A focus on the end result. An avoidance of benchmarks. An obsession with wealth protection. A consciousness of their role in society. A sustainable investment approach.

These are all lessons that superannuation funds can take from insurance companies, a new report by AXA Investment Managers states.

Because of their structure, insurance companies have already tackled issues super funds face as their focus pivots from accumulation to retirement phase. AXA IM has shared its research on insurers to help asset owners apply new behaviours, cultures and strategies to better meet the needs of their members in this phase.

Traditionally, super funds have focused on benchmarks and yearly returns. In contrast, life insurance companies have a focus on the end result, because they need to generate specific returns to ensure they meet their liability promises, AXA IM head of Australia and New Zealand, Craig Hurt said.

“This behaviour leads to some very interesting and innovative non-benchmark driven investment strategies,” Hurt said.

At a press briefing in Sydney on May 22, 2017, former AXA IM global head of institutional client strategy, Tim Gardener, said the investment strategies insurers preferred were:

  • Buy and hold – partly for tax and partly to match cash flows
  • Quantitative strategies for greater ‘predictability’
  • As providers of capital and seekers of access to primary opportunities, holistic approaches and partnerships
  • Harvesters of complexity premium
  • Approaches that reflect the attitudes and mores of their customers

“First of all, it is more than just a change in asset allocation,” Gardener said. “Whatever product you want, you want a culture in which that product will flourish.”

For example, the culture at a privately run boutique investment organisation probably means it won’t be good at running index funds, he said.

“[As super funds move into the retirement phase], it’s not a case of having the same old faces doing the same old things. It’s actually a change in investment culture, a change of mindset, a change of approach.”

In practice, this means a focus on end results for members. One of the key ways to achieve this is to change the reporting so it’s not benchmarked against indices.

“It is outcomes that really matter when you get to the de-accumulation stage,” Gardener explained. “When I become a pensioner, I don’t care about the volatility of my market value; I care about the volatility of my income. I care about losing money.”

This is important as Australia’s population ages and the first wave of workers covered by the superannuation guarantee for a significant portion of their working lives approaches retirement.

The number of people aged 15-64 for every person aged 65 and over has fallen from 7.3 people in 1975 to an estimated 4.5 people, according to the 2015 Intergenerational Report. By 2054-55, this is projected to nearly halve, to 2.7 people, as the number of retirees swells.

Retirees were also concerned with the type of world they were leaving behind, reflected by the massive growth in responsible investments over the past five years. Broadly speaking, responsible investments are those that generate both a financial return and sustainable value by incorporating environmental, social and governance (ESG) issues into the investment decision-making process.

Out of AXA IM’s €717 billion ($ 1.1 trillion) in assets under management, €569 billion now has an ESG screen embedded into it. This number is predicted to grow.

“I have a kid and I want her to grow up in a world that works, so ESG becomes important,” Gardener said.

AXA IM is leveraging the findings from the report to offer solutions to super funds in specifics asset classes, including equities, bonds and real estate.

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