) (23) (19) (20) (29) (45) (31) (21) (39) (40) (50) (57) (11) (7) (37) (4) (8) (2) (12) (55) (53) (13) (10) (48) (22) (14) (24) (26) (32) (17) (25) (16) (28) (56) (42) (47) (30) (36) (41) (49) (33) (38) (3) (54) (35) (15) (1) (5) (46) (18) (51) (6) (9) (58) (34)

(39) (46) (18) (52) (30) (27) (25) (48) (28) (9) (36) (40) (50) (56) (11) (7) (38) (3) (2) (1) (8) (47) (53) (14) (16) (45) (23) (17) (24) (21) (32) (19) (20) (22) (26) (54) (34) (49) (31) (33) (43) (37) (41) (5) (51) (35) (15) (4) (6) (44) (13) (29) (10) (12) (55) (42)

% pa 6.8 6.2 5.8 7.4 7.5 6.8 6.0 6.5 7.9 6.8 5.8 5.2 7.6 7.9 8.0 7.9 7.8 6.0 5.6 7.7 7.8 6.8 7.3 7.1 7.3 7.6 7.1 7.9 7.2 7.0 6.8 5.8 6.7 6.7 6.7 6.7 6.9 6.6 7.8 6.0 8.0 8.0 8.4 6.5 7.5 7.4 7.1 7.9 5.2 6.2

Standard Deviation 5 yrs

62 2.8 2.5 2.2 1.9

(55) (51) (20) (42) (43) (44) (41) (14) (21) (38) (45) (56) (34) (49) (58) (27) (18) (22) (15) (17) (2) (8) (26) (54) (52) (6) (10) (46) (12) (35) (9) (36) (48) (31) (30) (40) (16) (23) (59) (57) (50) (32) (28) (39) (53) (29) (37) (4) (33) (25) (7) (1) (5) (24) (19) (13) (60) (3) (11) (61) (47)

% pa 4.7 4.2 5.6 3.5 5.0 5.1 5.2 4.1 5.1 5.9 4.8 4.5 3.7 2.9 5.8 6.0 4.7 6.4 6.5 6.8 6.0 4.2 3.4 5.6 5.6 4.3 5.2 5.6 5.2 5.4 4.9 5.5 5.4 5.4 5.1 3.4 4.8 3.9 4.9 4.8 4.4 4.8 4.5 6.2 3.7 4.8 5.6 6.4 6.1 4.4 5.7 5.1 5.9 5.8 2.9 4.5

7 Years

% 2.9 18.8 15.8 14.6 11.2 11.1 11.4 15.4 16.1 15.7 10.2 16.4 20.1 16.4 21.7 7.0 11.1 13.2 13.9 19.8 15.5 10.6 8.5 24.2 14.9 12.9 12.0 19.1 12.2 16.9 14.4 9.4 6.3 19.6 14.2 17.1 15.7 11.4 14.2 11.8 9.7 11.1 16.3 17.8 19.1 17.7 17.9 15.3 19.4 17.3 14.5 16.1 15.7 20.4 21.7 13.0 10.3 15.6 12.9 14.8 2.3

(60) (11) (23) (33) (48) (50) (47) (29) (22) (24) (54) (18) (5) (19) (2) (58) (49) (39) (38) (6) (28) (52) (57) (1) (31) (42) (44) (9) (43) (17) (35) (56) (59) (7) (37) (16) (25) (46) (36) (45) (55) (51) (20) (13) (10) (14) (12) (30) (8) (15) (34) (21) (26) (4) (3) (40) (53) (27) (41) (32) (61)

% pa -1.6 -2.5 -0.4 -1.6 -0.1 0.0 -0.1 -0.6 -1.7 -0.7 -0.1 -1.3 -1.4 -2.3 -3.6 0.5 1.0 -1.2 1.2 0.9 2.1 0.5 -2.8 -2.5 0.4 0.6 -2.1 -0.1 0.4 -0.3 -0.3 -0.9 0.1 -0.3 0.3 -0.5 -2.8 -1.5 -1.8 -0.7 -1.1 -1.4 -2.1 -1.0 -1.3 1.4 -2.7 -1.1 0.3 2.3 1.1 -1.7 0.1 -2.5 1.0 0.6 -4.4 -1.1

5 Years

% 9.6 (58) 14.8 (13) 12.3 (36) 12.3 (34) 10.8 (50) 10.7 (51) 10.9 (49) 13.5 (23) 14.7 (14) 11.0 (48) 12.0 (39) 13.5 (24) 17.2 (5) 14.1 (19) 17.4 (3) 8.6 (61) 11.3 (46) 11.9 (40) 11.7 (44) 14.7 (15) 12.1 (37) 9.6 (59) 10.5 (53) 18.5 (1) 13.1 (26) 11.3 (47) 10.4 (54) 16.2 (7) 10.6 (52) 13.7 (22) 11.8 (42) 10.4 (55) 9.1 (60) 16.4 (6) 13.3 (25) 14.2 (18) 13.0 (27) 12.7 (31) 14.0 (20) 9.7 (57) 12.3 (35) 10.2 (56) 13.0 (30) 14.0 (21) 16.1 (8) 14.9 (10) 14.9 (11) 12.4 (33) 14.4 (17) 14.6 (16) 13.0 (28) 13.0 (29) 12.6 (32) 17.3 (4) 17.4 (2) 15.0 (9) 11.9 (41) 11.4 (45) 12.0 (38) 11.7 (43) 14.8 (12) 7.0 (62)

(58) (12) (52) (62) (37) (35) (35) (24) (22) (10) (5) (1) (47) (34) (8) (6) (26) (39) (40) (27) (38) (56) (51) (14) (9) (41) (30) (49) (57) (53) (17) (44) (45) (29) (19) (48) (55) (7) (4) (54) (3) (43) (61) (60) (13) (18) (21) (50) (46) (32) (28) (15) (20) (11) (2) (31) (23) (16) (25) (42) (33) (59)

% pa -6.7 -6.5 -4.3 -5.5 -5.6 -5.7 -5.4 -3.6 -4.5 -5.3 -5.7 -6.8 -5.1 -6.1 -7.0 -4.9 -4.2 -4.6 -3.7 -4.1 -2.0 -3.1 -4.9 -6.7 -6.5 -2.9 -3.2 -5.8 -3.6 -5.1 -3.2 -5.2 -6.1 -5.0 -5.0 -5.3 -4.0 -4.6 -7.2 -6.9 -6.3 -5.0 -5.0 -5.3 -6.6 -5.0 -5.2 -2.6 -5.1 -4.8 -2.9 -0.8 -2.8 -4.7 -4.2 -3.6 -7.5 -2.1 -3.2 -8.3 -6.1

3 Years

(32) (40) (46) (18) (16) (30) (44) (38) (6) (29) (47) (50) (14) (9) (2) (5) (10) (43) (48) (13) (12) (31) (21) (25) (20) (15) (24) (8) (22) (26) (28) (45) (35) (33) (34) (36) (27) (37) (11) (42) (4) (3) (1) (39) (17) (19) (23) (7) (49) (41)

7.7 9.1 8.2 8.2 7.1 7.1 8.0 8.6 8.2 7.3 8.8 9.7 8.7 10.8 7.0 6.6 7.5 7.4 9.0 7.1 6.9 11.3 8.6 6.8 6.0 9.4 7.3 6.7 6.7 6.5 9.3 7.9 8.7 7.6 7.4 8.7 8.1 7.1 6.7 8.7 10.1 9.0 9.1 7.4 9.8 8.9 8.1 6.6 7.2 9.7 7.4 8.5 7.1 6.9 9.4 5.5

Source: Chant West

SUPERREVIEW

*

MARCH 2010

SUPER FUND PERFORMANCE 17

www.superreview.com.au

Balanced Growth (41 - 60%) Net returns for periods to 31 December 2009 Fund

Asset Consultant

$m AGEST Moderate

Frontier

AMP FD Mod. Conservative ARIA PSSap Balanced Asgard SMA Moderate

Option Size %

% of Growth Assets %

3 Months

%

27

58.0

1.8

Mercer

607

50.0

Internal

15

49.0

Advance

n.a.

50.0

2.3

Auscoal Balanced

Mercer

1,375

59.0

2.6

AustralianSuper Conserv. Balanced

Frontier / JANA

95

54.5

2.7

AustSafe Capital Stable

JANA

6

45.0

2.4

6 Months

% (28)

9.1

2.4

(13)

2.0

(24) (17)

1 Year

2 Years

%

% pa

(29)

7.0

(37)

-4.0

11.4

(10)

15.7

(4)

8.1

(36)

9.7

(32)

10.9

(18)

12.7

(17)

0.0

(6)

9.0

(30)

12.8

(16)

(2)

10.0

(21)

9.3

(34)

(14)

8.3

(33)

10.2

3 Years

% pa

5 Years

% pa

7 Years

Standard Deviation 5 yrs

% pa

(33)

-0.2 (24)

-

-

-3.5

(32)

-0.8 (28)

4.3

(21)

-2.3

(22)

1.4

(13)

-

-

(5)

2.3

(3)

6.0

(2)

-2.4

(24)

0.9

(16)

5.7

-2.9

(28)

-

-

-

(30)

-0.4

(7)

2.1

(6)

-

-

-

-

6.7

-

-

-

7.0

(3)

5.6

(4)

6.7

(6)

6.2

-

-

-

-

4.9

(11)

5.5

(14)

4.1

(15)

Aviva PS Balanced

Mercer

304

50.0

1.7

(33)

13.6

(3)

15.7

(5)

-2.0

(21)

0.4 (20)

4.7

AXA SD Secure Growth

ipac

122

50.0

2.2

(20)

11.7

(7)

13.5

(11)

-3.0

(29)

-0.5 (25)

3.7 (22)

CareSuper Conserv. Balanced

JANA

13

50.0

2.3

(18)

9.5

(27)

12.0

(23)

-0.8

(10)

2.2

(5)

Catholic Super Mod. Conservative

JANA

16

45.0

1.8

(30)

9.3

(28)

13.1

(14)

-1.4

(16)

2.1

CBA OSF Mix 50

Watson Wyatt

n.a.

50.0

2.2

(19)

9.8

(24)

12.7

(18)

0.4

(3)

3.1

CFS FirstChoice Moderate

Mercer

3,891

60.0

2.7

(3)

15.3

(1)

20.5

(1)

-3.3

(30)

EISS Balanced

Mercer

n.a.

50.0

2.6

(5)

11.4

(11)

12.4

(20)

-3.3

(31)

Equipsuper Balanced

JANA

19

50.0

1.7

(31)

8.1

(35)

9.1

(35)

0.6

(2)

2.8

ESSSuper Balanced

VFMC

121

60.0

2.3

(16)

8.0

(37)

9.1

(36)

-1.5

(17)

1.3

FSS (NSW) Balanced

JANA

3,358

50.0

1.5

(37)

8.2

(34)

9.5

(33)

-0.8

(11)

1.6

GESB Super Bal. Conservative

Mercer

146

60.0

2.6

(4)

13.4

(4)

16.5

(3)

-2.9

(27)

-

1,036

45.0

2.5

(11)

9.5

(26)

11.7

(24)

-0.8

(9)

17

50.0

1.8

(27)

8.0

(38)

10.7

(28)

0.6

(1)

1,431

50.0

1.9

(26)

13.1

(5)

15.0

(6)

-1.7

-

-

-

7.0

5.3

(17)

6.4

-

-

-

-

-

(7)

5.7

(3)

-

-

5.7

(1)

6.2

(1)

7.1

(2)

5.2

-0.6 (26)

4.6

(17)

5.9

(13)

8.8

-0.6 (27)

3.6 (23)

5.2

(18)

6.4

-

-

-

(2)

-

-

(14)

4.9

(12)

-

-

4.3

(12)

5.3

(9)

6.8

(5)

5.1

-

-

-

-

-

-

1.6

(11)

5.2

(10)

-

-

4.9

-

-

-

-

-

-

-

(18)

0.5

(19)

4.6

(18)

-

-

6.7

Health Super Balanced

Watson Wyatt

HOSTPLUS Conserv. Balanced

JANA

ING OptiMix Moderate

OptiMix

JANA Cautious

JANA

56

50.0

1.6

(36)

9.9

(23)

11.6

(25)

-1.3

(14)

2.0

(8)

5.3

(8)

6.5

(8)

5.1

Legal Super Balanced

JANA

11

55.0

2.5

(9)

10.9

(17)

11.0

(26)

-

-

-

-

-

-

-

-

-

LGSS Balanced

Mercer

n.a.

50.0

3.0

(1)

11.2

(13)

10.3

(29)

-5.0

(36)

-1.7 (30)

3.0 (27)

5.0

(19)

6.5

Mercer Moderate Growth

Mercer

466

50.0

0.6

(38)

10.0

(22)

13.3

(13)

-2.4

(23)

0.3 (22)

4.7

(16)

6.0

(11)

6.5

MLC Cautious

MLC

23

50.0

2.4

(12)

11.2

(14)

13.4

(12)

-2.5

(25)

0.3 (23)

4.4 (20)

6.0

(12)

6.5

4.8

6.3

(9)

6.4

4.5 (20)

4.7

MLC Horizon 3

MLC

856

50.0

2.5

(10)

11.4

(12)

13.9

(10)

-2.0

(20)

0.7

MTAA Conservative

Access

51

50.0

0.6

(39)

3.8

(39)

-7.6

(38)

-8.7

(37)

-2.9 (33)

NGS Super Conservative

JANA

14

50.0

1.6

(34)

9.7

(25)

14.0

(9)

0.3

(4)

Optimum Balanced Growth Plus

Intech

72

59.0

1.6

(35)

11.1

(15)

14.0

(8)

-4.4

(34)

-2.1 (32)

Optimum Balanced Growth

Intech

16

57.0

1.8

(29)

11.4

(9)

14.7

(7)

-2.6

(26)

-0.9 (29)

Plum Pre-Mixed Cautious

MLC

74

50.0

2.2

(21)

11.0

(16)

13.0

(15)

-2.0

(19)

0.6

(18)

4.8

(14)

REST Balanced

JANA

103

55.0

2.6

(8)

10.0

(20)

12.5

(19)

-0.4

(6)

2.2

(4)

5.6

(5)

Russell Diversified 50

Russell

91

50.0

2.6

(7)

13.7

(2)

17.3

(2)

-1.3

(13)

0.3

(21)

4.5

(19)

6.0

-

(17)

-

(13)

2.5 (28) -

-

-

-

-

3.4 (26)

5.5

(15)

7.8

3.5 (24)

-

-

7.3

-

-

6.3

7.1

(1)

5.1

(10)

7.0

Suncorp Balanced

Intech

25

57.0

1.7

(32)

11.6

(8)

-

-

-

-

-

-

-

-

-

-

-

Sunsuper Retirement

Mercer

254

55.0

2.0

(25)

8.4

(32)

10.9

(27)

-1.1

(12)

1.3

(15)

5.4

(7)

6.5

(7)

5.5

UniSuper Conserv. Balanced

UniSuper

625

50.0

2.1

(23)

10.0

(19)

12.2

(21)

-0.7

(8)

1.9

(9)

5.5

(6)

6.9

(4)

5.5

United Capital Balanced

United

834

52.0

2.1

(22)

11.7

(6)

12.2

(22)

-4.6

(35)

-1.9

(31)

3.4 (25)

5.5

(16)

7.0

Vision Super Balanced

Frontier

60

51.0

2.3

(15)

8.9

(31)

10.2

(31)

-1.3

(15)

1.7

(10)

-

-

-

39

39

38

37

33

28

20

28

55.0

2.5

11.4

13.8

-0.8

1.9

5.3

6.7

6.7

Median

50.0

2.2

10.0

12.5

-2.0

0.7

4.7

6.0

6.3

Lower Quartile

50.0

1.8

9.1

10.4

-2.9

-0.5

4.2

5.5

5.2

Vanguard Balanced

50.0

1.5

10.4

11.9

-1.3

0.9

5.1

6.3

6.1

60.0

2.4

13.4

16.5

-3.6

-0.1

5.2

7.2

8.3

55.0

2.5

12.2

16.6

-3.8

-0.3

-

-

-

50.0

1.8

11.5

13.1

-1.7

0.8

5.4

6.9

6.9

Number of funds Upper Quartile

-

-

Tax exempt funds GESB (WSS) Balanced

Mercer

4,660

Super SA Moderate

Russell

21

Vanguard Balanced (before tax)

Source: Chant West

MARCH 2010

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18 EQUITIES OUTLOOK

www.superreview.com.au

The slow road to Superannuation fund returns have moved back into positive territory over the past eight months but, as DAMON TAYLOR reports, many fund executives believe there is still a need for caution. ustralian investors, both institutional and retail, have undoubtedly witnessed both ends of the returns spectrum in recent years. This time last year, optimism was a rare commodity, but much can change in 12 months. The share market has rallied over the back half of 2009 and, on that basis, super funds seemed cautiously optimistic about a positive 2010.

Yet having come from the lofty heights of double digit returns, the road to recovery could seem a long hard one, and for Elio D’Amato, chief executive officer of fund manager and research house Lincoln Indicators, patience is the name of the game.

“One of the things that always astounds and amazes me is people’s short-term focus on performance,” he said. “Investors can look at the share market, see a significant drop, and all of a sudden the world is going to end.

“Their focus is now, now, now, but equities markets aren’t like that,” D’Amato continued. “They’ve been around a long time and the reality is that what we saw through the global financial crisis, in terms of market behaviour, has only been seen three times before.

“It’s something we don’t

A

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expect to see again anytime in the near future.”

According to D’Amato, there are simply too many pluses in the Australian and global economies to warrant investors being overly concerned.

“The sub-prime mortgage crisis and its fallout was an unknown,” D’Amato said.

“No one knew how much money was tied up in it and investors tend to panic when an unknown of that magnitude impacts upon the market.

“What we’re seeing at the moment though is a return to risk appetites,” D’Amato added. “Investors are feeling more comfortable in their own skin and that kind of feeling should ensure that we won’t see the same sort of lows anytime soon.

“You could say that the market’s been shored up and we think it should form the basis for good returns in the future.”

Joseph Brennan, chief investment officer for Vanguard Investments in the Asia-Pacific region, said domestic equities performance had obviously seen quite a bounce back during the latter half of 2009.

“Looking at the 2009 returns for Australian equities,

you’d have to say that the market finished the year in quite a good position,” he said. “Australia was fortunate in that it never really entered an official recession.

It avoided the worst consequences of the financial crisis and just as we saw valuations peak and come off their highs, we’re seeing the reverse of that now.

“The economy seems to be in decent shape and, as a consequence, the market is anticipating and pricing in an improving picture.”

Echoing thoughts expressed by Brennan, Tony Cole, Mercer’s Asia Pacific business leader for investment consulting, said one had only to look at the state of the Australian economy

to get a good indication of how much the domestic equities market had recovered.

“With respect to the Australian economy, the recovery has been very well established and it’s been quite strong,” he said. “Most of the numbers coming out have been surprising on the up side, with recent wages data being particularly strong.

EQUITIES OUTLOOK 19

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recovery

“So for domestic equities the trend has been one of ironing out the ups and downs,” continued Cole.

“And that process has been well justified by what’s happening in the economy.”

The view Mercer was taking, according to Cole, was that the domestic equities market was fairly well valued when looking at growth

rates, profitability and Australia’s underlying economic strength.

“The news is obviously a lot less positive overseas,” added Cole. “In many cases, what we’re seeing abroad is still not much more than green shoots and, if the stimulatory environments they’re working in are removed, it could quite

There are always opportunities no matter how the equities market is shaping up.

easily burn off.

“Our story is different because our economy and other economies in the region are looking good. We’re very fortunate.”

CHALLENGES But while the recovery may well be underway, there remain significant challenges market participants

would be well advised not to underestimate. Fortunately, there is likely to be opportunity as well.

Commenting on what hurdles investors, both institutional and retail, might have underestimated, Geoff Driver, general manager of business development and investor relations for the Australian Foundation Investment Company (AFIC), said they were almost all economy-related.

“The hurdles have got to be what happens in the Australian economy,” he said.

“We’ve gone through a severe dislocation in all financial markets and businesses have had to pay close attention to their balance sheets, to cutting costs and so on.

“Australia is well placed based on its proximity to Asia but interest rates, the reaction of consumers to a rate hike and the cost of capital are all likely to have an impact on domestic equities.”

Looking at both sides of the coin, D’Amato said while challenges were indeed present, they were also a known quantity.

“There are always opportunities no matter how the equities market is shaping up,” he said. “At the moment, there is some concern out there over sovereign debt, but the thing with sovereign debt is that investors know how much it is and they know how much risk it implies.

“It isn’t like sub-prime where the debt was a huge unknown.”

Continued on page 20

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The slow road to ☞ Continued from page 19 Giving an insight into how Australian super funds might have handled their domestic equities weightings through the financial crisis and into recovery, Cole said that most funds would now be returning to their benchmark allocations.

“What we saw during the global financial crisis was quite a lot of concern over liquidity, particularly from the Australian Prudential Regulation Authority, regarding funds’ exposure to unlisted assets,” he said.

“Our clients had only a moderate exposure to unlisted [assets] but they were still looking to monitor liquidity and to build up cash so that they could handle any redemptions.

“Most got somewhat underweight but not a lot underweight to domestic equities,” Cole continued.

“And, fortunately, we didn’t have any client needing to quit unlisted assets. Some were even able to take advantage of the discounts available as a result of other funds’ liquidity problems.”

But in terms of market reentry, Cole said Mercer had advised its clients to move overweight sooner rather than later.

“We advised that our clients go overweight equities in November 2008,” Cole said. “Obviously the market didn’t come back until March this year but we left those weightings in place and I believe most funds are back to their benchmarks now.”

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to push back into the domestic equities market proved to be a fraction premature, hesitation could be even more costly and, according to Cole, super fund executives were well aware of this fact.

“I’ve heard people talking about it so it must have happened in a small number of cases but, having said that, I don’t think it was widespread,” he said. “Most people recognise history, that markets turn around before economies, and I think most investment consultants would have advised that these were unprecedented circumstances and that a recovery had to happen.

“Looking around the world at China, at Singapore, at India, a recovery always looked likely,” Cole added.

“It had to happen but there was also a lot to think about outside of the domestic equities space.”

Alternatively, Brennan said that while there had undoubtedly been some instances in which institutional investors had missed the recovery, it was possible that there had been good reasons behind their delay.

“Those sorts of decisions can be driven by many different reasons,” he said.

“And liquidity is just one of them.

“An investor could have a high level plan in place and yet be nervous about pulling the trigger at the right moment and at the toughest time.”

For his part, D’Amato said investors missing the domestic equities recovery had been somewhat inevitable.

Unfortunately, it’s the first steps back up the mountain that are the longest.

They’re shorter once you reach the top.

“When the bottom fell out of the bucket, everyone went to cash,” he said. “But from that point it was an exceptionally rapid recovery, and I think many investors have been left still holding cash.

“On the other hand, most super funds wouldn’t have moved too far from their mandates and so they wouldn’t have lost much ground,” D’Amato continued. “But it was a lot more of a problem at the allocated pension and self-managed super fund level.

“Unfortunately, it’s the first steps back up the mountain that are the longest. They’re shorter once you reach the top.”

Certainly the consensus

from most industry participants seemed to be that the worst of the financial crisis was well and truly over.

Yet while memories could be short they were not so short as to have forgotten the pain caused by mismanaged stocks, and for D’Amato investment habits have changed as a consequence.

“I think they had to,” he said. “Debt wasn’t even considered in early 2007. People would have attributed income stocks as being safe stocks when, being geared up to the eyeballs, they clearly weren’t.

“So in the short term, yes, I think there will be changes to investment habits, but in the long term, zigs and zags and mistakes will again be

EQUITIES OUTLOOK 21

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recovery as a result of recent experience, he had seen and anticipated further changes to operating models and risk management policies across all sectors of the financial services industry.

“There’s always an increased focus on risk management after the industry’s seen a big risk,” he said. “It’s inevitable. In counter party risk and securities lending we’ve got issues that are in the spotlight for the first time in a long time.

“These sorts of risks aren’t talked about until they end up biting you,” Brennan continued. “So they’re a huge focus now, and for good reason.

“When times are good the antenna goes down, but it’s back up now and higher than ever.”

made,” D’Amato continued.

“And getting through that is simply a question of holding the best stocks.”

On the other hand, Brennan said it was fund managers’ investment habits that would have changed rather than those of super funds’ investment teams.

“Super funds end up allocating to managers in broad swaths so they’re less aware of individual stocks,” he said. “The experience of the last couple of years also wasn’t stock specific. I don’t think there was any particular equity that funds, fund managers or investors could point the finger at.”

However, while Brennan couldn’t see super funds’ investment habits changing

Elio D’Amato

Talking to risk management at the stock level, D’Amato said that one had only to look at various companies’ corporate governance statements to see a common thread forming.

“When you read the corporate governance state-

ments of a number of shares, their policies around gearing and debt have changed dramatically,” he said. “It’s a pretty standard mantra, so people are obviously asking for it.

“But while people may have changed their behaviour and will be doing this kind of thing in the short term, I can’t help but see similarities with the bushfires we saw last year in Victoria,” continued D’Amato.

“Twenty-five years ago we saw the same thing and people did their back burning and formulated emergency response plans in the months that followed. But time passes and people want trees next door for the outlook, and it happens again.

“What we want is for people to remember these experiences and to heed the lessons learned. But when risk appetites run hot and emotion kicks in, there’s simply no telling what will happen.”

Of course, when it comes to Australian domestic equities and market performance, the key factor to be considered is often the interest rate policy of the Reserve Bank of Australia (RBA). But with rates already at low levels, D’Amato said the domestic equities market had bigger issues to contend with.

“Historically, equities don’t do so well in a high interest rate environment but they’re incredibly low at the moment,” he said. “The bigger issue is likely to be companies’ access to debt.

“That isn’t to say that we want that access to be free

It’s normal after a recession to have a period of above trend growth but it needs to be very short.

flowing,” D’Amato added.

“But for good, well-costed projects, it’s something that could significantly impact their ability to get good returns in the short term.

“You can find good or bad reasons coming through from rising interest rates, so while they may be a dampener in the short term, they’re still nowhere near the 8.5 to 9 per cent levels we saw pre-global financial crisis.”

Cole said that the most important thing for the equities market remained the Australian economy.

“Our economy loves growing profitability but it hates inflation,” he said. “So the RBA is being supportive of the equities market by slowing things down if and when that growth is too strong.

“In all honesty, the earnings figures released in February were a bit disturbing in that they indicated the economy could perhaps be growing too strong,” Cole continued.

“But just as it’s great that China has been seeing growth of around 10.5 per cent, it’s too fast and I’m concerned that we’re getting pretty close to that point here as well.

“It’s normal after a recession to have a period of above trend growth, but it needs to be very short.”

Comparing Australia’s economy with others globally, Brennan said there was always a lot of focus on the actions of the world’s central banks.

“In Australia, the RBA Continued on page 22

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22 EQUITIES OUTLOOK

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The slow road torecovery ☞ Continued from page 21 provided liquidity to the system just as central banks around the world did,” he said. “But by virtue of Australia’s better position, it was perhaps done for different reasons and to a lesser degree.

“So if we look at what’s being priced into the equities market at the moment, we’re talking about 25 basis points in the next three months and 75 basis points in the 12 months after that,” Brennan continued. “But it’s a very different picture in the United States, where there’s nothing priced in for the next six to nine months.

“It’s a matter of perspective, but I can’t see interest rates having a huge impact on domestic equities investment any time soon.”

Naturally, it is not without significance that Brennan compared the Australian and US equities markets. Indeed, there have long been views that the Australian market is somewhat intertwined with that of the United States, but according to Brennan, it is getting increasingly difficult to make this claim.

“More and more I’d say we’re seeing the Australian economy and market equating to Asia and other emerging markets rather than the US,” he said. “And obviously the rebound in Asia has been a huge positive for the market’s recovery.

“But I think the macro themes moving forward are ones that have yet to be played out.”

Brennan continued. “China SUPERREVIEW

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in terms of its direction and recovery, the US Federal Reserve System and how it and other government entities remove themselves from the world’s financial systems and the US jobless rate remain key issues.

“The US jobless rate, for instance, is twice that of Australia and it has a connection to both inflation and consumer spending, and I think there will be a lot of global economies tested by the withdrawal of the US consumer.”

According to Cole, the reality of globalisation was that all economies were somewhat intertwined.

“The US used to provide the lead and have a domino effect on the rest of the world but nowadays what we’re talking about is the growth economies in Asia, and growth is only accelerating,” he said. “At the moment, 70 per cent of Australian exports go to Asia and, with investment from that part of the world increasing as well, our future is much more dependent on what happens within our own region.

“What happens in the US isn’t irrelevant, but what happens in Asia is just a lot more relevant,” continued Cole. “And that’s something few would regret because it’s going to be a very difficult time for the US economy, not just now, but for several years to come.”

Similarly, D’Amato said that while the United States was home to the world’s largest equities market and largest source of capital, he could see an increasing propensity for

the Australian market to stand on its own two feet.

“There’s a complete decoupling of our exchange when we’re feeling confident about ourselves,” he said.

“But when we’re feeling a bit nervous we tend to follow the US almost as though we’re looking for guidance.

“Currently, we’re in the very early stages of that decoupling process, but it will happen again,” continued D’Amato. “At some point we will again look to the US as

Tony Cole

the shining light due to its sheer size.”

However, D’Amato hastened to add that the economic story was somewhat different.

“In terms of economies, our story is in Asia,” he said.

“But while we’re primed for growth, there’s a word of caution.

“Investors shouldn’t expect returns that run straight north east – there will be dips.”

Yet as Australia’s domestic equities market continues along the road to recovery, it seems certain

With respect to investment strategy and rebalancing, the reality is that we were in an acute crisis.

that there are still lessons and experiences to be learned. For Cole, however, it is almost too early to figure out what those lessons would be.

“Coming out of the global financial crisis, one of the few things we know is that the regulatory rules of our investment environment are going to change,” he said. “We just don’t know what that change will be or how keenly we will feel its impact, and it’s a bit difficult to work out how we should change when we don’t know how our environment is going to [change].

“With respect to investment strategy and rebalancing, the reality is that we were in an acute crisis,” Cole continued.

“And there was a short period in there in which all asset classes went to hell except for very pure government bonds and cash.

“That says that diversification was of little use but, fortunately, I think time has proven the effectiveness of a long-term view. If you’ve stuck to diversity then you’ve come through well.”

D’Amato said despite recovery’s windy road, investors should remain optimistic.

“I don’t think we’ll be seeing or talking about the Australian Stock Exchange reaching the 6,800 levels that we saw in 2007,” he said. “But with the strengthening of our economy and those in the region and the return to growth of some our traditional trading partners, there will inevitably be a flow through to profit statements.

“The momentum is likely to remain positive and we certainly won’t be retesting such severe lows anytime soon.” SR

APPOINTMENTS 23

www.superreview.com.au

Events Calendar

Key Russell appointment New managers of global exchange traded funds business named.

Super Review’s monthly diary of superannuation industry events around Australia and abroad.

MARCH VICTORIA 10 – ASFA Luncheon. An (im)modest (un)popular proposal.

Speaker: Jack Gray. Venue: Park Hyatt Melbourne. 1 Parliament Square (off Parliament Place), Melbourne. Enquiries: ASFA Member Services Unit. Ph: (02) 9264 9300 or 1800 812 798.

QUEENSLAND 23 – ASFA Luncheon. Setting the (revamped) benchmark.

Speaker: Ross Clare, director – research and resource centre, ASFA. Venue: Stamford Plaza. Corner of Edward and Margaret Streets, Brisbane. Enquiries: ASFA Member Services Unit.

Ph: (02) 9264 9300 or 1800 812 798.

AUSTRALIAN CAPITAL TERRITORY 26 – ASFA Golf Day. Venue: Gold Creek Country Club. 50 Curran Drive, Nicholls. Enquiries: ASFA Member Services Unit.

Ph: (02) 9264 9300 or 1800 812 798.

SOUTH AUSTRALIA 29 – ASFA Golf Day. Venue: Kooyonga Golf Club. May Terrace Lockleys, Adelaide. Enquiries: ASFA Member Services Unit.

Ph: (02) 9264 9300 or 1800 812 798.

30 - ASFA Luncheon. Tackling Risk. Speaker: Martin Littler, head of core Australian equities, Colonial First State Global Asset Management. Venue: Ayers House Restaurant. 288 North Terrace, Adelaide. Enquiries: ASFA Member Services Unit.

Ph: (02) 9264 9300 or 1800 812 798.

NEW SOUTH WALES 16 - FINSIA Seminar. Re-engaging with super fund members.

Venue: Clayton Utz, Level 341, O’Connell Street, Sydney.

30 – ASFA Luncheon. Super – too much risk and not enough lycra. Speaker: Darren Wickham, principal, risk and finance practice, Mercer. Venue: The Westin Hotel. Ballroom, Lower Ground Floor. No. 1 Martin Place, Sydney. Enquiries: ASFA Member Services Unit. Ph: (02) 9264 9300 or 1800 812 798.

Fax details of conferences, seminars and courses to Super Review on (02) 9422 2822

ussell Investments has appointed James Polisson as managing director of Russell’s global exchange traded fund (ETF) business and Andrew Arenberg as managing director of global ETF distribution.

Both were previously instrumental in building BGI’s global iShares business.

They joined Russell in midJanuary and will be based in San Francisco.

R

Commenting on the appointment, Polisson said: “We look forward to focusing on next-generation solutions for the ETF industry with a mission to complement what’s currently available with new, innovative strategies. This is the right time; Russell is uniquely positioned and I’m excited to have this opportunity to guide Russell’s global ETF team.”

Polisson previously served

Niall McConville will join Tower Australia as national dealership manager in May from AIA, where he was also national dealership manager.

McConville has extensive knowledge of the market and long-standing relationships within the industry as well as an appreciation of many of Tower’s key strategic partners.

Pat O’Connor, Tower Australia retail life head of distribution, said attracting a person of Niall’s knowledge and ability highlighted Tower Australia’s presence in the life insurance market.

“Tower Australia has continued to grow its position in the Australian life insurance market in recent years and now holds a top-tier place with a competitive offer for the independent financial adviser,” he said. “The introduction of the Accelerated offering late last year has enhanced our offering, making it easier for advisers and clients to do business with us.

“Niall will be a key player in Tower Australia’s continued success in this market.”

expertise include [environmental, social and governance] and infrastructure investment, both very significant and ongoing issues for the superannuation industry at large.

“His contribution and commitment to the industry was already acknowledged earlier this year when David was appointed Australia’s representative on the United Nations principles for responsible investment global board, one of 13 members of the board worldwide,” Vamos added.

“We are very excited at the role he will undoubtedly play as a member of the ASFA board.”

The Association of Superannuation Funds of Australia (ASFA) has appointed Cbus chief executive David Atkin as an industry funds representative to the board of directors.

Commenting on the appointment, Pauline Vamos, chief executive officer of ASFA, said: “Two main areas of David’s

Peter Williams has been appointed director of Australian Foundation Investment Company (AFIC).

Williams has more than 40 years of financial services experience. He has been managing director of Equity Trustees since 2003 and prior to that was general manager, superannuation and portfolio services, at Perpetual. He has also worked as general manager and chief executive of AXA Trustees.

Williams is a director of the Trustee Corporations Association of Australia, the Australian Baseball Federation, Olympic Park Sports Medical Centre and the Foundation for Young Australians.

The Investment and Financial Services Association (IFSA)

as BGI’s chief marketing officer with responsibilities that included BGI’s iShares global business. At BGI since 1998, he was head of global operations risk management for two years before joining the iShares business.

Arenberg has worked as a managing director in BGI’s global eBusiness, and he served as managing director of channel marketing for BGI for six years. Prior to joining BGI, he served on the corporate strategy team and in the institutional business at Charles Schwab & Co. has appointed Ian Ward-Ambler, managing director of Goldman Sachs JBWere Asset Management, to its board.

Ward-Ambler has replaced former managing director of Australian Ethical Investment Anne O’Donnell, and joins a growing line-up of directors from the bigger end of the funds management space.

GMO has appointed Geoff Wells as head of Australian equities, replacing Rick Suvak, who is leaving the company.

Wells will lead GMO’s Australian equities team, which consists of Olivia Engel, Mark Thompson, Vikram Mundkur, Brad Grehan and Tommy Tam and manages in excess of $4 billion.

“Geoff’s research and portfolio management experience and his acumen in Australian equities will be of value to GMO’s clients, and his leadership skills will be an asset to GMO’s management team,” said GMO chief executive Marc Mayer.

Wells has 20 years of experience in the funds management industry. Prior to joining GMO in 2008 he worked at Macquarie Investment Management for several years, most recently as a senior portfolio manager. He previously worked at Bankers Trust Funds Management as a portfolio manager and analyst. SR MARCH 2010

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ROLLOVER

THE OTHER SIDE OF SUPERANNUATION

Battlelines drawn WHAT does Federal Liberal Opposition Leader Tony Abbott have in common with former Federal Labor Opposition Leader Mark Latham?

Well, pugilistic abilities aside, both men have written political tracts the contents of which have served to haunt them as they reach for higher political office.

The former Howard Government made much of the political and social commentary contained in Latham’s writings and the Rudd Government’s Minister for Financial Services, Superannuation and

Corporate Law, Chris Bowen, has now seen fit to point the finger at Abbott.

Bowen referred to Abbott’s recentlypublished book, Battlelines, to suggest to a recent conference that bipartisanship no longer exists on superannuation because the opposition leader has suggested encouraging people to save through superannuation may prove too expensive.

Rollover will now buy a copy of Battlelines in the sure and certain knowledge that it will again be used in the super debate. SR

Helping you Par for the course to help me THERE is an old saying – sometimes ascribed to former Prime Minister and Treasurer Paul Keating – that the best sort of interest is self-interest, and it seems to Rollover that David Whiteley of the Industry Super Network (ISN) would readily agree.

How else does one explain the ISN’s latest submission to the Cooper Review in which it suggests the implementation of a so-called “super safety net”, which would see even more money rolling into the coffers of the industry superannuation funds, particularly those lucky enough to be named as default funds under the modern award process.

In the words of Whiteley: “”Where there is a failure of consumer sovereignty, it is appropriate the regulatory framework steps in and protects the best interests of fund members. The super safety net protects fund members’ stake in the super system while encouraging members to seek impartial financial advice from their super fund, and enables more active members to make choices.”

Rollover wonders whether the trustees of funds not benefiting from the modern award process would entirely agree. SR

ROLLOVER aside, there are few more ardent golfers in the financial services industry than Mercer’s Russell Mason.

Such is Mason’s love of the fairways that he has played virtually all the major layouts in and around Sydney, with the exception being ‘The Coast’ at Little Bay – a close neighbour of St Michaels and, of course, New South Wales.

It may have been his first outing at The Coast, but Mason and his wife made a formidable two-man Ambrose team, albeit the great man found it hard to get his driver working off the tee. Thus, when

Two’s company – three’s a crowd ROLLOVER has never been a big fan of public relations (PR) practitioners, regarding them as road bumps rather than facilitators.

Thus, as Rollover sat down to an ample meal with a certain funds manager he was bemused to receive a call from a PR operative offering to put him in

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MARCH 2010

he came to one of most picturesque and formidable holes on the course, Rollover thought it was only fitting that Mason have his photograph taken so that he could remember where his ball landed.

Readers of Super Review will be unsurprised to know that Mason’s drive landed somewhat short of the fairway and was last seen bouncing multiple times before coming to rest in the waters that make up the Tasman Sea. Rollover’s ball similarly found the Tasman, but did so without a single bounce. Mrs Mason – aka Ros Lyon – saved the day with a par. SR

about people in the superannuation industry?

touch with the aforementioned funds manager.

Not wishing to give offence, Rollover thanked the PR operative for her call and pointed out that he believed he could manage his relationship with the fund manager without the assistance of a third party.

Rollover thought it best not to mention the call to his generous host but is still wondering whether the PR company will invoice for the ‘media contact’ and how it will justify the exercise.

But who is Rollover to stand in the way of commerce? SR

Send it to Super Review and you could be raising a glass or two. Super Review is giving away a bottle of bubbly for the funniest story published in our next issue.

Email editor@superreview.com.au or send a fax to (02) 9422 2822.