The ‘brain drain’ is the sociological phenomenon typically associated with developing nations, in which a country’s best and brightest leave home to seek opportunities and fortunes abroad. The so-called ‘diaspora’ of talented Australians, that has been lamented in the arts and sciences, can now be observed in financial services; it is no secret that literally hundreds of aspiring finance professionals have been lured by the global centres of New York and London.
As the current generation of superannuation executives approach retirement, recruiters have expressed concern that the unglamorous salaries of industry and public-sector super funds might not be enough to seduce the world’s top investment professionals, Australian or not,into stewarding the nation’s retirement assets. While it is generally agreed that Australia’s superannuation system is the envy of the world, the remuneration of its executives is anything but.
Not only does the pay in Australian super funds pale in comparison with asset management, but overseas pension funds are remunerating their top executives up to 10 times some of the highest salaries available here. Consultants believe the source of the problem lies in the origin of the industry funds and the ethos of “profit for the member”, that has left some funds philosophically opposed to paying performance bonuses to their executives. Such an attitude was not a problem when funds were small and the investment decisions outsourced. But as the funds grow and develop in-house teams to make direct investments, a new calibre of professional is required. Recruiters are adamant that if Australian super funds hope to compete in the global market for the top investment people, they may need to seriously rethink the way they structure remuneration.
Pay in pension funds
At the $64 billion Future Fund, Australia’s sovereign wealth fund set up to meet the future superannuation liabilities of public sector employees, the highest-paid executive in 2007 received a total remuneration package of between $460,000 and$474,999. The next in line received between $235,000 and $249,999. Over at the$37 billion Victorian Funds Management Corporation, the fund responsible for investing Victorian public servants’ superannuation and insurance assets,things are slightly more cheery, with the highest-paid executive receiving between $510,000 and $519,000, and the next $380,000 to $389,000. When it comes to industry funds, the figures are not so readily available, but sources estimate that slightly north of $400,000 would be about the limit the biggest industry funds would pay their top executives.
After speaking with numerous industry sources, $750,000 was the highest figure heard of for a chiefinvestment officer in Australian superannuation. While certainly not small beer, people with the talent to run $20 billion-plus could arguably use their skills to more lucrative ends in private funds management or in overseas pension funds.In a globalised employment market, Australian superannuation funds are competing with the rest of the world for the top investment professionals, and ourability to attract them with remuneration alone is seriously lagging some of our overseas counterparts. For example, Canada’s The Globe and Mail recently revealed in a plainly titled article: “Who made what at the country’s big pension funds”, that in 2007 the $C108 billion Ontario Teachers’ Pension Plan paid it’s then-chief executive officer, Claude Lamoureux, and its chief investment officer, Bob Bertram, C$4.9million. Each.
Alan Mackay, a consultant in the Hong Kong office of Darwin,Rhodes, an executive search firm, says that the salary range for those running,pension funds in Asia is around $500,000 with bonuses on top of that. In the UK,it is about 15 per cent higher again, he says. Recruiters are concerned that if remuneration packages in Australia do not improve, super funds may struggle to,attract and retain the kind of professionals required to invest the nation’s retirement savings. “We are definitely exporting superannuation talent offshore, there is no question there,” Tom Hancock, director at Thomas Hancock Associates, a local recruiting firm, says. “You can see this in the fund-of-funds area, where particularly the UK is looking to leap ahead. [The UK] requires people with the technical knowledge of how you run platforms and so forth; that’s been going for at least five years now.”
In addition to losses from the flight of human capital,recruiters are predicting there will be less people around that are able to run a super fund as the industry continues to consolidate. “With the amalgamation of super funds, there have been some spare, if you can call them that, CEOs about,” Hancock says. “Because of the broadness of the skills required, funds have tended to recruit from one another. We have seen people move between funds, from smaller funds to bigger funds, but that’s not going to last. “One of the biggest issues I see looking forward is: where are the next CEOs going to come from? Super funds don’t tend to train up their number twos. Many of the current CEOs are reaching retirement age, and at most funds there doesn’t seem to be a succession plan in place.
Super funds are going to have to hire people into those roles from outside the superannuation industry.” Sam Sicilia, chief investment officer at Host Plus and former asset consultant to that fund with Frontier Investment Consulting, says that super funds seeking executives either poach from another fund, or try to hire from asset consultants and funds managers. “The problem with the latter is that the remuneration structures in funds management are much, much greater than is available in superannuation, in particular not-for-profit funds,” he says.
With the supply of executivesdwindling and the demand for their skills on the rise, recruiters argue thatsuper funds need to change their remuneration structures to reflect the pricespaid in the commercial market from which they are trying to source theirexecutives. “They just have to get the talent,” says Warren McAuley, partner atPrimary Asset Consulting. “At the end of the day, super funds have aresponsibility to get a certain calibre of person, and they are just not goingto get them unless they are willing to pay.” “The fund-of-fund space, which superannuationpeople are in, is very competitive,” Hancock adds. “Master trusts, insurancecompanies, consulting groups, large multi-managers and platforms all want these people. It is a very specialised market, and [running a superannuation fund] isnot something you can just go and learn.”