Defensive strategies by super fund members in reaction to the financial crisis are a concern, prompting questions about the wisdom of choice, according to the head of State Street’s international asset servicing business, James Phalen.

He told the annual ACSA/I&T Investment Administration conference in Sydney last week there had been a large-scale shift to cash at some Australian funds and current market conditions were pushing allocations away from pension funds’ long-term remit.

A recent Watson Wyatt global survey of pension fund asset allocations as at December 2008 showed Australian funds had the highest proportion of cash – 10 per cent – of any fiduciary funds.

Phalen said that if he was asked 10 years ago  whether he supported more member choice, he would have answered ‘yes’ but he was not so sure today following member reactions to the recent conditions.

He said that more emphasis needed to be put on the balanced options within funds, although he stopped short of suggesting that legislative change should be introduced to ensure this.

Phalen was speaking in the opening session of the conference on what had changed for pension funds around the world and service provider organisations following the crisis.

About 280 delegates attended the conference, produced by Investment & Technology in association with the Australian Custodial Services Association.

Defensive strategies by funds meant that equity allocations were declining globally, Phalen said. According to Watson Wyatt, equity allocations had declined from 57 per cent in 2006 to 41 per cent in 2008, while bonds had jumped from 27 per cent to 40 per cent over the same period.

Phalen predicted that there would be a re-engineering of relationships between pension funds and their service providers, leading to more outsourcing, especially in liability risk management.

Leave a comment