What’s Wrong—and Right—in Australian Superannuation?

(November 1, 2013) — Should superannuation funds hedge their currency exposure 100%? Are there too many intermediaries in the Australian superannuation industry? And are funds doing their members a disservice by stopping accumulation of assets at some arbitrarily decided age?

These, and many more besides, were some of the tricky questions raised at aiCIO’s third-annual CIO Summit in Australia on October 30.

Some 50 asset owners and advisors, along with representatives of the summit’s sponsors, spent a lively afternoon in conference deliberating over the most pressing issues for the sector.

Attendees included David Neal, CIO of the Future Fund, Brad Holzberger, CIO of QSuper, and Sam Sicilia, CIO of HostPlus. SunSuper, Christian and Catholic Supers, and the Victorian Funds Management Corporation were also represented on the guest list.

The first panel, “Larger, Longer, Safer, Stronger: The Big Ideas for Institutional Investing”, talked about major new initiatives, but also what was wrong in the sector.

Panellists—and the ever-vocal Australian audience—felt there were too many intermediaries in the industry and there should be more flexibility in asset allocation structures to allow the largest and most sophisticated investors more freedom.

The panel also said investors should make stronger and deeper relationships with asset management suppliers; this would help confirm commitment on both sides of the deal. Panel members illustrated a wide range of partnership options that had worked for them.

Dharmendra Dayabhai, head of portfolio analysis and implementation at UniSuper and his colleague David Schneider, head of research and quantitative methods, next explained to attendees how they had set up an internal investment management structure.

The decision had not been taken lightly, and would not work for all funds, the pair said, but their case study presentations gave attendees considering bringing assets back under their own auspices some detailed food for thought.

After a short coffee break, an animated debate ensued about what level of currency hedging would be appropriate for superannuation funds.

A range of views were represented on the panel with no firm conclusion agreed upon, but many opinions aired. With currency being a popular topic of conversation in Australia, this panel significantly overran—many of the audience gave their “two cents”.

Then followed a discussion on how to ensure members of defined contribution funds were not left wanting when they hit retirement date. “Growing Up: Generating a Smooth and Steep Accumulation Phase” involved case studies from two superannuation funds that had embraced MySuper—both of which had taken different paths to comply with reforms.

Another panellist warned that not getting best execution from underlying asset managers could potentially undo much of the good work that was going into portfolio design by leaving valuable returns “on the table” due to poor trading practices.

The final panel of the day looked at how to cater for members after retirement. The room agreed that members were more concerned with losing money than potential gains they might make. “We have defined the problem, but not yet come up with a solution,” said one of the panellists.

Managing Editor Leanna Orr brought the conference to a close and participants continued to debate the topics covered over cocktails and canapés.

For list of speakers at the event, click here.