As Australian Retirement Trust prepares to shift around 1.4 million of its 2.3 million members into a MySuper strategy that is equivalent to its high growth investment option, the option’s 11.3 per cent 12-month return announced on Sunday illustrates the potential long-term benefits that may accrue to members who are moved.
Higher returns come with greater risk, but even a 2 per cent per annum performance differential for a member aged 50 could result in a more than 30 per cent increase in accumulated savings at retirement, assuming the member retires at age 65.
ART has been preparing for the transition for more than nine months, and head of investment strategy Andrew Fisher says tells Investment Magazine it will be executed with minimal impact on markets and fund costs.
While around $60 billion in member cashflow will move between the investment options during the transition period, the work already done to position portfolios and the existing exposures of the respective investment options means the net change in investments over the transition period will be less than $10 billion.
“What we are doing is, in essence, smoothing out over a three-month period for every member the incremental move from something that is about 70 per cent growth assets to something that is about 85 [per cent],” Fisher says.”
“It’s essentially 15 per cent equities versus bonds over a three-month period, averaged in for every single member, and every member is on a different pathway to have that averaging in. As we average the whole thing out, the outcome of that is we really have no market impact from the transition.”
Fisher says ART thinks about the physical position of its portfolios and the risk for members as two separate issues.
“We use derivatives to rebalance portfolios to target risk levels, and then we invest the balance sheet where it’s most rewarded,” he says.
“We’ve been able to reposition the balance sheet and use derivatives over the top. We have our physical assets largely when we need them already, and so the transition from here will be done through derivative markets, again, essentially at no cost and no impact to markets. Most of the heavy lifting has already been done before we get to 30 June.”
Fisher says evidence of the impact on costs will be presented later this year when ART publishes its annual report disclosing base fees, performance fees and transaction costs for each of its investment options.
“You’ll be able to compare the transaction costs for the last 12 months and the transaction costs from the 12 months prior in the annual report,” he says.
“I’m very confident you’re going to see little to no change through that.
“It’s been very well planned out. We certainly know exactly what we’re doing. There is a lot of moving parts every day, but one of the benefits of the infrastructure we have in place is we’re able to manage this through our BAU cash flow processes, as opposed to having to go outside of our standard processing procedures to implement the change.
“And that’s what all of the last nine months has been about: setting us up so that we can implement this in a really seamless way, so the member experience is optimised.”
