The interesting part of that debate is now not whether or not to index but, rather, what to index against. Cap-weighted indexes have serious risks attached and potentially enormous opportunity costs. Even the indexers don’t recommend them for whole portfolios. At the extreme, the member can get caught in a market bubble and lose a big chunk of his or her assets when the bubble bursts. As an aside, some high-alpha managers are talking about withdrawing their Australian presences. Australia was already a low-fee place for global managers compared with Europe and Asia. If capacity is an issue, as it is for all high-alpha managers, why would you bother to be in Australia? Recent research and discussions about asset allocation are also very interesting.

Risk premiums and risk parity approaches, rather than the traditional way of looking at asset allocation, are being widely debated. But of course not by the Australian Government nor its appointees. If MySuper goes ahead and if it is awkwardly defined by the legislators, the losers will be the members who are least equipped to know what they are doing. They are the members who cannot see that a static traditional asset allocation, so-called “balanced”, so-called “low cost”, index fund is unlikely to deliver an optimum net return. John Nolan, the founder of JANA, Australia’s largest asset consulting firm, who remains one of the most influential thinkers in the industry despite having moved from asset consulting to funds management, has often said: the only thing that matters is what the members “eat” – and that’s after-fees and after-tax returns.