Superannuation should be less of a business and more of a profession, akin to medicine, law, or accounting, Statewide Super CIO Con Michalakis says.
Michalakis spoke of the foundations of good governance, a good team and good advisers as the base for the fund.
“I would prefer if we were less of a business and more of a profession,” he said. “The idea that we run [superannuation] like a business [will] ultimately ruin what makes industry funds special. When you go to a doctor, lawyer or accountant, you kind of value their advice. If we can keep that profession aspect to it, whether it’s advice or insurance or running super, that’s good. If they think it’s a business, we’re no different to anyone else, we may be in a lot of trouble.”
Michalakis, who is a finalist for CIO of the year at the 2019 Conexus Financial Superannuation Awards, said a few things hadn’t changed in his 10 years at Statewide, such as the industry’s disagreement over the definition of a balanced fund. “I joined a week before September 2008,” he said. “[Statewide] had no cash, no fixed income in the balanced fund…What was pretty clear to me is that’s not a balanced fund – not having cash or fixed income. Here we are, 10 years later, we’re still having the same debate.”
He warned about the lack of uniformity when it came to the composition of options such as balanced funds. If the industry wasn’t able to coalesce around a common definition, regulatory or legislative measures might result, he argued in a wide-ranging conversation closing out the three-day Fiduciary Investors Symposium in Healesville, Vic.
“If we don’t have a voluntary code or put some principles together, and everyone’s reporting on this differently, I think we’re setting ourselves up for a big issue, and who knows where these markets go,” he said.
When the GFC hit, as part of managing the financial situation, Statewide “went back to first principles”.
“Governance is really important,” he said. “Setting up an investment committee, putting your beliefs down, putting in an appropriate adviser, having delegation structures between the board, the investment committee, the internal team and the asset consultant, making sure we’re all one part of the pot – that was a lot of work we did in the first couple of years.”
Being a smaller fund, with more than $8 billion in assets under management, Statewide’s strategic advantage is in having good governance and a relationship with its local member base, and being nimble with advantages, Michalakis said.
“We rarely change our managers,” he said. “I think I’ve been sacked more by managers than I’ve sacked managers, because they’ve either gone out of business or done something stupid, and let me tell you there’s a long list of those that do.”
He said that while assets under management had increased, “I’m not sure that leadership has actually increased.”
Despite the volatility in global markets and increased geopolitical and economic risks such as the growth in deficits in the US under President Donald Trump, Michalakis said he was more worried by private debt than public debt and noted, “I think we’re in for a tough five to seven years.”
Adding to the complexity in Australia was the loss of members’ trust in the industry and the need for funds to know their members.
Michalakis said speaking with members was like being “a financial shrink”. A loss in trust after the revelations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has caused a surge of enrolments into industry super funds but it means funds have to look after their members.