HESTA chief executive Debby Blakey believes the upcoming Your Future, Your Super review has real potential to stop fund CIOs from “hugging benchmarks” and will allow them to be more innovative with investments.
“I was very privileged to be part of the treasurer’s investor roundtable,” she tells Investment Magazine of the December 2023 event attended by some of the country’s largest institutional investors representing more than $2.5 trillion in collective capital.
Among discussions of sustainable and social investment opportunities, Treasurer Jim Chalmers promised to consult “soon” on options to improve the mechanics of the YFYS test in a bid to encourage funds to invest in areas and asset classes that are “economic priorities”.
“We do want Australians to be protected from underperforming products… and we want to be able to invest for the strongest long-term returns,” Blakey says.
“All of these CIOs, we really want to be able to allow them to deliver great performance for members, and to actually be innovative in the way they invest, rather than [having] a tendency to hug benchmarks.
“I think the government is very aligned with funds on that issue.”
The YFYS review initiated by Minister for Financial Services Stephen Jones last year changed the performance test timeframe from eight to ten years, as well as introducing additional indices, such as the splitting of global equities into developed and emerging markets, that aim to promote more appropriate benchmarking.
Still, many in the industry consider the test a “blunt instrument”, especially when it comes to measuring investments the Treasury considers “nation-building”, since they are evaluated against traditional rolling benchmarks and expose funds to large tracking error and possibility of failure.
Apart from the performance test, Blakey says “there’s an opportunity for better clarity” for the government to make areas such as affordable housing and energy transition more investible at scale.
“We would actually like to invest more in things like affordable housing and the energy transition,” she says.
“But to do that, we need to get the long-term policy setting correct and in place. That’s why we do engage with the government very heavily.”
HESTA announced last year that it is looking to invest up to $240 million with Super Housing Partnerships and is keeping a close eye on other initiatives such Housing Australia Future Fund (HAFF).
So far, only Cbus has announced that it will invest around $500 million in the latter, with the form and degree of HAFF’s return causing other funds to hesitate.
“We’ve got some terrific investments and of course the appropriate return for the risk in those investments, but we feel we could do if there was a support from government on policy settings,” Blakey says.
Heading into the new year where pre-election political noise around super is already building up, Blakey says it’s “critical” to make the objective of super absolutely clear. The bill to enshrine it in legislation is now before parliament.
“It’s interesting that we haven’t formalised the objective of super in a system that is now fairly mature in Australia,” she says.
“Personally, I think that objective of delivering retirement benefits to Australians is going to be very important.”