Australia’s Superannuation industry was thrust into the spotlight following the Royal Commission in 2018.
While the main targets of the intense questioning were AMP, CBA, NAB, ANZ and Westpac, retail Super funds like those run by the banks, and Industry Super Funds, were dealt a blow.
An Industry Fund is a fund run to profit its members, whereas a ‘retail’ fund makes a profit for the operator of the fund (e.g. a bank). Aussies typically choose an Industry Fund by ‘default’ or, at times, because they’re forced to by their workplace’s industrial award/EBA.
I think it’s fair to say that retail funds copped more of a ‘bashing’ than non-profit Industry Funds during the Royal Commission. However, both are now firmly in the spotlight.
Active, Passive Or Both?
Most large Industry Funds offer a range of investment options, such as growth, defensive or balanced. These options could be invested across Australian shares or bonds, global shares or bonds, cash and the ‘catch-all’ bucket of alternatives.
Within these options, Super funds can choose to use ‘active’ strategies, like share picking; ‘passive’ strategies, like index funds, or both. Passive usually means ‘index funds‘.
Many Super funds, of both stripes, are constantly being scrutinised for not using enough index funds in their portfolios, given that many passive strategies are transparent and tend to show the best outcomes of investors, on average.
Statewide Super, an Industry fund based in Adelaide with 140,000 members, recently put out its quarterly report and Chief Investment Officer, Con Michalakis, acknowledged, “the crescendo of noise”.
“Our investment beliefs are simple – we aim to implement strategies that we believe offer better prospects for performance net of fees and taxes,” the update read. Mr Michalakis noted that his fund’s “Growth” strategy had outperformed the Vanguard Diversified Growth strategy, gross of fees and pre-taxes.
“Our diversified portfolios contains core unlisted commercial property, unlisted infrastructure (such as airports and ports), Australian venture capital, event-driven absolute return strategies, private credit and active Australian equities.”
Statewide Super is one of many that provide exposure outside of shares and bonds. However, the Industry Funds’ willingness to invest in illiquid assets itself is a cause for debate amongst researchers and Super funds alike.
Whatever comes of the Royal Commission findings on February 1st, we think it’s important to keep fees low and focus on the facts, not the fluff. And certainly don’t take anyone’s word for it!