Despite Strongest Pension System Worldwide, Australian Super Funds Suffer Hefty Losses

(November 7, 2011) — Australia’s superannuation pension funds have suffered hefty losses.  

A new analysis by Chant West, a Sydney-based research and consultant firm, has revealed that the mid-placed fund has suffered losses of up to 9.8% in the third quarter. The median growth fund (61%-80% exposure) dropped 1.9% in September, contributing to a loss of 5.1% for the quarter.

The negative results follow the 11.6% drop in the Australian stock market in the third quarter, along with the 14.9% decline in international shares in Australian dollar terms.

Referring to the global financial crisis, Chant West director, Warren Chant said in a statement: “At the end of the 2010/11 financial year, the typical growth fund required about 6% to return to its pre-GFC high which was achieved in late October 2007. Unfortunately, that shortfall has now blown out to 11%. Even if funds were to meet their typical performance objective of about 7% per annum, it would still take between one and two years to make that up.”

He continued: “The past quarter has brought back dark memories of the GFC.  The difference this time, however, is that most major companies, in Australia and elsewhere, have strengthened their balance sheets and are in a much healthier position than they were then.  While world growth is slowing, there is some light at the end of the tunnel as long as the US stays out of recession. But first, the debt issues in Europe need to be tackled speedily and decisively.”

Meanwhile, a recent report by the Australian Prudential Regulation Authority (ARPA), which supervises the majority of members of the superannuation industry in Australia, noted that the investment world is still clouded with uncertainty.

“The sharp decline in global and domestic equity markets since year-end has had an immediate impact on the life insurance industry, which APRA is monitoring closely, and has eroded returns for superannuation funds,” said APRA chair John Laker in a statement, warning that the global financial crisis is not over.

Click here to read GC Australia — a sister publication to aiCIO — that focuses on the Australian superannuation and alternative fund industry, from a securities services perspective.