The super industry is not alone in backing the Government’s plan to increase the Super Guarantee to 12 per cent, but many Australians could be forgiven for thinking so. FIONA REYNOLDS, CEO of AIST, writes. Recently, there has been a lot of noise about carbon pricing and the national broadband network, but the equally important issue of how we plan to address the funding challenges of our ageing population seems to have fallen off many people’s radar. It’s a pity more retirees don’t speak out about what it is like to live on just a few hundred dollars a week. While there was plenty of post- Federal Budget debate on whether those living on a household income of $150,000 aren’t really all that well-off, there can be no debate that most retirees are doing it tough. Even taking into account that – unlike working families – most retirees have paid off their mortgage and no longer need to provide for dependent children, very few have any cash to spare.
Gillard’s Revenge of the Physiocrats
In the 18th century some French economists called the Physiocrats believed only agriculture and those who worked the land created wealth. Fortunately they didn’t last long. JAMES BOND, FSC chief economist, writes. We all know that any good or service that is traded generates wealth and economic growth. We also know that Australia’s largest industry, contributing 10.8 per cent to gross domestic product, is financial services. We know our third largest export behind coal and iron ore is education, and that services account for 85 per cent of employment in Australia and 80 per cent of GDP. Or do we? The ghosts of the Physiocrats stalk the suburbs and towns of Australia. This is understandable. The concept of gains from trade is complex enough and only taught in university economics departments. Applying the concept to exporting legal services or education services becomes ethereal. Things that are grown or dug out of the ground seem to have an inherit value that services do not. What is surprising, however, is that despite knowing better, our politicians seem to still be influenced by the philosophy of the Physiocrats.
Local heroes strike it rich offshore
It is amazingly tough for Australian hedge managers. Usually, the best advice is to forget it, it’s too hard. But some local heroes have made good overseas, writes DAMIEN HATFIELD. The performance of Australian hedge funds, including offshore funds sold in Australia, fell 0.21 per cent in March 2011. Year-to-date performance is now 1.13 per cent. However, annualised compound returns since inception for the industry are a solid 10.97 per cent compared to six months ago when it was a still respectable 8.98 per cent. Industry-wide standard deviation is 11.53 per cent, marginally lower than the 12.06 per cent in September 2010. The top five funds in March deployed a wide range of investment strategies. Leading the industry was the RAB Octane Fund (global energy, marketed in Australia by Triple A) with 8.80 per cent for the month. Next was Mathews Velocity Fund, (5.3 per cent; long/short equities and commodities) followed by the Attunga Agricultural Trading Fund (5.17 per cent).
Trustees put workflows on the web
A serendipitous discovery at the IQ Business Group has led to a web-based solution which should help superannuation trustees work more efficiently. PHILIPPA YELLAND reports. The Trustee Office Solutions (TOS) is a template based on Microsoft’s SharePoint technology, and can be hosted on premises or as a cloudbased application. The solution improves communications between board members and streamlines administrative records to improve governance standards. Graham Sammells, who is CEO of IQ, says TOS is one of eight templates that IQ has developed to streamline workflows in areas as diverse as trustee boards, case management and project management. According to Fiona Reynolds, CEO of AIST – which has officially endorsed the solution – the launch of the Trustee Office Solution is highly appropriate for the current environment. “The solution directly addresses the benefits of technology for our members and their clients,” she says.
Complex web spins out from flash crash
Worlwide, financial market regulators are still coming to grips with the volume of highfrequency trading taking place and ways to strengthen venues to prevent another ‘flash crash’. SAM RILEY reports. A year after the so-called ‘flash crash’ damaged confidence in equities, exchange regulators across the world are scrambling to catch up, leaving investors with an increasingly complex range of market microstructures to navigate, experts say. The Securities and Exchange Commission (SEC) quickly moved to introduce single stock circuit breakers after the flash crash – where the S&P 500 index suddenly plunged 6 per cent before recovering in minutes – and are now looking towards further trading safety nets. But Asian exchange regulators are still grappling with what steps to take to ensure a similar event does not derail their own markets and are watching closely how regulations unfold in North America and Europe. Tabb Corp market structure expert Miranda Mizen says the flash crash has prompted Asian regulators to increase their contact both with other regulators and market operators. The increased interaction between regulators and market players has revealed that, despite a year having passed since the flash crash, there is still a lack of understanding in the industry about the implications and risks in high frequency trading, says Mizen.
Straight out of Baltimore
In 2010, T. Rowe Price ranked 41st in the Pensions & Investments/ Towers Watson list of the world’s largest money managers. In the US market, it has prominent retail and institutional followings, which account for the bulk of its $482 billion in funds under management. This success, however, has not made the traditional long-only equities and fixed-income manager too comfortable in its home market. T. Rowe Price’s international business accounts for 12 per cent of its assets. European clients and prospects do not have to look hard to find a T. Rowe office – try London, Luxembourg, Zurich, Copenhagen and Amsterdam – and partnerships with distributors in Japan, India and Taiwan ensure a presence in these markets. In Japan, T.Rowe struck subadvisory deals with Sumitomo Mitsui and Daiwa Securities to manage non-Japanese equities and bonds, and over the years has garnered mandates from Japanese institutions. It arrived in Australia in late 2005 after winning a reported $1.3 billion global equities mandate from Queensland Investment Corporation. It now manages $3.8 billion from local institutions and retail investors, and in 2010 made the bold move to start a domestic equities team in an already competitive local market. The team, led by Randal Jenneke and country head Murray Brewer, is the first T. Rowe Price manufacturing office to be launched since its Singapore base in 1997.
Global small-caps are big deals
In an institutional investment market as sophisticated as Australia’s, it is surprising that Mercer is the only asset consultant to be actively recommending specialist global small-cap mandates. Here, investment thinker and former Auscoal Super analyst, DANIEL GRIOLI, condenses the academic literature to consider whether broad-market global managers can make the most of their touted ‘discretion’ to tilt into small caps. He also looks at the potential opportunities and challenges of investing in global small-cap equities. Small-caps beat large-caps over the long-term.
ESG inaction: Who voted in Australia’s first climate-change resolution, and why
Australia’s first -ever shareholder vote on climat e change, put to Woodsi de Petroleum in April, provided superannuation funds with a prime opportunity to support the sustainability principles that many of them have espoused for years. But at this first hurdle, many crashed and burned, prompting the question: how seriously are funds pursuing sustainability through their investments? PHILIPPA YELLAND reports.
Active managers belong in MySuper
Compared to the perceived MySuper model, default industry superannuation funds are too complex and, therefore, expensive. But they have satisfied the most important challenge presented by the recommendation, writes SIMON MUMME. The core aim of MySuper is clear: superannuation fund trustees should focus on maximising long-term investment returns and justify the costs required to deliver them. But the way MySuper has been categorised – as a simple, low-cost default fund – is a “very misleading description,” according to Warren Chant, director of ratings house Chant West. It has caused more expensive return-drivers, such as active investment strategies and alternative asset classes, to be sidelined with financial planner commissions as ‘bells and whistles’ that should be foregone in default superannuation design. In the influential Super System Review, Jeremy Cooper stated that default fund members could accrue $40,000 in fee savings over the course of their working lives if their providers used less expensive investment strategies, eradicated commissions and reduced the number of investment options available to members.
So long, set-and-forget SAA
Soon after investment returns began to correlate in the panic of the financial crisis, the practice of dynamic asset allocation (DAA) staged a revival. With no clear, longrunning trends to be seen, it was believed that making medium-term tilts to exploit undervalued sectors of the market or to seek a safer place to invest money was the smartest thing to do. No clear and long-running market trend was visible. Asset consultants such as Mercer and MLC, who were driving forces behind the DAA comeback, advocated that funds rethink their long-term strategic weightings and devote some capital to executing mediumterm tilts, of three-to-five years, that could take advantage of undervalued sectors of the market. For some, the acronym DAA wasn’t precise enough, and soon the terms strategic and tactical were combined to create ‘stractical’. Some investment chiefs said dynamic tilting was nothing new. As CIO at Telstra Super, Steve Merlicek, says he first executed a tilt in 2002.
Is it a wrap for platforms? The rise and rise of managed accounts
The increased transparency and lower costs provided by managed accounts have not gone unnoticed by funds management sales forces, Ian Knox, managing director at Paragem, said. Some investment product providers and financial planning dealer groups have embraced this new way of selling funds. And while many people believe there will always be a place for platforms, managed account structures are beginning to steal the spotlight away from their dominant rivals. “More and more dealer groups and advisers that we talk to are coming to grips with the advantages of a managed account,” Knox said. “They’re looking at it so they can control their business better, lower their costs [and] provide greater transparency. Those factors are quite compelling.” Trending now Toby Potter, a managed account consultant and chairman of the Institute of Managed Account Providers (IMAP), said the medium-term trends influencing the development of managed accounts – and their popularity – have been more structural. He said: “The key drivers for managed accounts over the last 24 months have been the loss of confidence in managed funds as a result of the financial crisis, and the technology developments spurred by the emergence of new platforms like Hub24 and OneVue, which has had a flow-on effect to the mainstream platforms. “It’s also been supplemented by a growing interest in direct securities generally, as opposed to managed funds. That’s also seen in the increased investment in direct fixed interest through platforms as well as other vehicles.” These changes are occurring as the Future of Financial Advice (FoFA) reform package is forcing many financial advisers to rethink commissions- and volume rebatesdriven business models.
