Super Review March 2011

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 2011

Volume 25 - Issue 2

Opposition targets default funds 6 EDITORIAL Who really benefits from fund consolidation?

9 FUND MERGERS Industry a step ahead of the Government

16 FIXED INCOME Fixed income investing still in the driver’s seat

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22 GOLF DAY PHOTOS All the best photos from the Super Review charity golf day For the latest news, visit superreview.com.au COMPANY INDEX

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NEWS

Default superannuation fund arrangements under modern awards appear certain to face significant change in the event there is a new Government, including ensuring that investment performance is a key criteria.

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funds that are included in the awards reflect a union industry fund bias and self-interest of the industry union funds, because the organisations that appear before Fair Work Australia are in fact also often partners in these superannuation funds?”

When Evans asked Abetz to explain what he meant, the Opposition frontbencher said: “Well, you might have a trade union and an industry body that in fact partner in an industry super fund and – surprise, surprise – the joint recommendation is that their particular superannuation fund is the one (or one of the ones) that should be included in the modern award.”

Abetz then claimed that the former Minister for Financial Services, Superannuation and Corporate Law, Senator Nick Sherry, had actually written to the Industrial Relations Commission suggesting that fund performance should be a criteria in selecting default funds – but this did not now appear to have been the case.

In doing so, Abetz specifically referred to the performance

he Federal Opposition has sent a clear message that it intends to legislate to change the rules relating to modern award default funds in the event that it gains office.

In particular, the Opposition has signalled that the relative investment performance of default funds must be a part of the selection criteria, suggesting this was something that was overlooked in the processes originally initiated by the Government and implemented by the Australian Industrial Relations Commission.

The Coalition’s position has been made clear in statements

by Opposition frontbenchers Senators Mathias Cormann and Eric Abetz, both of whom have questioned the manner in which default funds have been selected and have suggested a bias towards industry funds.

Utilising the forum created by the Senate Education, Employment and Workplace Relations Legislation Committee last month, Abetz asked Government front bencher Chris Evans whether the Government was concerned “that some of the 3

EDITORIAL

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FUND MERGERS

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Mathias Cormann

The Government had committed to asking the Productivity Commission to review the selection of default funds during the election campaign.

FIXED INCOME

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GOLF DAY PHOTOS

of the MTAA fund, which he said “out of 49 super funds, came in last for rate of return but is nevertheless jammed in there as a default super fund”.

“One wonders what robustness actually went into determining that that one was worthy of inclusion in a modern award,” he added.

Abetz then echoed the sentiment of Cormann in claiming the Government had committed to asking the Productivity Commission to review the selection of default funds during the election campaign.

Later, during questioning of Treasury officials within the Senate Economics Committee, Cormann asked why the Government would not support one of the Cooper Review recommendations for equal representation on superannuation fund trustee boards. SR 22

ROLLOVER

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COMPANY INDEX Auscoal ..............................................................................................................................3

Harvard University ..............................................................................................................3

Association of Superannuation Funds of Australia....................................................................4

Health Super........................................................................................................................3

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Investec Global Aircraft Fund ................................................................................................3

Financial Services Council ....................................................................................................4

Maritime Super ....................................................................................................................3

Russell Investments ............................................................................................................3 Self-Managed Superannuation Funds Professional Association of Australia ................................3 State Street ........................................................................................................................3 UniSuper ............................................................................................................................4 Wilshire Private Markets Asia Number 2..................................................................................3

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NEWS 3

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SMSFs miss out on billions due to contributions caps THE lowering of the super contributions caps has had a significant impact on retirement savings, with $15.1 billion less going into super as a result, according to research commissioned by the SelfManaged Superannuation Fund Professionals’ Association of Australia (SPAA) and Russell Investments.

The research, which was conducted by CoreData/brandmanagement in November and December 2010, involved surveying 1,331 Australian consumers, of whom 431 were selfmanaged super fund (SMSF)

trustees and 258 high-net-worth individuals without SMSFs. SPAA chief executive Andrea Slattery said the research proved that the lowering of the contributions caps had a significant impact as the retirement savings of around half the SMSF trustees questioned had been limited. The research showed that this group would have contributed on average $72,704 each to their SMSF if contribution cap limits were raised, equating to a collective contribution of some $15.1 billion.

“We believe that this legislation is restrictive and prohibitive and counter to the intent of

the Government to have super as the main retirement savings vehicle for Australians,” Slattery said. She added the SPAA would like to see the contributions caps return to pre-2009 levels.

The research also found that trustees were working longer with more than half (53.2 per cent) intending to work parttime post-retirement compared to 32 per cent of non-trustees.

“As trustees work longer, government should look at extending age limits for non-concessional contribution caps to 75 years old,” Slattery said.

She added that clarity was needed around the borrowing in super rules, as the research

Institutional investors turn nervous

Health Super releases tax advice HEALTH Super has released information on tax saving strategies involving superannuation aimed at its members.

Tips were compiled by Health Super’s chief operations officer, Carol McKelsonTimmins, who said voluntary super contribution is one of the tax saving strategies most overlooked by members.

McKelson-Timmins said voluntary contribution could include salary sacrificing, spousal contributions and co-contributions, but noted many Australians were not aware that they could use their superannuation fund to minimise their tax.

“In general, Australians are not engaged with

Andrea Slattery

found that while two in five advisers were advising on the rules, only one in five trustees were interested and even less were borrowing. Some 76 per cent of trustees have not borrowed to invest and do not plan to do so, the research showed.

However, confidence in the super system remained, with three in four SMSF trustees (74.0 per cent) saying they were confident in super as a vehicle for retirement savings, significantly higher than the proportion of non-trustees who share their level of confidence (53.6 per cent). SR

Carol McKelson-Timmins

super at all until they start approaching retirement, and that is too late,” McKelson-Timmins said. “We are trying to educate members and get the information out there about tax saving strategies involving super.”

She added these strategies do not have equal benefits for all Australians and that members needed to work out which one works best for them. SR

INSTITUTIONAL investor confidence has taken a hit this year, according to the latest State Street Investor Confidence Index for February.

The index revealed that global investor confidence had fallen for a second successive month, down 9.2 points from its January figure.

The index analysis said that declines were evident across all regions with North American confidence falling 6.8 per cent while Asian investor sentiment fell 4.3 per cent.

However, it said the most telling signs of slipping sentiment were evident among European investors, where confidence had declined 13 points.

Commenting on the findings, Harvard University professor Ken Froot said the numbers were “fairly empathetic in signalling a decline in institutional investor confidence”.

“Political turmoil in the Middle East and North Africa, policy tightening in emerging markets and qualms about the pace of the recent run-up in developed markets equities are likely at the root of this,” he said. SR

Auscoal and Maritime confirm merger won’t proceed

By Chris Kennedy A MERGER being considered

by Auscoal and Maritime Super funds will definitely not proceed in the near future, the two funds have confirmed.

The funds determined there were greater savings to be made through existing alliances, which have generated various synergies and cost savings in investments, according to Auscoal chief executive Bruce Watson.

Over the past three years the funds have worked together on the Investec Global Aircraft Fund and the Wilshire Private

Markets Asia Number 2, and also have a member education alliance, Watson said.

Maritime Super chair Paddy Crumlin said there is a natural fit between the two funds and there is much value to be gained through strategic partnership.

“We are keen to maintain and leverage this relationship and will continue to support existing joint projects and look for new ways to jointly provide value to members,” Crumlin said.

Auscoal Super chair Arthur Weston said that research shows the savings for both

funds will be considerable, and the value split more equitable through a well structured and managed alliance rather than a merger.

Both funds are keeping their options open, Crumlin added.

“We have strong member loyalty and engagement thanks to each fund investing substantial time and effort in enhancing their offerings. Both funds have a suite of strategies designed to continually advance

this offering, increase scale and remain highly competitive, with merger being but one option for growth,” he said.

Maritime Super chief executive Peter Robertson said the funds are currently exploring whether sharing financial advice and clearing house capabilities will bring greater value to members and employers.

Both funds agree that it’s imperative to maintain appropriate growth strategies and recognise mergers as a way to achieve that growth, and are open to merger discussions in the future, according to a statement from Auscoal. SR MARCH 2011 * SUPERREVIEW

4 NEWS

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ASFA clarifies on intra-fund advice

By Chris Kennedy THE Association of Superannuation Funds of Australia (ASFA) has disputed claims made by Financial Services Council (FSC) chief executive John Brogden that expanded intra-fund advice would dilute the quality of advice received

by Australians.

ASFA chief executive Pauline Vamos agreed with much of what Brogden presented and also supported a level playing field, but pointed out that the minimum licensing requirements for super funds providing full, scaled intra-fund advice under RG 146 were no less than those that applied to other planners.

In a speech outlining the FSC’s

position on proposed Future of Financial Advice (FOFA) reforms, Brogden said that expanded intrafunds advice was a poor substitute for the tailored, quality financial advice Australians need.

“Expanded intra-fund advice will be delivered by super funds on matters like transition to retirement and social security – areas that are far beyond the duties and expertise of super fund trustees,” Brogden said.

But Vamos said that constant talk

about advice provided by super fund trustees being less qualified than other planners were incorrect. Most funds employ fully qualified financial planners, she said.

“We support the professionalisation of the industry but we also support the delivery of scaled advice in a cost effective manner to all members of funds,” Vamos said.

“The most significant outcome from FOFA has to be the regulatory framework around scaled advice.” SR

Pauline Vamos

McCredden questions MySuper A SUPERANNUATION fund executive has expressed doubt about the ability of funds to lower super costs in line with Mysuper recommendations.

Speaking at an Association of Superannuation Funds of Australia (ASFA) lunch, the chief executive of UniSuper, Terry McCredden, said that UniSuper already had costs of under 1 per cent for members and that reducing their fees any more would reduce their revenue.

“I don’t believe our cost base is going to fall that much,” McCredden said.

“What services are we going to offer, in particular, to reduce our costs? Are we going to do away with education seminars? Online services? Access to benefit quotes, or calculators, or other educational services?” he asked.

McCredden sarcastically questioned whether they could reduce costs by not answering emails or sending out member newsletters.

Both disengaged and engaged super fund members would still want the extra services they offered, McCredden said.

“Realistically, how can we not offer disengaged members those services that we currently offer?” he said.

The driver of administration costs in the industry over the last five years were compliance costs, not services costs, he added. SR SUPERREVIEW

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6 EDITORIAL

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In whose interest?

Super funds are experiencing another round of mergers and consolidation, but whose interests are really being served? And will the funds become too big to fail?

Mike Taylor

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ess than a decade ago, this magazine published a feature titled ‘Top 300 Superannuation Funds’. Super Review stopped publishing the feature when the number of funds that fulfilled the criteria of ‘top’ declined below 100.

To be included in the original Top 300, a superannuation fund needed to boast a given level of membership and a given level of funds under management (FUM). In the early days, only the top 20 or so of the Top 300 funds could be expected to have more than $1 billion in FUM. Times have changed. These days few mainstream funds have less than $1 billion in FUM, and the non-corporate funds that do are inevitably earmarked for amalgamation.

But it is not natural market

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forces that have been responsible for the decline and fall of Super Review’s Top 300 series. It has been Government policy and regulatory initiatives – the most recent of which is giving rise to a further round of negotiations between superannuation funds, and has been prompted by the looming expiry of tax relief measures which have made such mergers more attractive.

Prior to the tax relief measures, the major driving force behind superannuation fund consolidation in Australia was the Australian Prudential Regulation Authority’s (APRA’s) imposition of a new superannuation fund licensing regime – something which, according to APRA chairman John Laker, saw a dramatic drop in the number of superannuation trustees.

In 2007, Laker told a meeting of the then Investment and Financial Services Association that “at 30 June, 2004, the day before licensing began, there were around 1300 trustees. At 30 June 2006, there were just over 300 licensed trustees”.

And he made clear that APRA itself was a major beneficiary of

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 Reporter - Chris Kennedy Ph: (02) 9422 2819 Fax: (02) 9422 2822 email: chris.kennedy@reedbusiness.com.au Contributing Reporter – Damon Taylor email: damon.taylor@c-e-a.com.au Ph: 0433 178 250

the reduction, saying: “This consolidation will impact on the way in which APRA allocates its resources. In the past few years we have allocated a greater proportion of our resources to superannuation to handle the licensing transition. I expect that from the next financial year we will see a redeployment of some resources back to the other regulated industries.”

More recently, the chairman of the Cooper Review into superannuation, Jeremy Cooper, has pointed to the desirability of fewer but larger funds, citing the experience in Canada and the ability of large funds to directly invest in major infrastructure.

The evidence is clear to see: the consolidation that has occurred in the Australian superannuation industry has occurred as a result of Government policy initiatives rather than by market forces.

What is more, the nature of the rules about superannuation fund mergers and amalgamations means that individual members do not really have a say. It may be members’ money in the superannuation funds, but it is the trustee

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Almost without fail, trustees of funds that have chosen to merge with larger funds have cited rising regulatory compliance costs.

board members who decide who will manage it.

Where the most significant recently proposed fund merger is concerned – Westscheme and AustralianSuper – the views of the members of Westscheme will not be canvassed. Notwithstanding the notoriously independent views of West Australians, they will be asked to take on trust the benefits that will flow from being taken under the umbrella of mega-fund AustralianSuper.

There exists a lingering question about whether ‘bigger’ actually equals ‘better’, and over the past decade there has been plenty of evidence to suggest that while some very small funds may struggle, many mid-size

funds manage to do perfectly well in terms of investment performance and delivery of services to members.

There is no doubting that AustralianSuper has an admirable track record, but it is worth noting that it has not been regularly topping the charts maintained by the major ratings houses. Indeed, the top performers have inevitably been larger mid-size funds.

Perhaps the most disturbing fact to emerge from an examination of the consolidation that has occurred within the Australian superannuation fund industry over the past decade is that beyond Government policy, the major consideration for superannuation fund trustees has been the rising costs associated with regulatory compliance.

Almost without fail, trustees of funds that have chosen to merge with larger funds have cited rising regulatory compliance costs and the consequent need for better resourcing.

Fewer but larger superannuation funds will certainly make life easier for Australia’s regulators and would certainly seem to fit with the views of people such as Jeremy Cooper, but it is uncertain whether the best interests of members will ultimately be served.

The Government may well end up creating institutions that are too big to fail. SR

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The invisible hand The Government may be creating the environment for further superannuation fund amalgamation but, as DAMON TAYLOR reports, the industry has been setting its own pace. aving started at a number in the thousands before reaching the sector’s current population of around 67 funds, industry super is no stranger to mergers and consolidation. Yet while recent merger activity may appear to be driven by signals from the Government’s Super System Review that the industry is heading for fewer but bigger funds, the reality is that the super industry has been on this path for some time.

But mergers are nothing new – and according to Tria Investment Partners managing partner Andrew Baker, the Super System Review has got little to do with it.

“I think that regulatory pushes are relevant at the margin but I think even they have little to do with the underlying trend towards mergers,” he said. “It’s all about the changing economics of the industry.”

“The reality is that smaller funds are finding it harder and harder to deliver a competitive, quality product at the right price,” Baker continued. “That’s the ultimate problem and beyond that most of them can probably see a wave of new costs coming down the pipeline that they haven’t yet dealt with.”

“So advice, retirement income product development, it’s all yet to hit them and if they’ve got pricing issues now, it’s only going to get worse.”

Russell Mason, Mercer worldwide partner and head of defined contribution consulting

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for Australia, said that the biggest impetus for mergers in recent times had been new licensing requirements from the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investment Commission (ASIC).

“That caused a number of funds to consider mergers but it’s also been a result of the consolidation of unions,” he said.

“Often there’s an alignment with the union and employer associations between funds so I’ve seen mergers where employer associations and unions have merged or consolidated and, as a result, they’ve realised that these two funds have got exactly the same union, exactly the same employer association, and yet we’ve still got a fund in New South Wales and one in Queensland, for instance.”

“So if they can merge into a single fund and get some economies of scale, why not?” asked Mason. “When I joined the industry back in the late 80s there were 4,500 funds. That number’s been gradually shrinking over time with many of the smaller funds going earlier and the bigger funds conducting mergers in more recent times.

“It’s a maturing industry and as competitive as it’s ever been.”

According to Mason, it is also significant to note that competition is not only between industry funds and retail master trusts.

“When you’re an industry fund now, your competitors are just as likely to be other industry funds as they are retail

funds,” he said. “And Cooper’s initiatives are only going to increase that competitiveness.

“If MySuper is implemented in a couple of years’ time and each fund has a MySuper option that meets the modern award requirements, then it will be open slather for competition,” Mason added. “But the question is: will funds have the resources to compete?

“And it’s the pursuit of an answer to that question that I think is driving a lot of these merger discussions.”

MERGERS AND SCALE Offering the perspective of a large industry super fund that has already navigated a number of mergers, AustralianSuper general manager for growth and new opportunities Paul Schroder said that scale was the key issue.

“In fact, our thinking and our strategy around scale is what was behind the fund’s origin, in creating AustralianSuper between Australian Retirement

Fund [ARF], Superannuation Trust of Australia [STA] and Finsuper in July 2006,” he said. “So one of the trends that was identified then by the respective trustees of those funds was to say that we think, with fund choice and as the environment becomes more competitive, that having a known brand and a meaningful size and scale will be a source of improving retirement outcomes for members.

“AustralianSuper was set up with a view to seeking scale to be able to extract benefits for members and seeking scale to be have a prominence and a brand recognition that would make it likely that members would be attracted to that fund, that employers would be attracted to that fund and that not only can you gain scale but that you can have a trajectory where you’re continuing to grow scale,” Schroder continued. “So whilst there were many things in the Cooper Review [the Super System Review, chaired

by Jeremy Cooper] that we welcomed and many things that we thought were very sensible, our plans to increase our scale started before the creation of AustralianSuper and actually bear no relationship to it.”

Yet in saying that AustralianSuper’s own movements in the merger and consolidation space had little to do with the recent Super System Review, Schroder added that there was no doubt that the discussions about scale that it had prompted were significant.

“Each fund trustee has to make their own decision about their own strategic position: how they will improve retirement outcomes, how they will improve investment performance, how they will lower costs, how they will offer products and services, how they will deal with the compliance burden, and how they will be attractive and grow,” he said.

“And if you say it’s not through Continued on page 10

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The invisible hand ☞ Continued from page 9 scale, then what is it?

“What is going to be that fund’s unique strategic positioning?” asked Schroder. “Naturally, there’ll be plenty of funds that carve out their own niche.

“We’ve just decided that the advantages of scale, especially if you can do everything else, are too significant to ignore.”

Of course, the background to Schroder’s views is the proposed merger between AustralianSuper and Westscheme announced on 8 February. The merger has come as a surprise to many within Australia’s super industry, and yet Westscheme chief executive Howard Rosario said that after all the facts had been examined, the right decision had been obvious.

“We started this process of looking at economies of scale some time ago,” Rosario said.

“I think our first memorandum on the matter was in April of 2004 when the discussion about scale started to be articulated by Warren Chant [principal of research house Chant West] and Jeff Bresnahan [managing director of research house SuperRatings].

“So as a due diligence response to an important issue that was being discussed at that time, we had our funds under management reviewed in the interests of an assessment as to whether or not they represented sufficient scale at the time,” Rosario continued. “So, initially, our focus was on funds under management and we were reassured through assessments that we continued to do every year that we had scale.

“The thing that changed in all of this was the election of the Labor Government in 2007 and, in particular, the announcement of the lost member consolidation initiative by Nick Sherry [former Minister for Superannuation and Corporate Law].”

Rosario said that when Sherry had announced that in a SUPERREVIEW

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Not all super fund executives and trustees will come to the same conclusions as Westscheme and Rosario.

population of 33 million superannuation accounts it was intolerable to have 6 million lost accounts, he had introduced an entirely new way of looking at scale.

“Scale now became the issue of ‘how many people do you serve’, because under what Minister Sherry had set as an objective, the Government was going to take steps to ensure that something like 6 million accounts were going to be reunited with the people they belonged to,” he said. “So that would reduce the overall population of the customer base by nearly 20 per cent and, if a fund had a 20 per cent reduction and assuming that this was evened out across the board, this would have a huge impact on your capacity to amortise your costs.

“So for the first time, there was the prospect that you were going to have to incur higher administration fees, higher service fees, higher compliance fees and the Cooper Review only reinforced that, showing that the Government had serious intent about this inexorable growth in the number of accounts over which you could spread these costs,” continued Rosario. “So we said that if you take a fund like Westscheme with something like 35 per cent inactivity in our membership base (ie, for 35 per cent of our members we don’t get a current year contribution), then this is a going to be a serious issue.”

According to Rosario, Westscheme had traditionally managed inactivity on a formulaic basis, transferring people out for small and inactive accounts, but that the prospect of amortising the cost the fund was currently incurring for 200,000 members over the 130,000 that remained had been an unsettling one.

“So that was the real driver, which took our minds away from the quantum of funds under management, which the Cooper Review has continued

to focus on,” he said. “And then we had this other thing emerging in the competitive space where the bigger funds started to offer more and more services.

“So they were offering far more flexible and substantial insurance programs, they began to offer much wider investment option platforms, and a lot of these funds were able to offer those services for the same administration cost – $1.50 per

Nick Sherry

week – that Westscheme currently charges,” continued Rosario. “And that’s where the dilemma really arises.

“So what do you do when you don’t have the institutional imperative which says ‘come what may, our institution must survive’ and rather the really important imperative is what’s in the best interests of your members? Well, it’s a no-brainer, isn’t it?”

FUNDS UNDER MANAGEMENT Naturally, not all super fund executives and trustees will come to the same conclusions as Westscheme and Rosario. For many, funds under management (FUM) continue to be the main measure in this debate and so it begs the question: what then is the size, and therefore scale, sweet spot?

Schroder suggested that a number of funds were grappling with that very thing but added that the AustralianSuper take on it was somewhat different.

“That’s a really interesting question and I think people are thinking about that a great deal

right now,” he said. “I think people are saying ‘well, how big do I need to be?’

“But our question is: ‘How big do you need to be to get the maximum benefit for your members?’” explained Schroder.

“And if you ask yourself that question, I’d point out that the superannuation sector is very fragmented so if we’re the largest fund by some measures, we only represent 3 per cent of market share.

“And how much influence does 3 per cent of market share have compared to say 10 per cent of market share?”

For Schroder, the bottom line was that there was no size and scale sweet spot.

“We haven’t said to ourselves ‘once you get to that number, you stop,’ ” he said. “What you say is: ‘can you get more benefit for members by growing scale?’”

“So one, can you do that? Yes. Two, are we doing that? No, not enough. Do we want to do more of that? Yes, we do,” continued Schroder. “So we’re going through this process saying we want to build scale because scale unleashes potential.

“But then you have to execute so that that potential is delivered in a meaningful, noticeable benefit to members.”

Offering an altogether different view, Mason said that if a number in terms of FUM was what one was concerned about, $10 billion was probably it.

“They’re the ones that should have sufficient size and scale,” he said. “And at the other end of the scale, funds under $500 million are probably under a lot of pressure to determine whether they’ve got the size and scale to remain competitive.

“Where the line falls in between is going to vary between funds, and I certainly don’t think I could draw a line in the sand and say ‘here it is,’ ” Mason continued. “I’ve seen efficient Continued on page 12

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The invisible hand ☞ Continued from page 10 $1 billion and $2 billion funds and I’ve seen some inefficient $5 billion and $6 billion funds, and one of the things that we could run the risk of doing is being too superficial in looking at the reasons to merge and who to merge with.”

Mason said that to him, it would be eminently possible for a fund of $1 billion to survive the regulatory and competitive pressures of Australia’s upcoming superannuation environment.

“If they target a certain industry, don’t try to be all things to all people, don’t try to offer a whole range of investment options (and their market accepts that), then I see no reason why they can’t survive at a smaller size,” he said. “They’ll have their challenges but this is a debate that goes well beyond size.”

and whether that aligns – is central to it.”

According to Schroder, the next issue, and one that was often underestimated, was the people part of a merger.

“So the STA, ARF, Finsuper thing – what that taught us is that even when the people are doing similar jobs in similar ways, there’s going to be differences and you’ve got to respect those differences and negotiate proper arrangement and reach agreements about those things,” he said. “The asset transfer as well – we’ve had a lot of experience in that but you’ve got to know how to do it, when to do it, who owns the asset, when do they own it, the in specie transfer of the asset.

going to really happen properly unless there’s a close fit and from there, you’ve got to have the same objectives and the same values and you’ve got to respect one another’s culture.”

Echoing some of Schroder’s thoughts on member demographics and background, Baker said that there was a traditional perception that mergers had the best chance of success between funds with a comparable background.

“So you’re either generalists like AustralianSuper and Westscheme, and the statebased funds are generalist funds, but most of the industry funds are industry-based obviously,” he said. “So there’s an assumption that they can only

“My advice to anyone contemplating a merger is, before you do anything else, get the principal parties together and see if they’re willing to support a merger and talk to one another,” he said. “At the fund trustee and executive level, that’s great but unless those principal parties who really at the end of the day decide whether or not the merger takes place philosophically can work with one another, that’s the key to it.

“It’s the little things and it might sound trite but things like whether there are seats on the board, who is going to have those seats on the board,” Mason added. “If I’m a smaller fund, am I concerned about

“These sorts of things, assets, are important and insurance is often the pivotal thing – have people maintained their insurance, are their premiums going to be the same, is their cover at least as good, what happens if they were away from work that day? All of those sorts of things,” Schroder continued. “And we’ve got a key advantage in the Westscheme/AustralianSuper discussion because Tower is the insurer for both.

“So this question about what makes a merger successful – well, for one, it’s not

merge within the industry or across similar industries and I think that influences a lot of discussions as well.

“But personally, I don’t see why that’s necessarily right,” Baker continued. “Someone once said to me that builders and nurses will never mix, and maybe that’s right, but I think conceptually, is that the right perception?”

For his part, Mason said that there was another side to the people issue that was just as important when it came to funds discussing a merger.

representation on the board, and do I think my members are concerned about representation on the board? These are the things that need to be negotiated upfront.

“These are things that shouldn’t be left to the last minute because I’ve seen mergers fall over because they can’t agree on what may seem simple things like staffing and trustee representation.”

Again offering insight into a merging fund’s considerations in this area, Rosario admitted that a lot of funds in Westscheme’s

FINDING THE RIGHT FIT But whether trustees are concerned with a marker in terms of FUM, a marker in terms of member inactivity or some other measure entirely, mergers are much more than a numbers game. And from the perspective of an industry fund comprised of what was once 14 smaller funds, Schroder said that the central issue is fit.

“So what has been fabulous about all of the discussion between AustralianSuper and Westscheme is that the executives of both funds and the trustees of both funds have squarely in the front of their minds what’s in the best interests of the member,” he said.

“They’re not thinking about what’s in the best interests of this director or what’s in the best interests of this association or this organisation, or what’s in the best interests of this business partner or what’s in the best interests of corporate hospitality - they’re thinking about what’s in the best interests of the members.

“And that idea of fit –what are you about, what are they about, SUPERREVIEW

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position tended to look for mergers with funds of a smaller or equivalent size.

“But what my trustees understood was that there were some issues impinging here that were inexorable and unavoidable but they also understood that superannuation is a longterm engagement,” he said. “At the moment, the industry is absolutely obsessed about longevity risk for the individual and we are now beginning to really terrorise people with the thought that they are going to outlive their money.

“An aspect of that which I now see is beginning to be articulated in the industry is what’s the longevity risk relating to the institution that holds the money,” added Rosario.

“And it seemed to me that if Westscheme did amalgamations of like-minded funds, smaller funds, we still wouldn’t be dealing with that institutional risk – that is, will this institution be able to survive the 80 years that many people get associated with funds for?

“So why would we waste our members’ time trying to solve these problems, which could only be short term solutions, rather than look for institutions of substance that have a greater ability, on the scale of survivability, to survive in the really long term?”

According to Rosario, farsighted people are now beginning to see that there are two sides to the superannuation longevity coin: there’s not only the individual, there’s the institution that serves the individual as well.

“The other issue here is that Westscheme is currently a very viable fund. The surprise that has greeted this proposed merger announcement is a very understandable response,” he said.

“But the way to make sure that you ensure the best outcomes for your members is to negotiate Continued on page 14

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14 FUND MERGERS

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The invisible hand ☞ Continued from page 12 when you’re strong on their behalf, not when you’ve got no other alternatives, and the primary factor that we had identified and that made Westscheme a valid proposition was the Western Australian servicing.

“AustralianSuper was willing to continue the Westscheme division of AustralianSuper, and to locate a bolstered administration function and client servicing function and a call centre here in Perth so that the customers of that division would still be served in Western Australia,” continued Rosario. “And, more importantly, they gave a commitment that the 100,000 or so people who are currently AustralianSuper members in Western Australia will be moved to that division.

“So while our two funds are amalgamating, our members will be better served by having a stronger, better resourced, more competitive presence providing services here in Perth.”

THE IMPACT ON MEMBERS Yet while the members of merging funds may indeed be better served as a result of a union, as is Rosario’s prediction for the AustralianSuper/Westscheme proposition, member disruption is inevitable. A number of members will have joined one fund, some very deliberately, and yet they may not be happy to suddenly find themselves members of another.

The reality is that certain members will undoubtedly exercise choice of fund and go elsewhere but for Mason, this is something that can be mitigated by strong and early communication.

“Communicate early, communicate often would be my advice,” he said. “Yes, in mergers I’ve been involved with there is often some leakage but, in the main and being frank about it, the majority of members are reasonably unengaged.

“I get a letter as a member saying my fund is folding up and SUPERREVIEW

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merging into fund A but unless I’ve had a bad experience with fund A or I’m philosophically opposed to what they do, 99.99 per cent of members will say ‘okay,’” continued Mason. “Even those who might have some concerns in that they thought their previous fund was the best fund out, the bottom line is that it doesn’t exist anymore.

“There can be leakage but, in the main and for the ones I’ve been involved with, if it’s communicated well, if the members feel they haven’t had anything taken away from them and that this is in their interests, they’re going to get more investment choices or a better insurance of-

Howard Rosario

fering or whatever, leakage usually isn’t too bad.”

Schroder admitted that member disruption was one of the things that trustees and fund executives should care very deeply about.

“We need to be able to demonstrate that the outcome for the member will be better as a consequence of doing this,” he said. “So in the case of the Westscheme/AustralianSuper merge, we’re able to say for the Western Australians there’ll be more staff in Perth for the people that were in AustralianSuper previously – tick.

“We’re also going to be able to say the insurance for almost everyone who used to be in Westscheme will be better – tick,” continued Schroder. “We’ll be able to say there’ll be capability from the administrator that will be unleashed in a positive way and will put more jobs

on the ground in Perth – tick.”

Schroder said that the constant challenge was to make the case to the members and make the case to the employers.

“They may well have their doubts, they might have made their own choices one way or another along the way and now they’re presented with a different choice so you have to approach this on the basis that everybody needs to be convinced.”

FIDUCIARY DUTY But whether mergers and consolidation are now top of trustee minds for regulatory reasons, for concerns over FUM, for pursuing what is in the best interest of members or a combination of all three, the end game here is clearly providing for Australians’ retirement.

If the history of the super industry is any indication, decisions of this nature are inevitable and Rosario is quick to point out that decisions to merge should not be thought of as exit strategies.

“I find that an extremely slighting and disparaging comment because, in some senses, I could have decided to form a view that justified continuing Westscheme,” he said. “I don’t think I would have had a problem for the next three to five years but putting members first meant that I couldn’t focus on my personal requirements.

“Somebody was asking me the other day if I was happy with this situation that had evolved and I answered that I didn’t approach it from the point of view of what my personal emotions would be about this – it was purely about what was the right thing to do,” Rosario continued. “Funds need to talk with their lawyers very carefully and be clear how their fiduciary duty has to be discharged and I think that you will find small funds that will come to conclusion that it’s absolutely purposeful for them to continue.”

Rosario said that such funds may have a strong affinity with

“We need to be able to demonstrate that the outcome for the member will be better as a consequence of doing this.”

their members, they may be very engaged with them and they may have members who know what they want and feel that they get that.

“So, on that basis, they will have great validity and they will have served their fiduciary duty,” he said. “There will be other funds where the fiduciary duty will force you to the conclusion that these people, who are engaged with you on the basis of trust, need you to reciprocate that trust by doing the right thing for them and recognising that they can be better serviced somewhere else.

“And that will undoubtedly be a hard test.”

Schroder’s final comment was that he was certain all industry fund trustees were sharply attuned to looking after members’ best interests.

“Each one of them will come to their own conclusions about the ways to best do that but really it boils down to how do you improve your investment returns, how do you lower your costs, how do you have the right products and services and meet all your compliance obligations in a way that is sustainable?” he asked. “That’s the minefield everybody has to traverse.

“So industry fund trustees and that form of joint representation has led to funds having a really good focus on what’s the best outcome for the members,” Schroder continued.

“But the challenge for the next five years is to say, given all of the constraints, given the competitive pressures, given the fact the people can exercise choice, given the fact that retail competitors are being much more aggressive, how do I improve returns, reduce costs, have the products, services and advice that’s required and do that all in meeting all my compliance and governance obligations?”

“That’s the tiller that every single trustee and every single CEO has their hand very firmly on, to ask: ‘How am I going to navigate those waters?’ ” SR

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Applying the safety-first There has been plenty of talk about investors becoming more adventurous in 2011 but, as DAMON TAYLOR reports, no one is seriously suggesting a move away from the safety of fixed income. n a year when investor sentiment was largely dictated by lingering financial crisis doubts, there’s no doubt that 2010 proved to be a fruitful year for fixed income. Strong and consistent performance piqued a number of investors’ interest and according to Jeff Brunton, head of capital markets for AMP Capital, there is every indication that fixed income will be similarly blessed in 2011.

Reflecting on the 2010 calendar year, Brunton said there was no doubt it had been an incredibly strong year for fixed income.

“If you look at what 2010 did in terms of the one-year and three-year performance numbers, we had the median fixed income manager in Australian core fixed income deliver 7.5 per cent on a one-year basis and close to 8.3 per cent on a rolling three-year basis ending 2010,” he said. “In the case of AMP Capital, we were top quartile. So we were about 50odd basis points above those numbers and, in fact, credit returns did even better than that with one of our credit funds delivering just over 10 per cent for the year.”

“So in a year when the money market, the bank bill index, provided a return of 4.6 per cent, fixed income really did step up and provide a huge return above bank bills,” Brunton added. “Now, I guess 2011 has started really strong, so January was an extremely strong month for performance but February has given about a

I

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third of our year-to-date gains back.”

Brunton said that fixed income broad market indices were up approximately 60 basis points for the year in terms of total return.

“So that’s like a run-rate of 5 to 6 per cent total return annualised whereas, in January, they were annualising about 12 per cent return for the year,” he said. “Any way you look at it, that’s very strong.”

Looking to trends already developing for the next 12 months, chief executive officer of Pimco Australia John Wilson agreed that while it was still very early in the year, 2011 was shaping up to be a continuation of good form for fixed income.

“It’s a bit early to tell what this year will be like but I think that so far, it’s been a continuation of what we saw last year which is that as the recovery in the US economy became a little more certain in the eyes of investors, you saw bond markets selling off,” he said.

“So if you look at the way yields have moved from the end of the September quarter through to now, interest rates in most markets other than Australia are considerably higher for 10-year bonds than they were in September.”

“In Australia they’ve gone up, though they haven’t gone up by anywhere near as much but the interesting thing about that is that while 10-year bonds and older bonds have sold off, gone up in yield, central banks around the world have kept

short term interest rates very, very low,” added Wilson. “So we still have 1 per cent rates in Europe and 0.25 per cent in the United States and 10 basis points in Japan and, in effect, the yield curves are getting steeper.”

HUNTING FOR OPPORTUNITIES Wilson pointed to good opportunities in corporate credit securities, residential mortgagebacked securities and emerging markets but said that the story for the last three years in fixed interest had been about the ability to be agile and take active positions.

“The world has certainly not been one without risk and, in many respects, despair on the part of many investors in the wake of the global financial crisis,” he

said. “It was a period that threw up as many opportunities as it did threats to capital and if you’ve been nimble over the last couple of years, you’ve been able to exploit those.”

Giving an indication of the strength of credit markets in particular, Brunton said 2011 had already seen $158 billion worth of new bonds issued.

“This time last year we’d seen $110 billion and 2010 was a record year, off the charts in terms of a normal year, and we’re already running nearly 50 per cent above that,” he said. “So what we see at the coal face is new deals in Australia and offshore, when they get announced, you’ve got a day or two to put your bids in, do your credit work and get set because the book sizes are typically four or five times the amount of bonds available.”

“A corporate might come to the market and say we want to do $500 million worth of fiveyear bonds and the book will have maybe $4 billion worth of orders 24 hours later,” Brunton added. “And you can imagine when your friendly investment bank calls you up to tell you how many bonds you got on your order of $500 million, they’re likely to come back with massive scaling.”

“Simply put, the technicals in fixed income at the moment, what we call the supply and demand imbalance, are strongly supportive of continued performance.”

Yet while the performance of fixed income is more than warranting institutional investors’ attention, Rob Da Silva, managing director, Asia Pacific Fixed Income for Principal

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principle you might think cash is a risk free place to be but if cash isn’t keeping up with inflation then you’re going backwards.”

“You might still have your $100 there but it’s not worth as much in the future.”

GOVERNMENT BONDS

Global Investors, said that for many super funds the structure of fixed income portfolios was still being developed.

“When we came through the crisis, a lot of investors went ‘oh my god, there’s a lot more risk in credit than I thought there was and it’s not as defensive as I thought it was’ and people started to think about splitting their fixed income between Government, which they viewed as safe and defensive, and credit, which they viewed as attractive at certain times but risky at certain times,” he said.

“So they were trying to put that in a different category to the defensive category in portfolios.”

“Unfortunately though, there really is no safe place to be in this world,” Da Silva added. “You might think there’s a risk free place to be,

Da Silva said the same logic applied to Government bonds.

“You might have thought that Government bonds were a safe place to be and everybody did until Greece blew up, Ireland blew up, Portugal blew up,” he said. “If you were in Italy, Spain, Ireland, you would think Government bonds were a safe place to be and then, all of a sudden, those places have melted down because of their fiscal problems and institutional investors have come to the conclusion that not all Governments are created equal.”

“They’re not all as safe as you might think and that’s now complicated the picture again because it’s becoming more difficult to say ‘oh, well Government bonds are safe’ because it depends on the Government,” Da Silva added. “In Australia, I’d say yes, they’re pretty safe because we’re in very good shape. In the US, they’re safe because the US is a reserved currency, it’s the biggest capital market in the world, everybody invests in the US from central banks to pension plans all over the world.”

“But if you look at their balance sheet, they don’t look so flash and they’ve got some fiscal problems down the track they’re okay now but they need to get their budgetary place in order.”

The bottom line, according to Da Silva, is that super fund investors still have a variety of views on fixed income.

“Some people are still using fixed income in a diversified Continued on page 18

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In-housing investment decisions T hough fixed income may have performed well in 2010 and appears to have opened its 2011 account in similar fashion, fund managers with their fingers on the pulse will have noticed a growing trend towards super funds increasing the size of their internal investment teams.

Such moves have already resulted in the transition of at least one fixed income mandate in-house but according to Rob Da Silva, managing director, Asia Pacific Fixed Income for Principal Global Investors, size is the key issue.

“It’s extremely difficult for a small super fund to be able to afford to hire a fixed income team to run their money for them,” he said. “They’d have to hire whatever it is - four or five people, Bloomberg terminals, data feeds - there’s a lot of fixed costs and those fixed costs, if they’re being applied to a smaller size of money, could end up very expensive compared to giving it to a passive manager who might have $10 billion or $20 billion or even $30 billion and they’re spreading their costs much more broadly.”

“But certainly, as you grow and you get some of the very big funds who have multiple billions then it’s more viable to think ‘well okay, we’ve got XYZ passive manager, they’re charging X number of basis points, that means we’re writing a cheque for $1 million or $2 million or whatever it is, can we hire a fixed income team and run passive money cheaper than that?’” Da Silva asked. “When it gets to those large sizes, it’s possible that that’s the case because you’re cutting out the profit margin for the manager.”

“If you hire your own team, you’re doing it at cost.”

Da Silva said the clear advantages of this kind of approach were that super funds could avoid paying a margin to their fund managers, they had direct control and, more significantly, they had the ability to change their strategies and mandates more quickly.

“If you’re running external managers and you’re not happy with them, then you’ve got to fire that manager and transition the whole portfolio to a new manager and that can cost a fair bit of money just doing that,” he said. “If you’re running your own team and you’re not happy with the way they’re going, well usually it’s a case of ‘okay, we’re going to fire one or two of them and replace them with better people’ and it possibly doesn’t cost as much.”

“So I expect that in the more liquid, more commodity-like parts of the market, then cost is that issue,” Da Silva added.

“They think they can do it cheaper themselves and why not? But when you get to the more specialised markets, then it becomes a much more difficult proposition.”

“An Australian super fund is probably not going to find that it’s viable to buy a high yield management team to run their own high yield for them; there’s a lot more cost involved, it’s a lot more specialised and it probably wouldn’t make sense.”

In similar fashion, Jeff Brunton, head of capital markets for AMP Capital said while he had noted the size of super funds’ internal investment teams growing; those fixed income managers who were well positioned within the marketplace need not worry.

“When we look at what our comparative advantages are in fixed income and try to think about whether those advantages are easily or readily replicable, the reality is that we’re a very large cornerstone fixed income investor in the Australian marketplace with circa $30 billion under management in bonds,” he said. “We spend a lot of time on research and our networks and our access and we’re part of a large investment house with well over 200 investment professionals.”

“We tend to think wide here where we really do leverage and collaborate across the whole of AMP Capital to bring the investment insights into better investment decisions for our clients,” Brunton added. “Now that’s not easily replicable. I know there is a movement to bring that in-house but, ultimately, time will tell.”

“You’ll need to see that through a few cycles and you’ll also need to ask yourself if, without that scale, you’re compromising on risk systems and ultimately long term returns.”

Brunton said the unavoidable reality was that the scale issue was crucial in fixed income.

“The fixed income portfolio analytics are incredibly complex and they require state of the art systems which are expensive and require maintenance and development,” he said. “So I wonder whether that move to in-house management will, at some point, need to look at those benefits that they’re giving up.”

“If they’re not a $30 billion fixed income team, are they able to replicate that scale and that efficiency?” SR MARCH 2011 * SUPERREVIEW

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Applying the safety-first principle ☞ Continued from page 17 sense, in a traditional sense of defensive asset class,” he said. “Others have tended to say that the safe part of fixed income is Gov-

ernment bonds and that’s going to be our defensive sector and then the other part, so credit, is going to go into either an alternatives category or an equity-like kind of investment.”

“These are the kinds of things that you see people thinking about,” added Da Silva. “Some have executed them already but most are in the process of trying to make a decision before doing

something about it.”

Offering a significantly different view, Wilson questioned whether defence had ever been the goal of super fund allocation to fixed income.

“If that was the goal, then the simple fact is that they would have owned a lot more of it,” he said. “If you look at the OECD (the Organisation for Economic Cooperation and Development) data that Towers Watson trots out, allocations to fixed interest by Australian super funds are the lowest in the OECD.” “So why is that? It’s a very curious situation because you’ve got the fourth largest asset pool in the world and yet it’s very equity and equitylike risk heavy.”

“So what’s that about?

Well, I think the best reading of that, the most generous reading, is that most superannuation funds in Australia see their mission as accumulating up member balances over the long term and, because we started with award super and are still relatively immature, the idea was that if you biased it towards growth assets so that you could ramp up member balances as quickly as possible,” Wilson added. “But at some point in the next few years, there has to be a tipping point.”

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Wilson said with research already indicating that one third of all assets in the superannuation system would be owned by Australians relying on that pool as their primary source of income by 2016, fixed income portfolios would have to be reassessed.

“In that sort of environment, you’re going to have to have a whole lot more respect for income certainty and capital stability in a way that most investors haven’t had heretofore,” he said. “And I think there’s going to be some new skills that people will be required to Continued on page 20

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Applying the safety-first principle ☞ Continued from page 16 learn around proper product design, particularly for retirees where there will no longer be any income or any contributions to their fund.”

“People will have to think a whole lot harder about fixed interest in a way they haven’t done yet in my career.”

Yet whether fixed income portfolios are a work in progress or not, trends do exist and many, or at least the temptation for many, have come about as a direct result of experiences through the global financial crisis. One such trend is the segregation of risk within fixed income but Da Silva said it was not one he would recommend.

“The global financial crisis was one of these one in 100 years, 30 years, 20 years, whatever number of years you want to pick event,” he said. “It was extremely severe, extremely unusual, and even in that circumstance you found that the correlations between different parts of the fixed income universe, they went up quite dramatically but they didn’t go to one.”

“So if you had a more diversified approach, you had a better chance of faring better than otherwise,” Da Silva added.

“There are some parts of the market that did fine like Government bonds and other parts of the market that did poorly but not disastrously, so investment-grade credit, agencies in the US, semi-Governments in Australia, and then there were yet other parts of the market that did badly like high yield and lower grade credits, leveraged loans.”

“Finally, there were those parts of the market that were complete and utter disasters like CDOs (collateralised debt obligation) and the lower rated sub-prime securitisations and things like that.”

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would have been very fortunate.

“But if you happened to pick the wrong horse in that race, like CDOs, you got wiped out and we had a couple of examples of that in Basis Capital and Absolute Capital,” he said. “The problem there was that that was a great sector for quite a while but then, when it hit the skids, it melted down completely.”

“So if you take a diversified approach and you have the infrastructure and the staff and the resources to put proper intellectual thinking around it, then I think it’s a better way to go because you’re able to move that mix around,” Da Silva explained. “And in more normal times, having that diversification means that you do get a smoother pattern and, at the end of the day, you’re able to find more opportunities for investing in cheap assets when you’ve got a bigger universe to look at.”

FOCUSING ON CREDIT For his part, Brunton said the real benefits of avoiding segregation over the next two to three years would be the ability to have a bias towards credit.

“You want to have a really good bias for credit over rates, over sovereigns who are doing a lot of the issuance, and you want to have a view on inflation in portfolios,” he said. “For instance, we’ve found at AMP Fixed Income that over the last few years, we’ve used duration levers in our credit portfolios to protect capital.”

“So I’d say it’s about having those flexible tools in your toolkit to be able to manage total risk and in having a segregated view you do need somebody at the

super fund or at the asset consultant level making real-time decisions across what the whole looks like.”

“Splitting them up into two different portfolios is still going to give you a resultant total portfolio in fixed income and that will still need to be managed.”

Of course, portfolio structuring trends, irrespective of which asset class you care to examine, are not always dictated by market movements and circumstance. In fact, the super industry’s upcoming MySuper environment has many executives thinking about costs and, in the case of fixed income, the relative merits of an active versus passive approach.

However, the reality, according to Wilson, is that while a focus on costs was appropriate, the cheapest option was not necessarily the best option.

“One of the unfortunate aspects of MySuper is that there’s been a tendency by many people to say that the requirement to deliver a low cost product means that you’ve got to have low cost investments, which means passive investment in fixed income,” he said. “Now I think the whole industry needs to focus appropriately on cost but focus much more on afterfee, after-tax returns because realistically that is the only thing that matters.”

“My view is that MySuper has been distorted in many peoples’ minds,” Wilson continued.

“What I think Cooper (Jeremy Cooper, chair of the Super System Review) was trying to do was ensure that people got value for money.”

“He didn’t necessarily mean that they should get the

cheapest investment option available because if that’s the way it has to be, then that does very little in the way of service to members.”

Admitting that MySuper and the theories behind it would indeed have an impact on investment decisions for super fund trustees, Da Silva said Principal would be looking to develop products that were attractive and useful in the new environment.

“And we’ll be recognising that cost is part of that equation,” he said. “So we have to figure out how we can blend our capabilities in ways that deliver good value at a reasonable cost.”

“It won’t be an index cost,” Da Silva added. “But we do have to recognise that there is more cost consciousness around in general and work out ways of delivering products that are good value for money.”

Rob Da Silva

LOOKING AHEAD So as investment managers finish the first quarter of this year, it seems the most important question yet to be answered is whether 2011 will be a year to rival 2010 for fixed income.

And though Brunton’s outlook is positive, he said AMP Fixed Income would be preparing for what could be another volatile year.

“There are a lot of headwinds out there at the moment around the re-regulation of the banking system, unwinding of unconventional measures, monetary policy mechanisms over the last few years, unwinding of

the fiscal support packages we had in many countries,” he said.

“We have a new dynamic now which is one of inflation in emerging markets, possibly flowing back into developed markets, oil price fears in the Middle East are a part of that, and then we’ve got the ongoing sovereign debt woes in Europe with some countries having already called in the IMF (International Monetary Fund).”

“So with many of those issues, unfortunately we’re not going to get the final act play out on those things this year,” Brunton added. “Markets will need to deal with at times uncertainty on those things - markets hate that uncertainty and so you’ll get swings of excessive and pessimism and optimism.”

“But that’s a great environment for active fixed income management.”

Looking to the future more broadly, Wilson said Pimco was very focused on what would be emerging demand for high quality income.

“And that’s important because all super funds will find themselves needing to look more closely at their members and work out the needs of different cohort groups,” he said.

“Broadly speaking, those who are older members are going to need more income because they don’t have a wage anymore while those who are younger will be appropriately served under current arrangements.”

“So one of the things we’re focusing on is trying to educate people about the very important role fixed interest securities can play in generating income,” Wilson continued.

“And our intention is to work with super funds in terms of developing appropriate strategies around that so that we, as an industry, can deliver high levels of capital certainty with the income people require for their retirement years.”

“That’s the big prize for us and the really burning need for the industry is to solve that problem.” SR

22 SUPER REVIEW CHARITY GOLF DAY

www.superreview.com.au

Golfing in aid of quake victims Super Review held its eighth Annual Charity Golf Day at Sydney’s Roseville Golf Club in early March, sponsored by Pillar Administration and Bank of New York Mellon.

The team stableford event was ultimately won by the team from Fiducian, with the Pillar team emerging as runners-up. The winner of the mens competition was AMP’s Barrie Sundstrom, while Shree Singh won the ladies competition. All proceeds from the day went to the Christchurch earthquake victims.

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SUPER REVIEW CHARITY GOLF DAY 23

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1. Pillar Team: Philip Small, Noel Davis, Peter Beck; and Chris Woodwing 2. Portfolio Team: Shree Singh, Frank Khouri, Michael Dale; and Indy Singh 3. Alex Masters from JP Morgan 4. Bryn McGeever from Super Review, Martin Kely from BT, Simon Ibbetson from 385 Investment Consulting; and Keith Griffith from BNY 5. Keith Griffith, and Simon Ibbetson from BNY 6. James Manning and Alex Masters from JP Morgan, Doug Roberts and John Griffith from Super Review 7. Russell Mason from Mecer, Phil Kearns, Roz Lyon from Mercer; and Jeff Newcombe

8. Damon Taylor and Phil Hart from Super; and Tom Burns from Legg Mason 9/10. Mike Taylor from Super Review, Ian Mcphedran from News Limited; and Richard Gilbert from ISFA 11. Rob Plow from NAB 12. Ian Manton-Hall from Mercer, Rob Plow from NAB; and Guy Holley from Mercer 13. Best female player: Shree Singh from Fiducian Portfolio 14. AMP Team: Paul Willis, Andrew Nunn, Barrie Sundstrom; and Peter Lynch 15. Barrie Sundstrom from AMP 16. Best Team: Fiducian Portfolio

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ROLLOVER

THE OTHER SIDE OF SUPERANNUATION

The language of bureaucracy ROLLOVER has long recognised the disconnect between the ‘mainstream’ superannuation industry and the self-managed superannuation fund (SMSF) sector, not least the fact that one is regulated by the Australian Prudential Regulation Authority (APRA) and the other by the Australian Taxation Office (ATO).

He therefore feels a modicum of sympathy for the Tax Commissioner, Michael D’Ascenzo who felt compelled to write to a certain national daily newspaper explaining that he did not, in fact, agree with

Asking the wrong questions

ON the subject of policy and politics, Rollover notes that the Opposition’s spokesman on superannuation matters, Senator Mathis Cormann, appears to be rapidly coming to terms with the arcane nature of the administrative arrangements around Commonwealth superannuation.

Reading a transcript of a recent Senate Economics Committee hearing in Canberra, Rollover noted that Cormann had trouble differentiating between the roles of ComSuper and the SUPERREVIEW

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Australian Reward Investment Alliance (ARIA).

It seems the good Senator had a few questions he would have liked to have asked the chaps from ARIA but was informed that they were rarely invited to attend Senate Committee hearings.

Rollover discerns from the tenor of Cormann’s comments that those running ARIA ought to start reviewing the organisation’s operations with a view to getting their answers straight. SR

reports that penalties relating to excess contributions were “draconian”.

However, an astute reading of D’Ascenzo’s letter put Rollover in mind of that great UK television series, Yes Minister, particularly the following paragraph: “In relation to excess contributions tax, we have been administering the law according to its terms and intent. Any changes to the current settings are a matter of policy, and we have been keeping the Treasury advised of the work we are doing and of community and industry views.”

Rollover interprets this to mean that the ATO believes it was reflecting industry and community views, not its own, but that the Government would do well to have been listening. SR

Getting things back to normal ROLLOVER notes that the New Zealand Government is doing all it can to reassure tourists that it is still safe to visit the “Shaky Isles” following the Christchurch earthquake.

However, he notes that the superannuation industry has already shown its faith in that other natural disaster-hit destination – Queensland.

The Self-Managed Superannuation Professionals’ Association of Australia (SPAA) completed its national conference in Brisbane in late February and the Conference of Major Superannuation Funds (CMSF) kicks off on the Gold Coast at the end of this month.

The theme will be maintained by the broader financial services industry later this year with a couple of further conferences.

Tourists can’t do much to help those impacted by natural disasters but there is a lot to be said for keeping the economies of those states moving. SR

Finishing the job NO names, no pack drill but Rollover notes that at the recent Association of Superannuation Funds of Australia charity golf day held at Sydney’s challenging St Michael’s Golf Course, a certain funds management type hit his drive exceedingly close to the pin on a long par three.

Rollover and his friends in the following team applauded the effort and thoroughly understood why the golfer in question raised his hands in triumph and skipped a little dance to celebrate his shot.

His dancing stopped however when he missed the one foot putt and needed to call on someone else in his Ambrose team to finish the job.

Just goes to show how true the old golfing saying really is: “You drive for show and putt for dough”. SR

Got a funny story? about people in the superannuation industry?

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.