Investment Magazine, October 2016

INTELLIGENCE FOR INSTITUTIONAL INVESTORS

ISSUE 132

OCTOBER 2016

Bright LIGHT Unprecedented in Australia, Christian Super is setting up funds management and consulting businesses to service external clients. CIO TIM MACREADY explains why

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CONTENTS OCTOBER 2016

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EDITOR’S LETTER Keith Barrett announces a new editor for Investment Magazine.

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FINANCIAL PLANNING Through size and resources, superannuation funds have the power to deploy financial advice strategies with the potential to help millions of Australians.

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BRIGHTLIGHT Tim Macready, CIO of Christian Super, explains exclusively to Dan Purves why his fund is setting up a funds management business to work with external clients.

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TALKING ABOUT SUICIDE

Conexus Financial is creating an event for Mental Health Week to specifically address the issue of suicide in the financial services industry.

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LONG-TERM RESPONSIBILITIES Are we working towards providing a better place for future generations based on the decisions we make today?

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WORKING MUMS

Career mums, with the right strategy, can have the best parts of a part-time career.

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SUPER AWARDS The Conexus Financial Superannuation Awards are now open, with three new categories added to the entry list.

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WAR GAMES

Professor Stephen Kotkin from Princeton will use war game scenarios to take event attendees on a journey to explore the impacts of decision making on the geopolitical stage.

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SUSTAINABILITY After nearly 10 years of reporting on sustainability, the finance industry is finally waking up to what is required if it is to endure and be sustainable.

OC TO B E R 201 6

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\ FROM THE EDITOR

EDITORIAL MANAGING EDITOR

KEITH BARRETT / keith.barrett@conexusfinancial.com.au

Keith Barrett DIRECTOR OF INSTITUTIONAL CONTENT

Amanda White JOURNALIST

A LETTER from the editor A NEW EDITOR APPOINTED

Dan Purves ART DIRECTOR

Kelly Patterson GRAPHIC DESIGNER

Suzanne Elworthy SUB-EDITOR

Susi Banks PHOTOGRAPHER

Matt Fatches

matt@mattfatches.com.au CHIEF EXECUTIVE

I

Colin Tate

ADVERTISING BUSINESS DEVELOPMENT MANAGER

N A RECENT edition, I wrote about this being a period of change. And while the change then was industrywide, it’s also taking place within the offices of Conexus Financial.

I have been steering Investment Magazine since its exciting relaunch at CMSF in March, complete with its new look and new content. Since then, the feedback has been superb and so too have our conversations with the industry. We are partnering with more associations, and our subscriptions have grown.

Our weekly emails to industry have some of the best interaction rates in the finance sector.

Since March, we have been searching for someone to take the helm on a permanent basis, and provide the hand that will steer Investment Magazine into the future.

We have interviewed many, many people, from as far afield as the UK, but found the person we needed much closer to home.

Joining us next month, as the editor of this title, will be Sally Rose. Rose has worked in finance journalism for the past five years and many readers will be familiar with her work as a reporter for The Australian Financial Review. Her journalism is respected and she has many contacts in the industry, and I’m looking forward to seeing her

OCTOBER 2016

grow in this new challenge.

I will be glad to step back and work across the entire Conexus Financial stable of media, and help Sally as she takes this title forward.

Investment Magazine has never been stronger than it is now, both in terms of its growth and the resonance with industry. At the recent ASI event, chief investment officers, investment strategy managers and many more took the time to drop into the media room to say hello to our team.

We’re glad that we’re creating something that is of value to our core readership.

The industry is in a period of readjustment, right across the services it provides. These are challenging times, for everyone and for various reasons.

Investment Magazine is committed to delivering valuable information and insights from the people in superannuation who are making a difference, through pioneering and innovative work, or by calling out the industry where it needs to change and adapt. The Conexus Financial Superannuation Awards, which have now opened for submissions, will be a snapshot of these leaders and their funds.

We have big plans for this title, both in print and online. We’re looking forward to the future. Ñ

Sean Scallan

sean.scallan@conexusfinancial.com.au (02) 9227 5719, 0422 843 155 BUSINESS DEVELOPMENT MANAGER

Karlee Samuels

karlee.samuels@conexusfinancial.com.au (02) 9227 5721, 0420 561 947 SUBSCRIPTIONS

Nahrain Gabriel

nahrain.gabriel@conexusfinancial.com.au (02) 9227 5793 CLIENT RELATIONSHIP MANAGER (EVENTS)

Bree Napier

bree.napier@conexusfinancial.com.au (02) 9227 5705, 0451 946 311

PRINT

Special T Print ISSN 1838-8949 Subscriptions are $165 including GST per year for 11 issues within Australia Exclusive Media Partner of Average Net Distribution:

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ADVISORY BOARD MEMBERS

Graeme Arnott, chief operating officer, First State Super | Richard Brandweiner, director of investment services, First State Super | Joanna Davison, chief executive, FEAL | Brian Delaney, global head of clients, QIC | Mark Delaney, chief investment officer, AustralianSuper | Melda Donnelly, senior adviser, Conexus Financial |Michael Drew, professor of finance, Griffith Business School | Michael Dwyer, chief executive officer, First State Super | Kristian Fok, executive manager for investment strategy, Cbus | Robb Hogg, head of global strategies and quant methods, UniSuper | Sheridan Lee, principal, Shed Enterprises | Geoff Lloyd, managing director, Perpetual | Graeme Mather, head of investment consulting and retirement business, Mercer | Damien Mu, chief executive, AIA Australia | Fiona Trafford-Walker, director of consulting, Frontier Advisors

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\ FINANCIAL ADVICE

Know thy MEMBER

SUPERANNUATION FUNDS deliver high-quality financial advice to members in a way that the broader advice industry often cannot match – built on a deep understanding of members’ needs and a RUTHLESS COMMITMENT TO THEIR BEST INTERESTS.

By Dan Purves and Simon Hoyle

OF ALL THE issues Australian Institute of Superannuation Trustees (AIST) chief executive Tom Garcia could have addressed in his opening speech to the Australian Superannuation Investment Conference last month, he chose to focus on advice.

Garcia didn’t speak about the challenges of a low-interest rate environment, nor on lacklustre returns from equities. He didn’t address the geopolitical concerns that could affect investments – such as the Chinese economic slowdown or the upcoming US election.

Rather, he spoke about the challenges and opportunities that major superannuation funds face delivering high-quality advice to members and helping them achieve their goals and objectives in retirement.

Garcia told the conference that the superannuation industry as a whole has “done an extraordinarily bad job of communicating the investment expertise filled within each fund.”

But that is changing as major funds, driven by legal and fiduciary responsibilities and by unstoppable demographic forces, find increasingly innovative and cost-effective

OCTOBER 2016

ways of helping members negotiate the transition to retirement with dignity and financial security.

All funds are facing pressure to develop advice offerings, though for some the need is perhaps more clear and present than for others. For example, more than 80 per cent of members of REST are aged under 35 (see graph) – firmly in the accumulation phase and therefore likely to have relatively simple advice needs.

But in the case of StatePlus, which provides advice to members of the NSW’s State Super, more than 90 per cent of members are aged over 55 and moving towards retirement or already in it, with the consequent advice needs and demands.

As funds develop advice offerings, they have found themselves in a position that puts them at a distinct advantage to other advice providers outside the superannuation sphere. Each of the 10 largest funds has more than 300,000 members; REST and AustralianSuper each have more than two million; and Sunsuper has more than a million. Large membership numbers allow them to create significant economies

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FINANCIAL ADVICE \

of scale and fund sophisticated advice businesses. Even relatively small providers, such as StatePlus, have invested heavily in technology to improve the efficiency of front- middle- and back-office functions and improve the quality of advice.

Funds are then able to carefully and smartly segment their members and develop advice offerings with precise relevance to each segment. And spurred on by legal and fiduciary factors, they are creating advice offerings that largely bypass the broader financial planning industry.

Those initial advantages are overlaid with some striking structural differences: fielding employed or salaried advisers; charging fees for service unconnected to product or to aggregating funds; and setting management benchmarks and key performance indicators on things like quality of advice, and Net Promoter Scores (NPS).

That stands in contrast with advice entities where significant time and energy is spent on marketing and finding new clients, where more activities are directed

towards aggregating funds (in product or on platform) to generate a margin and drive revenue, and where, to a greater or lesser degree, product and productrelated considerations impinge on advice conversations.

Jack McCartney, executive manager of advice and employer relationships at UniSuper, says the different starting point puts superannuation funds at an advantage to the wider advice industry, and the funds are keen to drive that advantage home.

“We have an amazing advantage,” he says.

“But we knew with choice of fund coming on stream, where there’s going to be more competition, we’ve got to get leaner and probably more commercial.”

UNDERSTANDING MEMBERS’ NEEDS AND WANTS

Defining a relevant advice offering requires a deep understanding of members’ needs and preferences. For StatePlus it involved doing detailed research involving more than 2500 members. Jason Andriessen,

Removing all forms of product incentivisation and conflicted performance planning measures are critical in developing a holistic and integrated advice model for members.

But the advice process needs to be untainted from start to finish

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OCTOBER 201 6

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We have an amazing advantage. But we knew with choice of fund coming on stream, where there’s going to be more competition, we’ve got to get leaner and probably more commercial

general manager of marketing and financial planning, says the aim was to understand members’ “needs, wants and channel preferences.”

“And an objective was to produce a segmentation model that allowed us to see how these people, this market, clusters into smaller groups with like characteristics,” he says.

Andriessen says that in addition to traditional segmentation involving account balances, age and attitudes towards risk, StatePlus went “one step deeper … and we looked at attitudes and behaviours when it comes to making decisions around money and how, by extension, they would like consumer advice, and we saw that they clustered into four groups.”

StatePlus focused on two of those groups – so-called “outsourcers” and “coach-seekers” – and in addition “worked out six questions that we could ask every one of our clients and prospective clients to better segment where they cluster into that group”.

“We’ve rolled that out across the entire business and our digital framework as well,” Andriessen says.

“It’s produced a common language where we seek to better understand what [our clients’] decision making framework is.

It allows us to better shape our messaging when we reach out to them, but it also enables us to better shape our advice offers. And on the basis of that research we did introduce a whole new category of advice, what we call ‘event advice’.”

INSIGHTS LED TO EDUCATION HUB

The country’s largest fund, REST, has likewise built its advice offering on deep insights into member needs and preferences.

OCTOBER 2016

“We do a lot of member research and a couple of things gave rise to us implementing [an] education hub on our website,” says Andrew Howard, chief operating officer at REST. “One of those is that people have differing levels of confidence in their own financial literacy, and the other was that depending on what stage of life people are at, they are going to ask different types of questions.”

When a member visits the REST education hub they are asked how confident they are with their own understanding of financial concepts relating to super.

This allows REST to present the videos and articles in almost a Facebook-type timeline tailored to the individual, depending on whether they are at a basic, intermediate or advanced level of financial literacy.

“Members found that really engaging because it was a bit more personalised and gives them almost a first consultation on what things they should be thinking about, and makes what can be a very broad array of information quickly digestible,” Howard says.

“Some of our research tells us that our members don’t necessarily perceive that advice is for them because they have a different view of what advice actually is, whereas when we make it digestible and presentable through education and over the phone consultation, they find themselves on a good path,” Howard says.

“We are trying to develop our advice and education offer around those principles of easy access, self-serve and then get them access to professionals when they are ready for something that is more complicated.”

ACCESS TO FINANCIAL PLANNERS

He adds the superannuation fund has a partnership with a group called Link Advice

that gives them access to financial planners if needed.

“That happens most often after somebody had a chance to explore general advice questions or intra-fund advice questions over the phone, but if they need to go ahead and have a sit-down financial planning appointment we can organise that through Link Advice.

“If they do take advice that is more complicated, the first piece of advice request[ed] is at no cost.”

Hostplus has pursued a similar strategy.

Paul Watson, group executive of business growth, product and advice at Hostplus, says they use digital advice to achieve small and early wins, which in turn builds trust. This increase in trust facilitated a feed-through into phone advice, which tackled intra-fund advice through to comprehensive advice, thanks to the embedded financial planner model it used.

The embedded model worked by having financial planners from Industry Funds Service (IFS) work alongside Hostplus call centre staff in the same centre.

“For all intents and purposes they are part of our family in providing advice to members,” Watson says.

“That model served us well for quite some time, but with the increase in engagement and the increase in complexity around both product and advice and strategy, we’ve moved to the next iteration where we insource our own financial planners and they are operating under an authorised representative model, with IFS taking on more of a dealer group approach.

AustralianSuper has 20 financial planners that are employees of the trustee, but licensed through IFS. They are salaried and do not receive any commission.

“A member traditionally would receive that face-to-face pre-retirement advice though that channel,” says Shane Hancock, head of advice and education at AustralianSuper.

“We also have an accredited advice channel. So currently we have 660 financial planners that are accredited with AustralianSuper, from a range of different licensees from across the country.”

Hancock says there is no way the internal advice team can service more than two million members, and the accreditation approach allows wider geographical coverage and more members to access the service.

SPECIALISED ADVICE

AustralianSuper also wants to make it easier for members to maintain and continue any

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\ FINANCIAL ADVICE

relationships they may already have with external advisers.

And finally, AustralianSuper refers out to this channel in the cases where a member requires specialised or expert advice in a given area.

While superannuation funds only have a very loose appreciation of the details about their individual members, aside from age and account balance, there are some that buck the trend. Sunsuper has a membership of more than one million and a dedicated data science team to develop better products and advice through deeper understanding of who the members are, and what their needs are.

The insights from the team have already been used to redesign insurance products, following its discovery that one-third of people who claimed total and permanent disability were back at work within three years.

Now its team is focused on advice, following the board’s approval of a three-year strategic plan to improve the super fund’s capabilities.

“You don’t build an end-to-end advice platform overnight,” says Anne Fuchs, manager of retail distribution and advice at Sunsuper.

“We have a really very impressive team of data scientists that allow us to know our clients deeply – to use data in a way so that we are speaking to them as an individual and not speaking to them en masse.

“As we establish our advice strategy in 2017 and beyond, the behavioural finance and finology will be integral – so, actually understanding what money means to somebody and their relationship with it. Is it for enjoyment? Is it for security? What does it actually represent to them? Because it is that which will actually form their view of how that money is invested, and on how much extra they are actually prepared to put away in super.”

Fuchs adds another advantage of using the data scientist team, is they know which moment to approach a member, with which component of advice, to make a material difference to their position.

However, the super fund is agnostic about from where its members get advice.

Similar to AustralianSuper, if one of their Sunsuper’s members wants to get financial advice from an adviser that is in their community the super fund is happy to partner with that adviser, as long as they are acting in the best interests of the client.

“That generally hasn’t been the status quo and position of an industry super fund,” Fuchs says.

OCTOBER 2016

Great service, professional engagement, technical competence, having the right conversations and imparting your considered knowledge so the member can make more informed decisions are all critical ingredients for providing advice in our members’ best interest

MORE AND MORE FINANCIAL ADVISERS

Currently, Sunsuper has a national advice panel consisting of 66 advisers that are spread across the country, to whom the super fund can refer its members.

“As demand grows we also want more firms. We’ve only scraped the surface in terms of promoting advisers and it is early days for us. Because this is so central to our mission and our purpose it’s going to be [the] focus of intent of everything that Sunsuper does over the next few years,” Fuchs says.

“What we need to do is actually integrate these advisers into our business, introducing them to our employee teams that are on-site, building trust and relationships so that they can seamlessly refer when the time arises.”

“Our CEO, Scott Hartley, often says that fees are important, investment performance is important, but that the one biggest thing that will determine the balance someone will retire with is their engagement as early as possible in getting the financial advice.”

The chief executive of Cbus, David Atkin, says it is “essential that members can access professional financial advice to ensure they get the best possible retirement outcomes.

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FINANCIAL ADVICE \

“It’s important that funds have thought out how to proceed in this area to provide great service to the members and to minimise cross-subsidies,” Atkin says.

The head of advice and retirement at Cbus, Greg Harper, says the fund has done “a lot of work developing an integrated advice service model that includes advice over the phone and a landmark referral program with the Financial Planning Association [FPA] with 53 participating FPA Professional Practices and nationwide service coverage”.

Harper says getting the right performance planning measures in place is central to providing advice that is always in the best interests of members.

“We hear about commissions all the time and rightly so, where product incentivisation drives the wrong behaviour, and advice isn’t strictly in the best interest of the member,” Harper says.

“If you’ve got performance planning measures in place that drive the wrong behaviours, they are equally as bad – because essentially it drives product incentivisation.

It influences a bias towards your own product, which may not provide advice in the best interests of the member.

“It’s lazy performance planning measurement as well.”

Harper says performance measurements such as the number of SoAs written in a month and additional contributions to a fund are just as likely to bias behaviour as straight cash incentives.

“The fundamental thing is that best interest test, and our service model that aligns with it: our performance planning measures on professional engagement, technical competence, follow-though and closure of actions - without a bias and without pressure,” he says.

“Great service, professional engagement, technical competence, having the right conversations and imparting your considered knowledge so the member can make more informed decisions are all critical ingredients for providing advice in our members’ best interest.

“Whatever the advice requirement is, we do - strictly in the best interests of the member.

It’s unbridled, and not compromised.”

REMOVING ‘PRODUCT INCENTIVISATION’

Harper says KPIs that may seem to be in the best interests of the member sometimes unintentionally are not. Others, however, obviously distort advice.

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Removing all forms of product incentivisation and conflicted performance planning measures are critical in developing a holistic and integrated advice model for members. But the advice process needs to be untainted from start to finish.

“If you’ve got KPI on FUM and additional contributions and those dollar figures, how bad do you think that’s going to be in driving advice that’s compromised?” he says.

Harper says “we know that Cbus is a high performing fund, with all profits to members, strong returns over the past 32 years (since inception) and great services for members nationwide, but we are all obligated legally and ethically to give advice strictly in the members’ best interests.

“If that means taking money out of the fund…to eliminate debt, or to satisfy other personal requirements, or we don’t give advice to make additional contributions because the member doesn’t have surplus income or there are adverse impacts due to preservation issues… then that’s the advice we will give, because that’s in the best interest of our members.”

Serving members’ best interest is at the core of super funds’ advice offerings, but a clear benefit of sound advice is “definitely increased retention,” Unisuper’s McCartney says.

McCartney says the advice provided does not need to be particularly complex for the member/fund relationship to be cemented.

“Just having that relationship, so people know where to go when the time is right, is part of it as well – just educating them and letting them know we do have this wonderful service here that’s in their interests,” he says.

He says Unisuper tracks the quality of advice it provides by calculating a Net Promoter Score for each of its advisers, and this approach springs from a philosophy of “giving great service that is genuinely in the members’ best interest”.

“Probably what we do sell is our service.

People know when they’re being sold something and can smell it a mile away and they’re over it.”

McCartney says a focus on quality frees up its advisers to focus on service.

“Advisers, if they want to spend two hours with somebody, they do,” he says. “They have enough time and if they want to go overboard they can, because it is always about the member – they know they have got to get a great NPS score.

“If you’re doing that and you’re doing it in an ethical way, then you’re going to run a great business.” Ñ

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\ COVER STORY

Unprecedented in Australia, CHRISTIAN SUPER is setting up funds management and consulting businesses to service external clients.

By Dan Purves Portrait Matt Fatches

OCTOBER 2016

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COVER STORY \

NSOURCING INVESTMENTS MAY be in vogue, but there is one superannuation fund heading in the opposite direction, by setting up funds’ management and consulting businesses with the aim to outsource its portfolio.

While other asset owners have setup investment arms that have morphed into fund managers over time, such as QIC in Australia or Hermes in the UK, this is the first time that a superannuation fund has set up a business with the express intention of seeking external clients from the outset.

For the better part of a decade, Christian Super has run its impact investment portfolio in-house, completing 17 deals in seven jurisdictions, amounting to more than $140 million. It has used nine different investment structures, with more than 150 underlying portfolio companies. The portfolio accounts for up to 10 per cent of its asset allocation.

“Christian Super’s impact portfolio is showing a correlation of less than 0.2 [per cent] over the last six years, which is the period we have had a portfolio that is measurable with every other asset class,” says Tim Macready, chief investment officer of Christian Super, and the managing director of Brightlight, the new fund manager operation.

Christian Super is launching Brightlight as a business to service asset owners who want to access the impact investment universe. An application has been submitted to ASIC for an Australian Financial Services License, with this process expected to be complete by February 2017.

“But we will also be licensed as authorised representative by an existing AFSL holder as well, which will enable us to start launching the services and products from day one,” Macready says.

While the precise timing of ‘day one’ remains unclear – it is open for business from October, and has already received at least two proposals – it will formally leave the Christian Super office from December or January.

The $1 billion superannuation fund is putting in $250,000 from its operational reserves as a loan for seed capital on arm’s-length terms, and will be Brightlight’s first retainer client for impact consulting services.

The plan is that, over time, Brightlight will build out products that mirror certain Christian

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Super asset classes. At that point, Christian Super intends to transfer those assets into Brightlight, again, on an arm’s-length funds management basis.

“One of the things that this potentially does for Christian Super is take what is essentially a very complex part of its business – running an impact investment portfolio – and free it up to external organisation, to devote more of Christian Super strategic resources back into delivering products that are adding value to members, growing our membership base, and seeing how we can tailor our services to meet their needs.”

TRANSCENDING THE LIMITS OF SUPERANNUATION

Christian Super prides itself on being a values-based organisation with a mission of seeing that people have financial health and understanding, but Macready says that for some time they have known there is a limit to what they can do to see this vision achieved as a superannuation fund.

“So we have been looking for opportunities to broaden beyond the horizons of just being a superannuation fund in ways that are for the benefit of our members, and see our vision fulfilled.

“At the same time we have been getting a lot of queries from investors about our impact investment strategy in particular, and our responsible investment strategy more broadly.

“There’s lot of demand out there for our impact investments, advice and products, and for faith-based values aligned to our investment products, and therefore we think there is a business to be built there.

“We felt that strategically we were at a point where we could devote some resources to growing the business for the benefit of our members, and in order to see our vision fulfilled and to help a lot more people invest the way that we invest.”

There are also mission-aligned benefits for the super fund in this strategy. Short-termism has been detrimental to the objectives of asset owners, therefore, the theory goes, the more money that is invested along responsible investment and values-based lines, the greater the sustainable economies created, feeding back into long-term returns of other portfolios.

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\ COVER STORY

impact portfolio and say, ‘Can we just invest it in a Brightlight fund-of-funds?’ We are intending to offer that as one of our services.”

In terms of the business model on the impact advisory side, Brightlight aims to get a range of clients with a mix of one-off work, retainer fees and asset-based fees to advise on impact portfolios.

GETTING THE BAND BACK TOGETHER

TIM MACREADY chief investment officer Christian Super

We felt that strategically we were at a point where we could devote some resources to growing the business for the benefit of our members, and in order to see our vision fulfilled and to help a lot more people invest the way that we invest

STRUCTURE

Aside from the seed loan, Christian Super has 80 per cent equity ownership, with the remaining 20 per cent equity belonging to an organisation called the Brightlight Foundation.

The Brightlight Foundation was established with the same vision as Christian Super – to see people living life with financial health and understanding.

“But it’s going to exist to do so in a much more charitable sense, and in ways that the superannuation can’t,” Macready says.

These two organisations between them own a holding company that in turn owns the individual Brightlight businesses; specifically, an investment advisory and an investment management business.

The investment management side focuses on making available to the broader wholesale institutional market, asset-specific or diversified products that mirror Christian Super’s existing investments strategies.

These strategies include using a pool of four different Australian equities managers, applying screens, engaging with corporates and using proxy voting to achieve its objectives.

Initially, Brightlight is launching investment memorandums in cash, fixed

OCTOBER 2016

income, Australian equities and potentially international equities.

“As people are interested in getting access into that diversified pool of domestic equities, Brightlight Australian Equities Trust will be opened up,” Macready says, adding the business model on the funds management side was to charge an asset-based fee on the pool of assets that is managed on behalf of people.

“And then we have the investment advisory business, which is essentially doing everything from start to finish to enable asset owners to make impact investments.

“For some people that’s going to be giving a base level understanding of the market type service – how you actually understand impact. Then we can help with designing impact investment strategies: How do I approach impact investment? How do I find deals? How do I understand illiquidity?

“We will be able to help people with deal due diligence. So if they come to us with a specific deal, we will be able to provide advice on whether we think [it] is appropriate or not, with what the risks associated with it are.

“There will be overall portfolio construction, all the way through to if people ultimately want to give up control of their

In addition to Macready, who has been involved in impact investing for 10 years, Simba Marekera, who has been with Christian Super for five years, is going across to Brightlight.

“And we are bringing back a couple of people who worked with Christian Super on the impact side before,” Macready says.

Charles Liu, who worked with Christian Super in the late 2000s and then spent time with KPMG’s social finance team, is joining to help with the deal due diligence and research.

Joining Liu on the research team is Jai Sharma, who worked with Christian Super in 2010-11.

“He has spent the last four years building his own social enterprise and he’s just been freed from that and is coming on board with Brightlight.”

Sam Ung has been providing casual support for due diligence on impact deals for a year at Christian Super, and will also be joining.

“That’s five people from Christian Super in the immediate past or in the medium-term past coming across to Brightlight to work together,” Macready says.

“We are adding two really strategic people to the team as well.”

The first is Matthew Zschech. Zschech resigned from the Christian Super board to go work for Brightlight. He has lengthy experience, firstly with IBM in a project management capacity, then with Alpha Fund Managers in operational asset management, and brings 15 years of experience in managing money in the fund manager environment.

There is one more person joining Brightlight from a well-known global fund manager, but at the time of going to press, the name had not been released.

BRINGING IN REINFORCEMENTS

Clearly, the move of Macready and Marekera will affect the Christian Super investment team. Traditionally, Christian Super’s model on the investment team has been to train from within.

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16

\ COVER STORY

“We’ve hired young graduates, really invested in their professional development and turned them into high calibre superannuation professionals.

“But by recognising the challenges that Brightlight is going to bring, we’ve resourced [Christian Super’s investment team] with two [experienced] people.”

Edwin Lo, who has spent 20 years in funds management as a portfolio analyst and manager for Australian equities, will be tackling the bottom-up portfolio construction side, and helping with manager selection and due diligence.

The second person will tackle things from the investment strategy top-down macro side. Lauren Rosborough Watt has a background as an economist and a currency strategist at Societe Generale, Westpac and the Reserve Bank of New Zealand, and will

be making sure that the super fund is covering asset allocation.

“We have introduced those more senior resources just to give that belt and braces approach, to make sure the Christian Super’s investment portfolio isn’t compromised,” says Macready.

“The other effect on Christian Super is that it goes from having an internal impact investment team to outsourcing to an external – albeit a highly aligned – party.”

As for Macready, as of January 1, he will have two jobs, under two employment contracts, with two job descriptions. The idea is that his time initially will be a split of 70 per cent on Christian Super, and 30 per cent on Brightlight.

“Obviously, in the start-up phase there is a need to go above and beyond in building the new business, so that 70/30 looks more

GOVERNANCE IN MARCH OF THIS YEAR, ASIC’s published report 474 Culture, conduct and conflict in vertically integrated businesses in fund management, that identified key issues in the financial services industry, including superannuation, with regards to those organisations that had multiple business divisions.

It found that the industry “on matters of outsourcing, product selection, remuneration and board membership, there may be areas where financial services organisations could better demonstrate a commitment to managing and, where appropriate, avoiding conflicts of interest”.

According to Maged Girgis, partner at the law firm Minter Ellison, the establishment of vertically integrated businesses, such as Brightlight, raise complex governance and conflict issues, which need to be carefully managed.

He adds structures need to be put in place to ensure that super funds’ interests as a client of the of the service provider are maintained, despite its interest as the owner of the service provider.

“We are seeing more non-retail super funds establishing service

provider companies, such as QSuper’s recent formation of an insurance company. With that comes the same issues that retail funds face, by virtue of the vertical integration of those services,” Girgis says.

“It’s a further example of how the different sides of the industry are coming together. The separation between them is not as stark as it used to be and this is a further example [of] that.”

Macready is cognisant there are a multiple risks, saying any financial services business can lose sight of stakeholders and go off-the-rails towards working for its own interest rather than their interest.

“There are structures that encourage that more than others, but it is a core risk that every financial services business has to understand.

“For to me there are two ways you control that risk.”

“The first and the most important is culture – building a culture of integrity … Any kind of professional consulting firm has to have a mindset of ‘we exist and we only exist because clients need our services, and if we don’t provide them value and integrity in the services we are offering we cease to have a viable business’.”

OCTOBER 2016

The second piece of managing the risk is governance and the structures, underpinned by external compliance services and the IFSL. Brightlight has an operationally independent board from Christian Super, though with the heavy interest the superannuation fund has appointed a couple of people to it.

The initial board has five people.

Two appointed by Christian Super, two executive directors from Brightlight and an independent person.

“We are trying to make sure that the governance decisionmaking structure really values that independence and the ability to act in the interests of the people we are working for,” Macready says.

“Brightlight is committed to generating its revenue from asset owners and representing the asset owner, not taking commissions and payments from impact managers, and not off the back of building and recommending its own products.”

“We will be really interested to get feedback from clients as well, as to their perceptions on the risks associated and whether we have appropriately and adequately managed those, and we will be responsive to the feedback.”

like 70/50 or 70/60 sometimes, but that is just the reality of building a new business.”

CONFLICTS OF INTEREST

Macready will remain accountable to Peter Murphy, Christian Super’s chief executive, for performance of the super fund’s investment portfolio and everything to do with investment strategy.

“And if I’m not delivering there to his and the investment committee’s and Christian Super board’s expectations, then they have every right to step in and do what needs to be done to make that work.”

Likewise, on the Brightlight side of things, he is accountable to the Brightlight board for his performance there.

Clearly, this is not a long-term sustainable thing to do.

“We think this is probably an 18-month to 24-month solution and we are fully recognising that at that point those roles need to be split and both will revert to being full-time roles,” Macready says.

The real form of potential conflict of interest is that while Christian Super does not use any form of incentive-based remuneration – it is all base salaries – Brightlight will have an equity component.

“The equity component doesn’t kick in until it is profitable, and it’s the profitability point which, for us, is kind of the demarcation line of when those roles need to split.”

The next major challenge for Christian Super comes when Brightlight achieves this sustainability and profitability, and needs to appoint a full-time person to manage its business. It is at this point the board will make an assessment as to where the strengths and weaknesses are, where Macready’s skills are best used, and who is available to fill either a managing director role in Brightlight, or a chief investment officer role in Christian Super.

THE START OF SOMETHING BIGGER

Interestingly, one of the reasons for setting up Brightlight as a for-profit organisation, rather than a not-for-profit, is the ability to retain profits and invest them back into visionaligned businesses, hinting at possible future plans from Christian Super.

“We see Brightlight as the first of a number of sister organisations for Christian Super that will build out – we don’t know where yet – but are helping people to live with financial health and understanding and making the world a better place by doing so,” Macready says. Ñ

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18

\ MENTAL HE ALTH

Starting THE

CONVERSATION AROUND

MENTAL HEALTH CONEXUS FINANCIAL will host an event on October 11 to address the issue of SUICIDE AND MENTAL HEALTH in the financial services industry.

IN MEMORY OF DAVID ADISESHAN and those from the financial services community who have left us too soon.

AN EVENING for

SUICIDE PREVENTION IN FINANCIAL SERVICES

TUESDAY, OCT 11, 2016 | PERPETUAL, SYDNEY

FIND OUT MORE »

conexusevents.com.au/suicideprevention

OCTOBER 2016

FOLLOWING THE DEATH of David Adiseshan late last year, a close personal friend of Conexus Financial chief executive Colin Tate, Conexus has created an event on October 11 during Mental Health Week, which will serve two purposes: to give an insight into the impacts of suicide, and to raise money for Lifeline. The event will be hosted at the Perpetual offices in Sydney.

“The loss of David was a terrible thing, and one that many across the industry would have felt,” says Tate. “From conversations with his wife Liz, we decided to create an event that helps shine a light on what feels like an epidemic in the financial industry: suicide.

“We want the night to be filled with stories, from David’s friends and family, so that we can better understand the impacts of making that decision. We also want to have people on the stage who can provide valuable and actionable information so that anyone in attendance that may be concerned about a friend or colleague can take that first step to helping them.”

The night will feature a panel of speakers that will provide insights into the impact of suicide on those around the person. It will include an address by noted mental health campaigner and chair of Lifeline, John Brogden AO. Liz Hastings, the wife of David Adiseshan, will talk about the events leading up to and after her partner’s decision to end his own life late last year.

Close friend of David, Ian Webber from Ariel Investments, will also speak to the attendees.

The event will close with an address by leading psychologist and Communicorp principal psychologist Dr Laura Kirby, who will give advice and insights into how someone can start a conversation if they are concerned about the mental wellbeing of a colleague of friend.

Industry mental health advocates Superfriend have been involved in the planning and sourcing of speakers for the event.

“The financial services industry experiences one of the highest rates of mental health conditions in the workforce, with 33 per cent of people experiencing a mental health condition,” says Margo Lydon, chief executive officer of Superfriend. “Suicide is the leading cause of death for men and women under the age of 44 in Australia. In 2014, Australia lost more than 2800 lives to suicide, more than double the national road toll for that year.

“Thinking about these terrible statistics in the context of your workplace – your staff and colleagues – it is important to understand your obligations under the law, as well as your opportunity to provide a working environment that actually improves the mental health of your people whilst adding value to the bottom line.

“The main barriers to taking action and investing in workplace mental health and wellbeing include lack of skills and training for managers, lack of time, and lack of understanding.

Conexus Financial is currently working on a calendar of events for 2017 that will continue the conversation around mental health, including an event in March that will bring together leading experts from up to seven countries around the world as part of the International Initiative for Mental Health Leadership.

Conexus Financial will be raising funds for Lifeline on the night and in the weeks leading up to the event. Registrations are complementary. Ñ

investmentmagazine.com.au

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20

\ INVESTING GOALS

Short-termism AND THE RESPONSIBILITY OF

THE FUTURE Do short-term pressures distract us from our long-term responsibilities? And if they do, are we working towards PROVIDING A BETTER PLACE FOR FUTURE GENERATIONS based on the decisions we make today?

By Graham Rich

WHAT DUTY DO we owe to future generations?

It’s a fundamental question that human beings have grappled with for thousands of years.

North American indigenous peoples believed that the fates of humans and the earth were intertwined, and that whatever man did to “the web of life,” he did to himself. In ancient Greece, parents secured financial loans with a commitment to intergenerational debt bondage, directly risking the freedom of their children.

Today, intergenerational responsibilities are often discussed in relation to environmental and financial matters. In Australia, the prime minister recently attempted to frame debt reduction as a moral duty to future cohorts.

This year’s PortfolioConstruction Forum Conference brought together investment thinkers from around the world to explore a central theme: “The long and short of it.” While investing is supposed to be about the incremental replacement of human capital with financial capital over the long term, today’s fast-paced environment and our behavioural biases often conspire against the theory. Given the apparent pervasiveness of shortterm thinking within financial markets and society more broadly, the conference asked: is the concept of long-term investing increasingly irrelevant?

One of the key discussion points running through the two-day program was the environmental, social and governance (ESG) issue of intergenerational equity – the notion that people have a duty to consider the long-term consequences of their actions, and adjust their behaviours accordingly.

Andrew Kuper, the founder and CEO of LeapFrog Investments, tackled the subject headon with an assessment of the rapidly-growing field of impact investing, while University of Technology Sydney professor Jack Gray argued that the financial sector risks leaving a poor legacy.

Geoff Warren of the Centre for International Finance and Regulation (CIFR) and Sunsuper’s Ian Patrick examined the benefits and pitfalls of long-term investment strategies.

INCREASINGLY EMBRACING SOCIAL GOALS

According to Kuper, investors may achieve superior risk-adjusted returns by backing companies meeting the financial and healthcare needs of emerging market consumers. More broadly, he proposed a focus on “purpose-driven” enterprises with positive social – as well as moneymaking – objectives. Such companies are typically customer-led and strongly aligned, Kuper explained, ensuring all aspects of the business are geared towards achieving medium- to long-term success. To illustrate how changing attitudes are affecting corporate behaviour, he noted that firms are increasingly embracing social goals, in order to attract graduates from the world’s leading business schools.

Patrick and Warren focused on the practicalities of implementing a long-term investment approach – a pertinent topic for superannuation funds, given their responsibility for meeting the often distant financial needs of individuals. Patrick used Sunsuper’s recent

acquisition of a one-third equity stake in the Sydney-based Australian Technology Park as a case study in long-term decision-making. While ATP is pre-let to the Commonwealth Bank on a 15-year term, the new owners are already planning to convert the site from a campus style to multitenant use, when the bank decides to move on.

Warren, who conducted a substantial review into long-term investing with the Future Fund, outlined the advantages for investors with the “latitude and attitude” to implement a long-term approach – in particular, the ability to exploit the market extremes and risk premia created by short-term investors. However, he also gave insight into three challenges commonly faced by longterm investors: extracting valuable information from the barrage of short-term market noise, dealing with the uncertainty inherent in longer timeframes, and mitigating frictions between agents and principals.

PRESSURES THROUGHOUT INDUSTRY

In relation to agency problems, Warren explored the tensions caused by short-term relative performance monitoring within complex investment chains. Such pressures are evident throughout the industry, he argued – in asset manager bonus structures, fund flows and in herd behaviours. To encourage longer-term evaluations, Warren called for more constructive engagement between agents and principals, including greater discussion of progression towards long-term goals. In addition, he proposed that asset managers should be more explicitly rewarded for appropriate behaviours – a principle already adopted by the Future Fund, which awards 30 per cent of its bonus pool, in accordance with a subjective assessment of staff contributions, to the organisation’s long-term objectives.

As Kuper, Patrick and Warren showed, allowing asset managers to take a truly long-term approach brings many social benefits – from encouraging investment in companies serving emerging consumers, to enabling superannuation schemes to meet the retirement needs of Australians.

Short-term pressures, however, threaten to distract us from longer-term responsibilities, including our duty to pass down a world in which future generations may flourish. How successfully we manage these tensions will have huge implications – not only for the investment community, but for society more broadly. Ñ

GRAHAM RICH is managing partner and dean of PortfolioConstruction Forum. Portfolioconstruction.com.au

OCTOBER 2016

investmentmagazine.com.au

NE WS \

21

NEW EDITOR FOR INVESTMENT MAGAZINE

CONEXUS FINANCIAL has appointed respected finance journalist Sally Rose as the editor of Investment Magazine.

ROSE COMES TO Investment Magazine following five years at The Australian Financial Review, where she has earned a reputation for her investigative journalism ability and dedication to her work. She takes over from Conexus Financial managing editor Keith Barrett, who has been editing the title since its relaunch in March at CMSF. “Sally is an excellent appointment,” Barrett said. “Our team approached Sally based on recommendations from within the industry and following a series of informal conversations, we were excited to have her accept our offer.”

“Our advisory board for the publication suggested her based on her experience and ability, and we’re very happy to have her on board.”

Rose will be charged with leading both the industry-leading monthly print title, and also

driving the continued growth in the digital publishing space.

“I’m excited to join Conexus and the opportunity it brings to work more closely with some of the smartest people in the $2.3 trillion superannuation sector and broader institutional sectors,” Rose said.

“In my time at The Australian Financial Review I have loved reporting on super because it matters to everyone I know, whether they realise it or not.

“As editor of Investment Magazine my goal will be to shine equal light on the excellent, the good, the bad, and the ugly in the industry.

“Between challenging investment markets, regulatory change, fee pressure, and the intense competition for member funds there is no shortage of interesting ground for us to cover.”

Rose’s first magazine will be the December/ January edition. Ñ

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22

\ COLUMN

MCKINSEY 7S FRAMEWORK

Can super mums have it all?

Although CAREER MUMS working in superannuation may not be able to “have it all” all of the time; WITH THE RIGHT STRATEGY they can have “the bits of it all” that they want.

from male CEOs, more focus on metrics and KPIs and companies rolling out training to address some of the inequities. So, I am optimistic about the future.

Hence, my thesis is that we are on our way to achieving gender equality in the workplace.

However, like so often when a challenge is overcome, another one surfaces. I believe BY balancing career and motherhood NICOLETTE RUBINSZTEIN (and fatherhood) may be an even more ___ “wicked” problem than equality.

My experience is that it is hard.

Nicolette Rubinsztein is a Very hard. Further, I think it is a social non-executive director at UniSuper, phenomenon of this century.

SuperEd and the Actuaries Institute.

If one is not careful, a career mum She is author of Not Guilty, can end up running around like the a guide book for career mums proverbial headless chicken, being pulled in all directions, with constant feelings of guilt and physical exhaustion. At worst there can be illness, anxiety, depression, marriage break-ups and unhappy kids.

So, how can we “have it all”? Given my background in strategy, I was inclined to try I’M GOING TO start with a question. For the to think about this challenge strategically. female readers, do you believe you have had My strong view is that there is no silver bullet. equal opportunity in your career? And for the Instead we need a holistic approach. men, do you think your female colleagues have As a career mum, I have tried to do things had equal opportunity? For my part, I believe a bit differently. This included working part-time I have had equal opportunity. I think that and flexibly for over 12 years at Colonial First superannuation is one of the better industries State/ CBA, which was quite unusual in a general from this perspective. Yes, there are certain manager role. Needless to say, I had a lot of companies and divisions of companies in our support from my employer. industry where this isn’t the case. And yes, we I was also happy to consciously put my still have a gender pay gap and yes we don’t career on hold while I had my three children. have enough female representation on boards Over time, I became fascinated by the stories and in senior management. of my female friends and colleagues working However, I’m seeing the introduction of good HR policies, an increased understanding in the superannuation and funds management industries, particularly the growing cohort of the differences in how men and women who were working part-time in senior roles. operate in the workplace, growing support

OCTOBER 2016

When it came to framing the topic and bringing these learnings together, I thought that the best way to do it, to capture the strategic nature of the problem and the holistic nature of the solution, was to apply the McKinsey 7S framework to the life of a career mum. The McKinsey 7S framework is a well-known business strategy framework.

The first “S” is shared values and normally refers to corporate culture. For a career mum, it’s the shared values between her and her partner.

They need to work out what’s going to make them happy and get on the same page.

The second “S” is structure, normally referring to organisation structure.

In the case of career mums, it’s about how you structure your life. I am a big advocate for part-time work and I think it is critical to achieving balance (assuming you don’t have a “house husband”).

The next “S” is style. For a career mum, this is her style in the workplace.

The fourth “S” is skills. For career mums, this is about how she can use her skills to position herself in a part-time role with the right company and a supportive boss.

The next “S” is strategy. For a career mum, the most important strategy is the child care strategy.

The next “S” is staff. For a career mum, this is the combination of what her partner does and what they can outsource.

The final “S” is systems. For career mums these are the processes and technology she needs to put in place.

In conclusion, I don’t think it’s possible to “have it all.” I also don’t think it’s possible to be a perfect career mum. However, I do think with some forward planning and prioritising, it is possible to have the bits of “it all” that you want. Quentin Bryce put it well when she said, “you can have it all, but not all at the same time.” . Ñ

The McKinsey 7S Framework

STRUCTURE

STRATEGY

SYSTEMS SHARED VALUES

SKILLS

STYLE

STAFF

investmentmagazine.com.au

24

\ SUPERANNUATION AWARDS

THE AWARDS REMAIN the only awards in the industry that are truly independent, with no charge to funds to enter and no financial arrangement with a research house. The awards selection and judging process remains committed to identifying and rewarding examples of industry excellence across the superannuation sector.

The judging committee has changed from last year. Conexus Financial’s director of institutional content Amanda White, and director of retail content Simon Hoyle will be joint-chairs of the judging committee.

“The Conexus Financial Superannuation Awards are designed to recognise funds that ultimately produce the best outcomes for members,” says Hoyle. “While it’s easy to think that’s largely a story about investment returns, a member’s experience is shaped over the course of a lifetime by many aspects of a fund’s structure and operations.

“Focusing on past performance creates an interesting historical picture, and is evidence of whether a fund’s investment process does what it says it will, but to be truly useful, an assessment needs to include some forwardlooking elements.

2017

By Keith Barrett Photo Matt Fatches

CONEXUS FINANCIAL SUPERANNUATION

Awards

NOMINATIONS OPEN “And while it’s impossible to be too definitive when talking about the future, the way a fund is structured to support members with information about how it invests money, its investment and insurance options, and how it provides guidance on making the best decisions, all combine to shape a member’s eventual outcome. The importance of a range of non-investment issues – like access to financial advice and the quality of member services – cannot be ignored,” Hoyle said.

The judging committee now includes consumer advocate and chief executive officer

OCTOBER 2016

Submissions for the Conexus Financial Superannuation Awards 2017 are now open, and three new categories have been added.

of Choice, Alan Kirkland; chief executive officer of the Financial Services Council, Sally Loane; Rice Warner chief executive officer Michael Rice; and former minister for superannuation and financial services Bernie Ripoll. Also participating is Joanna Davison, chief executive officer of the Fund Executives Association Ltd. “For the awards, Rice Warner will be combining the information provided by the funds with our extensive superannuation product database,” said Michael Rice.

“This database forms the backbone of our research and is updated and checked monthly with actuarial sign-off for quality assurance.

“Rice Warner scores investments using stochastic projections of member retirement outcomes, with assumptions underpinned by our annual investment survey of leading investment managers and asset consultants. Our group insurance experts review each fund’s insurance value. All results are peer reviewed by members of the consulting team.”

In order to reinforce the integrity of the selection process, and to bring an international perspective to the proceedings, chief executive officer of the NZ Super Fund, Adrian Orr, has joined the judging panel.

To highlight its independence, the deputy chairman from APRA, Helen Rowell, has been engaged as a special advisor, and to run the rule of the regulator over the applications.

This year, three new categories have been added to the awards – best technology offering, best advice offering, and best insurance offering – reflecting the growth and importance of a wider range of sectors within in the industry.

Following the failure of any fund to secure consensus among the judging panel for the award for innovation, this year the award has been broadened to cover innovation and transformation, which aims to showcase examples of where funds have been able to transition to a new way of working with and for members.

Every APRA recognised fund with a MySuper product will receive a pre-populated entry form delivered via email. This can be returned to Conexus for inclusion in the awards. Ñ

investmentmagazine.com.au

CONEXUS LUNCH SERIES

PROFESSOR

STEPHEN KOTKIN | Melbourne: November 17 | Sydney: November 18 |

WAR GAMES: Populist upheaval, the unravelling EU and the US election It’s two weeks after the US election and uncertainty prevails. The rise of populism has set the scene for 2016 to be one of the most eventful years politically, socially and economically. All eyes will be on the new President and how they will deal with the risk of the EU unravelling, populist upheavals and two old foes, Russia and China, flexing their muscles. And those responsible for the financial outcomes of others are left questioning the consequences for investing.

To make sense of it all, Conexus Financial is hosting a special event with Professor Stephen Kotkin, visiting John P. Birkelund ‘52 Professor in History and International Affairs from Princeton University, undoubtedly the world’s leading geopolitical institution. A Pulitzer Prize finalist, Kotkin is an authority on geopolitics and will speak on the increasingly complex relationship between the United States, China and Russia, which could be turned on its head following the US election.

Presented in a war game scenario, this event is not to be missed for anyone responsible for the financial outcomes of clients or members. Register now to understand the potential impact that geopolitical risks could have on investors.

REGISTER NOW » conexusevents.com.au/kotkin OR CONTACT Emma Brodie at emma.brodie@conexusf.com or 02 9227 5708

26

\ AIST

Get the name right and we’re nearly there Although there’s still confusion about what a CIPR actually is, with a decent name change, the “Comprehensive Income Product for Retirement” will be a welcome development.

LOOK PAST WHAT is arguably one of the worst acronyms in superannuation, and the CIPR – which stands for Comprehensive Income Product for Retirement – is starting to look like one of the most progressive policy developments to come out of Canberra for some time.

But there is still a lot of confusion about what a CIPR is. The first thing to realise is that a CIPR is not actually a product, despite what its name implies.

Rather than a single product per se, CIPR is about helping trustees provide a framework of post-retirement options for their members.

A CIPR should balance risk, income and flexibility. This framework might be a portfolio of products or (based on treasury’s current thinking) it could potentially be a single product, if the trustees of a super fund decide that a single offering is sufficient to meet members’ post-retirement needs.

This distinction between a single product and a suite of products is important, because it acknowledges that post-retirement is not a one-size-fit-all.

Speaking at last month’s AIST investment conference in Cairns, the head of treasury’s retirement income product division – Jenny Wilkinson – took the opportunity to debunk a few CIPR myths and misunderstandings.

It is not mandatory for funds to provide a CIPR and it is not envisaged that CIPRs will operate for everyone. The government recognises that

BY TOM GARCIA ___

Tom Garcia is the chief executive officer at the Australian Institute of Superannuation Trustees

for some members – particularly those with low retirement balances – a CIPR-style retirement income solution may not be appropriate.

The government’s intent is that an individual will need to make an active choice to take up a CIPR. The CIPR framework can be set up as a range of ‘soft defaults,’ whereby trustees might pre-select a retirement option that may be appropriate for certain members.

NOT ALL RETIREES REQUIRE ADVICE

Importantly, CIPRs are not intended to encourage annuities over other products and they are not intended to compel the take-up of annuities.

They are also not designed to replace the need for

advice, with treasury recognising that trustees have a significant role to play in the advice space.

At the same time, the notion of a CIPR also recognises that for many retirees, advice may not be needed.

CIPRs also recognise that pooling risk can increase income. According to Wilkinson, treasury research has shown that a CIPR-type solution (such as accountbased pension combined with annuity) is the best way to maximise income for many retirees over their average life expectancy. Such products involve capital drawdowns, thereby forgoing any significant behest for the next generation, which, as Wilkinson notes, meets super’s primary objective.

With draft legislation not expected until next year, treasury concedes that their thinking about precisely how CIPRs will operate is still fluid. Issues yet to be cast in stone or finalised include whether there should be a minimum set of features for CIPRs; how individuals can compare CIPRs; and whether funds can offer one or multiple CIPRs. It will also be critical to understand any barriers to developing CIPRs. With the government set to release a discussion paper by the end of the year to explore the key policy issues associated with a CIPR framework, now is the time for the industry to take an active interest in this final stage of development.

And given that it is critical that members understand the post-retirement options before them, one of the first things we need to start thinking about is a better name than CIPR! Even treasury agrees the name needs work.

In my view, the CIPR (by another name) is a wonderful opportunity.

CIPRs, if done right, have the potential to completely change super’s relationship with your members.

It is the opportunity to combine all that trustees collectively know about investments, about their members and about their needs to design a simple solution that can transform the engagement and value of superannuation to members and Australia as a whole.

It is in fact the manifestation of our ultimate purpose – to provide and improve retirement outcomes. Ñ

AIST Awards Dinner Join us at super’s night of nights!

Thursday 24 November 2016 The RACV City Club, Melbourne Visit www.aistawards.asn.au to register.

INSURANCE Tuesday 25 October, 2016 Novotel on Collins, Melbourne

Recent focus on insurance has emphasised the need for funds to ensure their insurance offering is relevant, sustainable and aligned to members’ needs. The AIST Insurance Ideas Exchange will provide you with actionable ways to build a strong and sustainable insurance offering from product design to member experience.

Topics include: • The great insurance debate: Jocelyn Furlan, Nick Sherry and Sandy Grant consider the big questions from the role of insurance within super to member rehabilitation.

• Insurance sustainability: Discover how to ensure your insurance offering is adequate, sustainable and good value for members.

• Supporting mental health claimants: Learn best practice ways to manage the claims process.

• The role of technology: See how technology and artificial intelligence can improve member experience.

LEGAL & COMPLIANCE

The AIST Legal and Compliance Ideas Exchange is designed specifically to meet the needs of in-house legal counsel and compliance staff working in not-for-profit super funds. This one-day event will contribute to your CPD requirements across ethics and professional responsibility, practice management and business skills, professional skills, and substantive law.

Wednesday 26 October, 2016 King & Wood Mallesons, Melbourne

Topics include: • What’s on the regulators’ agenda? Learn the key areas of focus for the regulatory bodies.

• Drafting disclosure documents: Discover how to best approach disclosure reporting in light of the looming RG97 implementation deadline.

• Why have trustee liability insurance and cyber insurance? Explore the different types of insurance policies and the cover available.

• Ethics: Learn practical strategies to provide useful business advice without compromising your ethical obligations.

GOVERNANCE Thursday 27 October 2016 PricewaterhouseCoopers, Melbourne

Against a background of increasing regulatory and media focus on governance and cultural practices in superannuation, the AIST Governance Ideas Exchange will provide an opportunity to hear about some of the hot issues impacting on the roles and responsibilities of super fund boards.

Topics include: • Regulator update: ASIC’s views on cultural expectations, culture within advice and robo-advice.

• Diversity and inclusion: Explore the key principles of diversity, unconscious bias and how this impacts funds at board level.

• Whistleblowers: Learn how to get the policy and process right.

• Risk management: Discover how the new risk management toolkit can ensure your fund is best meeting its regulatory requirements.

For full program details and to register visit www.aist.asn.au

28

\ WAR GAMES

KOTKIN, GEOPOLITICS, AND THE CONSEQUENCES OF CHOICE Through a series of war games in Sydney and Melbourne, John P. Birkelund ‘52 Professor in History and International Affairs at Princeton, STEPHEN KOTKIN, will work through global scenarios to illustrate the repercussions of miscalculation.

WE HEAR INCESSANTLY about how the world has become more uncertain, less safe. But the notion of cold war-era certainty is a myth. Anyone who recalls Stalin’s 1948 Berlin blockade, Mao’s 1949 Chinese Communist revolution, the 1950 North Korean invasion of South Korea, the 1962 Cuban Missile Crisis – when the planet almost perished in nuclear annihilation – the 1979 Islamic revolution in Iran or multiple other episodes knows that uncertainty was often at the highest levels.

Terrorism was rampant in Italy, Germany, parts of Asia, and Latin America.

Sadly, the current bloodshed in Syria and other parts of the Middle East, which has claimed half a million lives, is not exceptional either. In the 1980s Iran-Iraq War, 1 million people died. In the 1960s-70s US-Vietnam War, more than 1 million Vietnamese were killed. In the 1970s-80s SovietAfghanistan War, more than 1 million Afghans died. In multiple wars in the Congo dating back to the 1970s, the biggest country in sub-Saharan Africa, at least 4 million people have been killed.

The refugee numbers were higher still.

Today the world is arguably safer, not to mention far more prosperous, than ever.

Paradoxically, however, the challenges of interconnectedness are more severe. One involves the roiling changes to the planet’s climate and ecosystem; another, the scientific ability to manipulate life via the genome. In geopolitical terms, the gravest challenge is not terrorism, or the Middle East, or Brexit and the EU, but a possible eruption between the world’s two largest economies and militaries, China and the US. It is always when the most powerful countries clash that the world is altered fundamentally.

The immediate flashpoint is the South China Sea, through which flows an estimated $5 trillion in annual trade. (Up to 60 per cent of Australia’s seaborne trade passes through this Sea area.)

Despite denials, China is militarising the South China Sea, rapidly. Of course, the US militarised it long ago, in the name of protecting freedom of navigation. China recently opened its first major military base abroad, in Djibouti; the US has several hundred overseas military installations.

But in the South China Sea, where the US has had an effective naval monopoly, there is now a duopoly, and, it seems, a Chinese drive for its own monopoly. How China and the US manage this strategic shift will shape not just the region, but the entire world.

Is some sort of violent clash, whether intentional or accidental, inevitable? Or, can a modus vivendi be worked out? Conexus Financial will conduct

experimental war games precisely to see how war can be avoided. Participants will assume the role of decision makers in Beijing, Washington, Canberra, Manila, Hanoi, Kuala Lumpur, Bandar Seri Begawan, Taipei, ASEAN, and the UN. Domestic politics and economic interests will factor in. Events will occur that require responses.

Attendees have to make decisions, and their decisions carry consequences, for themselves and others, which then demand new decisions.

A process plays out that can go in unexpected, unintended directions, just as in the real world.

Attendees are confronted with the repercussions of miscalculation.

What is China’s leadership after, and why?

What are the realistic options for the US? Can Australia continue to avoid making a definitive choice between Chinese trade and American security? Can Manila toy with anti-Americanism in the face of the China challenge? Will Hanoi embrace its former war-tormentor in alliance against China? Will Taiwan be drawn closer to mainland China over shared territorial visions, or pushed farther away by Beijing’s strong-willed action? Will India be draw in? Russia? Japan?

Can ASEAN tiptoe through the various territorial disputes without tripping up? Will trade and economic interests trump human rights and the commons? What can environmental groups do in the face of the vast coral reef destruction in the South China Sea? What are the possibilities for multilateralism, through the UN or other bodies?

UNDERSTANDING STABILIT Y FOR INVESTORS

Authoritarian stability is an illusion, of course: it lasts until suddenly it doesn’t. Investors heavily exposed to markets whose politics and institutions they cannot readily explain under questioning are taking on large risks, so the rewards better be commensurate.

Crises are global, as they say, but bailouts are national. Investors are always betting on the governing structures and institutions of the places where they put their money. So, crises themselves are not the key – various sorts of crisis are going to happen – but the crucial factor to analyse is the presence or absence of resilience to face them.

The significance for investors of most geopolitical events is exaggerated. Normal global chaos is already priced into markets. That said, there are some geopolitical events which are not priced in and whose potential effects cannot be exaggerated – such as any spiralling tensions in US-China relations. Ñ

STEPHEN KOTKIN is a John P. Birkelund ‘52 Professor in History and International Affairs at Princeton OCTOBER 2016

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This includes strategies to influence others, ways to deal with conflict and cultural diversity and powerful approaches to leadership and managing change.

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30

\ COLUMN

Finance industry can’t ‘rest on its laurels’

After nearly 10 years of reporting on sustainability, the finance industry is finally waking up to what is required if it is to endure and be sustainable.

BY SUSTAINABILITY IS DEFINED as the capacity to endure. Sustainability AMANDA WHITE is not just the consideration of ___ environmental or even social and Amanda White is the director of governance considerations. It is institutional content at Conexus not a negative screen. It is so much Financial and editor of more than climate change, so much Top1000funds.com more than corporate engagement.

Sustainability is the system and the ability to continue.

Princeton University professor and sociologist, Robert Gutman, said: “Every profession bears the responsibility to understand the circumstances that enable its existence.”

This should be a call to action for the finance industry, which has rested on its laurels; it’s rested on its low barriers to entry, high fees and complex language that has created enduring principal/agent problems that restrict transparency and accountability.

All participants in the finance industry should take heed. Simply, if you want to endure then you should consider your role, the industry and its purpose, through a sustainability lens.

After nearly 10 years of reporting on sustainability, the finance industry is finally waking up. www.top1000funds.com is an investment publication. It covers broad issues relating to institutional investment including investment strategy and implementation, macro-economic conditions and asset class-specific solutions. We have been writing about sustainability since the publication’s inception in 2008, because we see This is not about environmental, social and governance issues as a tree-hugging, but a central theme for the world in which we live, both sensible and robust now and, importantly, in the future – and that’s true if you’re a pension fund member, a pension fund investment strategy executive, a provider of service to that industry, and a logical, thematic, or a company in which the industry invests. holistic world view This is not about tree hugging, but a sensible and robust investment strategy and a logical, OCTOBER 2016

SEPTEMBER 2016

A SPECIAL PRINT EDITION TO CELEBRATE THE PRI’S 10th ANNIVERSARY

THE

thematic, holistic worldview. The finance industry is inward looking; it’s time to look out.

In this regard, I consider my job will be done when there is no ESG alpha but it is priced into markets and embedded in the process of managers and asset owners.

We are very proud to be partnering with the PRI on a publication to celebrate the achievements of the past 10 years, and challenge the industry to move forward.

This publication was launched at PRI in Person in Singapore last month.

This magazine also looks at big picture issues such as the purpose of finance – which is not to make money, but to serve the real economy –the achievements of the PRI, and the role institutional investors can play in financing solutions to global challenges such as climate change, social injustice, poverty and inequality.

In this issue we also highlight through case studies the asset owners that are leading the way in ESG integration – and how they hold managers to account on ESG will be a key development in the next 10 years. We celebrate asset owners, and believe that building strong buy-side organisations is the key to muchneeded change in the finance industry; change that will allow investors to focus investments on the long term, and better align decisions with the needs of their members and stakeholders.

In order to do this, asset owners need to take stock of their internal organisations, pay attention to governance and decision making, hire good internal teams, invest directly, reduce the number of external providers, integrate ESG into investments and be conscious of costs.

All are issues of sustainability. Ñ

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