Super Review - June 2010

12 DEATH BENEFITSAvoiding the sting of regulatory and legal troubles

For the latest news, visit superreview.com.au

14 ASSET ALLOCATIONWhy investing in the past is a road to nowhere

18 EQUITIESThe question marks over the outlook for international equities

10 BUDGET ROUND-UPHockey under fire over SG opposition

T H E L E A D I N G I N D E P E N D E N T J O U R N A L F O R T H E S U P E R A N N U A T I O N A N D I N S T I T U T I O N A L F U N D S M A N A G E M E N T I N D U S T R Y

Senior superannuationindustry officials havesought to place distance

between their organisationsand the stance adopted bythe Industry Super Net-work’s David Whiteley overthe Federal Government’s re-source industry super profitstax.

Whiteley succeeded incausing consternation with-in some sections of both theInvestment and FinancialServices Association (IFSA)and the Association of Su-perannuation Funds of Aus-tralia (ASFA) when a state-ment he made followingindustry group discussionswith the Federal Governmentwere interpreted as havingbeen made on behalf of thewhole of the super industry.

Super Review has beentold that the presence ofASFA and IFSA representa-tives at the meeting with theGovernment was predicat-ed on their organisations’support for the Budget an-nouncement that the super-annuation guarantee wouldbe lifted to 12 per cent andnot their support for the resource super tax.

“There was an agreementgoing into the meeting withthe Government that anypublic statements would be

confined to the superannua-tion guarantee,” one sourcesaid. “Everyone was caughtoff-guard when Whiteleystarted in on the miningcompanies.”

Immediately followingthe meeting with the Gov-ernment in Canberra,Whitely said the miningcompanies should ceasetheir political campaignand enter into discussionswith the Government.

By comparison, IFSA re-mained silent while ASFA’shead of research, RossClare, confined ASFA’s com-ments to the superannuationguarantee.

ASFA chief executivePauline Vamos, who wasoverseas at the time of theCanberra talks, confirmedthat her organisation did notwish to become embroiled inthe super profits tax debate.

She said she believed itwas inappropriate to adopt aposition on the tax when thedetails were not clear butthat funding an increase inthe superannuation guaran-tee represented a very smallproportion of what might ultimately be raised.

One senior figure whosecompany is a member of IFSAsaid views remained stronglydivided in the superannuation

industry on the Government’sapproach to the resourcecompanies super tax.

“The debate is ongoing andno one should be claiminga fixed industry position onthis,” he said.

It is understood the ap-proach taken by Whiteley inthe wake of the talks withthe Government has causedsome within both IFSA andASFA to question the meritof further ‘joint’ industry approaches involving theoutspoken industry fundsspokesman.

It seems that joint industryapproaches will, if they occurat all, be more likely to in-volve ASFA, IFSA and theAustralian Institute of Su-perannuation Trustees, whichis regarded as having a lessdoctrinaire approach. SR

In the wake of industry funds comments

about the Federal Government’s

proposed resource industry super

profits tax, the superannuation industry

is making clear it wants no part of a

political debate. MIKE TAYLOR reports.

Super industry apolitical on super tax

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MANDATES 3 NEWS 3 EDITORIAL 11 ASSET ALLOCATION 14 EQUITIES 18 APPOINTMENTS 23 EVENTS 23

JUNE 2010 Volume 24 - Issue 5

Everyone was caught off-guardwhen Whiteley

started in on themining companies.

Pauline Vamos

Slight majority backs super profits tax

JUNE 2010 * SUPERREVIEW

By Chris Kennedy

MEMBERS of the investmentcommunity attending the LeggMason Investment Symposiumin Sydney have shown a slightmajority support for the Gov-ernment’s proposed resources

super profits tax.Although 81 per cent believed

such a tax would have a nega-tive impact on client investorportfolios, 60 per cent stillagreed with the concept of theproposed tax.

Legg Mason Australian equi-

ties chief investment officerReece Birtles said Australiansunderstand the merit of a superprofits tax on the extraction ofAustralian resources.

“Investor concerns are aroundthe very low return on investmenthurdle for taxing super profits and

the impact on Australia’s sover-eign risk rating and future in-vestment given the retrospectivenature of the change,” he said.

The surveyed audience in-cluded financial advisers, invest-ment managers, asset consultantsand research analysts. SR

SUPERANNUATION funds will remain underpressure to pursue scale through amalga-mation if the chairman of the Cooper Review,Jeremy Cooper, has his way.

Cooper has used a speech to the Commit-tee for the Economic Development of Aus-tralia (CEDA) to restate his view that the pur-suit of scale in the superannuation industrywill drive greater efficiency and thereforelower fees.

Citing a Deloitte report commissioned byhis review panel, he said it provided empiri-cal data that scale matters in super.

“Specifically, the Deloitte report showedthat a member with an account balance ofonly $25,000 in super would be paying around$200 a year and in some cases less than halfthat in total costs under the MySuper pro-posals,” he said.

Cooper said the Deloitte report had shownonce again the power of economies of scale inreducing per member investment and oper-ating costs.

However, Cooper acknowledged that therewere impediments to achieving that scale andcited instances where fund mergers had notoccurred because boards could not agree onmatters as relatively trivial as the name of afund or the number of trustee directors.

“More seriously though, there are systems is-sues, taxation issues and legal technicalitiesthat can hinder efficient mergers, and the re-view is looking at solutions to some of these,”he said. SR

www.superreview.com.au NEWS 3

MandatesRecieved by Type of mandate Issued by Amount

National Australia Bank Master custody and investment reporting services QSuper NA

AQR Wholesale Delta Hedge fund Tasplan $21 million

Dimensional Australian equities Medibank Private $45 million

Investec Asset Management Emerging market equities AMP Capital Investors $150 million

Reece Birtles

CONCERNSabout sovereign debt andthe value of the euro appear to havedampened Australian superannua-tion fund returns, according to thelatest data released by Chant West.

The Chant West data revealedthat the median superannuationgrowth fund remained flat in April,returning negative 0.1 per cent forthe month.

The company’s analysis noted thatthe month had started off stronglybut markets had then retreated dueto concerns about Greek sovereigndebt and the possible contagion ofother economies.

Chant West principal WarrenChant said there were signs theglobal financial crisis had still notfully played out.

“Markets were generally flat in

April, but already in May we’ve seenmore nervousness and some very ex-treme movements,” he said. “Nev-ertheless, at the end of April growthfunds were up a healthy 14.8 percent for the financial year to date,and members are still certain to seethe first positive financial year re-turn since 2006-07.”

Chant said that the negative re-sult in April meant that the positivefinancial year number would not beas strong as it seemed likely back inMarch.

He said the fortunes of industryfunds and master trusts had con-tinued to reflect the performanceof listed share and property markets,meaning that industry funds had out-performed their rivals for the thirdtime in the past 14 months. SR

Cooper continues pressurefor fund mergers

Jeremy Cooper

April returns hit by sovereign debt worries

SUPERREVIEW * JUNE 2010

INSURER Tower Australiahas announced a capital rais-ing on the back of what it de-scribes as a solid first half re-sult, reporting a 5 per centincrease in net profit to $28.4million for the six months to31 March.

The capital raising takesthe shape of a new one-for-seven renounceable pro-rateshare entitlements issueaimed at raising $96 million,which the company saidwould be used to strengthenits capital base and position it“to take advantage of any op-portunities that may arise”.

Tower chief executive JimMintoused the first-half resultsto express concern about theshape of market consolidationoccurring within the life and su-perannuation industries.

He said he remained con-cerned that large-scale finan-cial services consolidation could

restrict the right or ability ofconsumers through their ad-visers to pick their life insur-ers from a range of companies.

“We welcome the Aus-tralian Competition andConsumer Commission’srecognition that competitionin the platform space may bean issue – although it hasstopped short of actively en-couraging multiple life in-surance offers on platformsto help overcome the obvious

downside of less insurancechoice as platforms continueto consolidate,” Minto said.

He said Tower believed thetechnology existed to provideconsumers with choice of lifeinsurance on platforms andthe present system was an areaof restricted competition,which was of major concern.

Looking at the company’sunderlying performancethrough the half, Minto saidbusiness growth had beenachieved across all channelsbut that there had been someslowing in growth ratesacross the retail advice mar-ket in the first quarter.

He said the company hadbeen successfully beddingdown its group insurance man-date with AustralianSuper,and had “concurrently contin-ued to win new mandates andmaintain high levels of serviceto existing customers”. SR

LUCRF Super free to offer adviceLUCRF Super has announced it will soon introduce a financial advice servicein a bid to improve member services, following in the steps of HESTA and otherindustry funds.

The announcement follows the Australian Securities and Investments Com-mission’s approval to extend the fund’s Australian Financial Services Licence.

LUCRF Super chief executive officer Greg Sword said the new licence wouldallow the fund to provide a higher level of assistance to its members in acost effective and relevant way.

“One of the driving forces behind this decision was that during the global fi-nancial crisis we noticed that some members made changes to their invest-ments and looked to us for financial advice,” Sword said.

“Our innovative approach features the majority of advice on super beingprovided as a free integrated service. More intricate financial advice may attracta fee, however, this will be limited only to what is necessary,” he added. SR

Solid Tower undertakes capital raising

4 NEWS www.superreview.com.au

Hostplus expands presenceHOSPITALITY industry fund Hostplus hascontinued with the expansion of its re-gional presence, announcing the openingof offices in Parramatta and Darwin.

Hostplus chief executive David Eliaconfirmed the office openings and saidthey represented a response to continuedgrowth for the fund.

“Local offices in Darwin and Parramattaprovide a platform for further growth,” hesaid.

Elia said the Darwin office gave Host-plus a presence in every state and terri-tory in Australia. SR David Elia

MEDICARE Australia, theagency the Federal Governmenthas appointed to act as the su-perannuation clearing house forsmall employers, has received acritical analysis from the Aus-tralian National Audit Office(ANAO) regarding its handling ofthe Pharmaceutical BenefitsScheme (PBS).

An ANAO report, tabled in theParliament, broadly endorsedMedicare’s administration of thePBS – but it also pointed to a num-ber of deficiencies, including theaccuracy of claims processing andperformance. It also found thatbetter operational guidanceshould be provided to key decision-makers.

The ANAO report has been tabledat a time when other specialist su-perannuation clearing house oper-ators have questioned the ability of

Medicare to handle the task de-manded of it by the Government.

Among the issues raised by theANAO was its observation thatMedicare Australia had adopted apractice “of adjusting MedicareAustralia’s authority approvalrecords to accord with the medi-cines actually dispensed in caseswhere there was a mismatch”.

The report said this practicecarried with it the risk of failing toreact to, or manage, evidence ofincorrect dispensing of medicines.

It noted that Medicare had ad-vised that it intends to address theissue through its nationally con-sistent quality control action plan,which it has recently endorsed.

Medicare has responded to theANAO report by accepting the ma-jority of its recommendations,some of which it said had alreadybeen implemented. SR

Medicare Australia’sperformance scrutinised

Jim Minto

TWO major Australianfunds, Legalsuperand Tas-plan, have announced acomplete transition fromcrediting rates to unit pric-ing, effective from 31March, 2010. All memberaccounts are now ex-pressed in units, and unitprices are issued weekly.

Legalsuper chief exec-utive Andrew Proebstlsaid the board had decid-ed that unit pricing wasthe best practice withinthe industry and a moretimely method of at-tributing investment earn-ings to members.

“Relative to creditingrates, unit pricing provides

our members with a moreup-to-date valuation oftheir superannuation bal-ance,” Proebstl said.

Tasplan chief execu-tive officer Neil Cassidysaid the transition fromcrediting rates to uniti-sation would add to the

fund’s transparency.“The move was designed

to keep Tasplan operatingat best practice standards,whilst also providing im-proved reporting servicesfor members,” Cassidy said.

“Members and regula-tors want funds to be more

accountable,” he added.Proebstl explained that

unitisation also broughtgreater equity acrossmembers through the ap-plication of a buy/sellspread “that quarantinesthe costs of buying andselling investments to

those members who trans-act rather than spread-ing those costs across allmembers, as often is thecase with crediting rates”.

Both chief executivesstated the transition wasan important and complexproject for their funds. SR



Tasplan and Legalsuper embrace unit pricing

Russellramps upadminRUSSELL Investmentshas moved to end its ad-ministration outsourcemodel with IBM, bringing70 roles in-house backedby the company’s offshoreback-office capabilities.

Russell Australia andNew Zealand managing di-rector Chris Corneil saidthe move to expand theAustralian Administra-tion Centre had been driv-en in part by the directionof government policy.

The company said themember administrationback-office functions cur-rently provided by IBMwould be progressivelytransferred to the new off-shore centre from Octoberto December this year, fol-lowing a period of parallelprocessing.

The insourcing will seethe Australian MemberAdministration Centremove to new premises inSydney.

Russell said it was ac-tively pitching for new ad-ministration business. SR

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Andrew Proebstl


NEARLY 500 people were convicted fortax and superannuation offences in thefirst quarter of 2010 alone.

The offences ranged from failure tolodge forms to instances of fraud, suchas GST refund fraud.

The Australian Taxation Office(ATO) stated that in the last financialyear it conducted 16,000 audits, reviewsand investigations, which resulted in thesuccessful prosecution of nearly 3,000cases of non-compliance.

Tax commissioner Michael D’Ascen-zo said those who commit serious fraud,fail to declare all of their income or failto meet their obligations cheat the majorityof the community who do the right thing.

“We have a range of ways to detectpeople who seek to avoid their tax andsuperannuation responsibilities by not

lodging returns, through tax evasionor criminal fraud,” he said. “Methods ofdetection include data matching, com-paring third party information andanalysing industry norms.”

The ATO’s track record for convictionsis expected to improve this financial year,with the investment in new technologythat will help identify sophisticated aswell as basic scams.

“These tools are proving to be extremelyefficient at identifying suspect claims forrefunds and ensuring that Australia’s rev-enue is protected,” D’Ascenzo said.

Examples of the convictions between1 January and 31 March include the sen-tencing of a New South Wales business-

man to three and a half years imprison-ment for committing GST fraud. He sub-mitted a false Business Activity Statement(BAS) and tried to claim $500,000 inhis role as a company director.

In another case, a Victorian womanwas found guilty of GST fraud afterlodging false BASs under three dif-ferent Australian Business Numbersand receiving over $233,000 in refunds,following which she attempted to makea further claim of over $132,000. Shewas found guilty on all four counts andsentenced to 20 months imprisonment.Subject to good behaviour, she willserve six months in jail and pay a$1,000 bond. SR

Prime Superurges cautionon SG increasePRIME Super, the super-annuation fund heavily ex-posed to rural and regionalAustralia, has qualified itssupport for the Govern-ment’s proposed lifting ofthe superannuation guar-antee to 12 per cent, argu-ing care needs to be takenwith respect to small busi-nesses, partnerships andsole traders.

The fund said that whileit supported any measuresthat improved the superan-nuation situation of its mem-bers, it believed careful con-sideration needed to begiven to how the increasewas phased in, particularlyfor small business.

“It is essential that the im-plementation of this changedoes not overly burden em-ployers or solely impact em-ployees,” the fund’s chief ex-ecutive, Lachlan Baird,said.

“Small businesses are thelifeblood of rural and re-gional communities and wewould urge the Governmentto consider the impact onthem as well as large corpo-rates,” he said. SR

NAB awarded QSuper mandateNATIONAL Australia Bank (NAB) has been awarded a mas-ter custody and investment reporting services mandate byQueensland-based superannuation fund QSuper.

The mandate was announced by QSuper chief financialofficer Michael Cottier, who said it followed an extensivereview process that was started in 2009 and conducted byQSuper’s Investment Services team and Mercer division,Mercer Sentinel.

Cottier said that NAB had been awarded the mandate onthe basis of having clearly understood the required services

for the fund’s operating model.“Appointing NAB as custodian will allow QSuper to manage

its custody relationship directly and provide our members witha more efficient, cost-effect investment administration plat-form,” he said.

Cottier said two recent decisions had contributed to thefund establishing a direct relationship with NAB; a Board ofTrustees decision to create greater internal control and thegranting of a Registrable Superannuation Entity licence bythe Australian Prudential Regulation Authority (APRA). SR

Primacy remains withsuper, says VamosTHE Government’s decision to deliver tax sav-ings on deposits, but at a less attractive ratethan applies to superannuation funds, hasbeen welcomed by the Association of Su-perannuation Funds of Australia (ASFA).

Commenting on the Federal Budget, ASFAchief executive Pauline Vamos said that theconcessional tax treatment offered to bankaccounts and other savings was at a less at-tractive level than that applied to super.

“Superannuation funds justifiably re-tain their tax-prepared status when com-pared to other savings vehicles,” she said.

Vamos said that superannuation was theonly vehicle that could ensure preservationof savings until they were really needed.

“Getting the tax treatment of non-su-perannuation savings is important, buteven more important is having the rightincentives and support for superannua-tion,” she said. SR

500 convicted on tax and super issues


Michael D’Ascenzo

AMP consolidates super offeringAMP Financial Services has launchedwhat it is describing as an “all-in-onesuper and retirement product”, pro-viding a catalyst for the closure of fourof the company’s super products.

The company announced to the Aus-tralian Securities Exchange (ASX)that it was launching AMP FlexibleSuper at the same as streamlining itscorporate super product range.

It said the change reduced the num-ber of AMP superannuation and pen-sion products on offer from six to two.

Commenting on the move, AMP Fi-nancial Services managing director CraigMeller said the changes were in responseto changing customer demand and po-sitioned the company for growth.

He said AMP Flexible Super wouldprovide customers with one account forlife and catered to AMP’s broad cus-tomer base by offering a single entry-level option, which could then be added

to through different life stages.Meller said AMP Flexible Super re-

placed the existing retail and employerversions of the AMP Flexible Lifetime su-perannuation retirement products.

He said these products together withcorporate super products CustomSu-per and SuperLeader would be closedto new business from 1 July. SR

Craig Meller


IF the Government and the industry con-tinue to focus on lowering fees withoutaddressing investor education levels, in-vestors are going to end up even worseoff, according to Australian Unity groupexecutive for investments David Bryant.

At a luncheon in Melbourne, Bryantnoted that there was no discussion fromthe Government and the industry re-garding educating investors about superand investments.

There hadn’t been a single suggestionin all of the reviews to fix investor edu-cation, Bryant said.

In a later interview with Super Re-view, Bryant said that if the Government

was going to raise the super guaran-tee, both the industry and the Gov-ernment needed to fix the problemof investor education.

“The two things that people are con-centrating on are price and choice, andif we are serious about going to 12 percent super, we’re talking about very sub-stantial sums of money, and if we focusonly on price and not on quality then peo-ple are going to end up far, far worseoff, because the emphasis is on the wrongpoint,” he said.

Bryant also warned that proposinga broad “mechanical setting” for superto serve a wide audience was fraught

with danger because it would not suiteverybody.

“Teaching people that the only thingthat matters is the price ... is a very poorpoint of focus and really needs to stopbeing the centrepiece,” he said.

Better investor education would alsoreduce the need for more legislation, andthe industry would no longer need to de-liver “dumbed down” solutions to in-vestors, Bryant said.

Maximising super was a combinationof what you put in, which fees you pay,and even more importantly, how well itperformed, he said.

Bryant suggested that instead of

pushing fees down, super funds should“redeploy” their super fees to place aportion of their total revenue in in-vestor education.

If the industry educated investors, itcould solve all the problems it was deal-ing with, he said. SR

BRAVURA Solutions has ex-tended a contract with in-dustry super fund UniSuperto license its online ePASSsystem for use by participat-ing employers for a five-yearterm.

In 2008, UniSuper pur-chased a five-year licence forePASS to be used by its non-participating employers whomake superannuation con-tributions on behalf of formeruniversity employees.

ePASS will now be pro-gressively rolled out to par-ticipating employers that con-tribute on behalf of current

university employees.ePASS is an online service

that can be used across dif-ferent savings and retirementproducts to allow superannu-ation providers to deliver on-line services to employers,members and advisers.

“Extending the ePASS so-lution at UniSuper will con-tribute significant reductionsin administrative overheads.It will also improve the fund’saccuracy and efficiency whenprocessing member contri-butions,” said Bravura groupchief executive officer SimonWoodfull. SR

AQR fund wins Tasplan mandateTHE AQR Wholesale Delta fund has won a $21million mandate with Tasmanian-based industrysuper fund Tasplan.

This takes the Australian fund’s assets undermanagement to approximately $50 million sinceits launch in September last year.

The fund, which offers investors access to a di-versified portfolio of core hedge fund strategies,has received strong support from institutionalconsultants and research houses.

AQR principal Gregor Andrade said the fundwas launched to provide Australian investors with

risk-controlled and cost-effective exposure toa range of classic hedge fund strategies.

“Despite, or perhaps because of, the chal-lenging market backdrop of the past 18months, Delta’s design has resonated with in-vestors who seek a stable return stream, un-related to the direction of traditional markets… which are based on sound economic prin-ciples,” he said.

AQR Capital Management, the Connecticut-based parent company of AQR Australia, man-ages over $500 million in the Delta strategy. SR

Super bodies support reformsBy Chris Kennedy

AUSTRALIA’S five leading super-annuation bodies have called forbipartisan support of the Govern-ment’s recent proposed changes toAustralia’s superannuation systemin a joint statement.

The Association of Super-annuation Funds of Australia(ASFA), the Australian Insti-tute of SuperannuationTrustees (AIST), the Invest-ment and Financial ServicesAssociation (IFSA), the In-dustry Super Network (ISN)and the Self-Managed Super-annuation Fund Professionals’Association of Australia(SPAA) warned that opposingthe changes could leave millionsof Australians with inadequateretirement savings in the future.

The changes – including anincrease in the super guaranteefrom 9 per cent to 12 per centby 2019, low income tax meas-ures and top-up arrangementsfor the over 50s – would see“super accounts boosted for av-erage workers by $110,000 andaggregate national retirementsavings up by half a trillion dol-lars”, the super bodies said.

Super strengthens the Aus-tralian economy by helping tomeet the challenge of an ageingsociety, deepening the nation’ssavings pool and providing asource of funds for long-term in-frastructure investment, the bod-ies noted. It also played a cru-cial role in helping to cushion theeconomy from the worst effects ofthe global financial crisis.

“The Government’s schedule

for the increase is both welltelegraphed and measured, en-abling employers, employeesand unions to come to suitablearrangements,” the bodies said.

“History has shown that busi-nesses were not adversely af-fected when compulsory superwas introduced back in 1992. Al-most 10 years later, companyprofits had risen and labourcosts had dropped – while at thesame time Australia’s retire-ment savings pool had grownsubstantially. Our universal sys-tem is internationally recog-nised as being world’s best prac-tice across OECD nations.”

The reforms would also liftthe retirement savings of low-income workers and reduce theburden on government pensionpayments, the bodies said. SR

Investor education the key


David Bryant

Legalsuper reappoints JANA JANA Investment Advisers has been reappointed for afurther three years as the asset consultant for Legalsuper.

The extended mandate was announced by Legalsuper, withthe fund’s chief executive, Andrew Proebstle, saying it hadfollowed a review process during which several asset con-sultants were asked to provide expressions of interest.

He said that JANA had been reappointed following acompetitive tender process. SR

Simon Woodfull

Bravura extends UniSuper licence

Few managing their super


ONLY 16 per cent of Aus-tralians are actively manag-ing their superannuation,and only around 4 per centhave chosen an investmentplan or consulted a financialplanner to assist them, ac-cording to new research re-leased by West Australiansuper fund GESB.

GESB general manager ofwealth management Fabi-an Ross said the researchpointed to a concerning lack

of engagement in whatwould be one of the largestassets most Australianswould own in their lives –second only to their home.

“Even small adjustments toinvestment plans or fee struc-tures can have a significant ef-fect on the final savings of Aus-tralians, often in the tens ofthousands of dollars,” he said.

“With the expectation oflonger retirements, Aus-tralians can no longer afford

to neglect or forget about theirsuper.”

Ross said the research in-dicated that both governmentand super funds had a roleto play in fostering greater en-gagement, with around half ofthe people surveyed suggest-ing additional informationfrom the Government wouldencourage more active man-agement of their savings.

He said 25 per cent of re-spondents said easier access

to comparisons of fees, per-formances, products and serv-ices would help them becomemore involved. SR


AIST backs taxpreferenceTHE Australian Institute of Super-annuation Trustees (AIST) has calledfor superannuation to retain its pref-erential tax treatment to ensure it re-mains the retirement savings vehicleof choice.

AIST chief executive Fiona Reynoldssaid Australia was not a nation of savers,which meant measures to build a na-tional savings culture were welcome.

“But so is the Government’s ac-knowledgement that super continues toreceive favourable tax concessions rel-ative to other forms of savings,” she said.

“Even when we get to 12 per cent[superannuation guarantee], manyworkers, particularly those now ap-proaching retirement, will still need tomake voluntary contributions,”Reynolds said.

“Super must have preferential taxtreatment as you are asking peopleto lock away their money until retire-ment,” she said. SR

RBC Dexia wins HSH pension scheme mandateRBC Dexia Trust Services Hong Kongwill act as trustee and scheme adminis-trator for the Hongkong and ShanghaiHotels Limited (HSH) pension schemeunder a new mandate.

The mandate will see RBC Dexia TrustServices Hong Kong manage the Occupa-tional Retirement Scheme Ordinance, which

at its inception holds over $57 million. HSH finance director and chief finan-

cial officer Neil Galloway said the com-pany decided to partner with RBC Dexiabecause of its ‘best in class’ standard.

“RBC Dexia allows us to take advantageof its strong global capabilities whilst lever-aging its specialist expertise and solid track

record of good governance and efficientservice,” Galloway said.

RBC Dexia head of Asia Pacific sales anddistribution Scott McLaren said his com-pany was well versed in supporting theneeds of clients like HSH. He added thathe looks forward to the mutually benefi-cial partnership. SR

Fabian Ross


THE superannuation changes an-nounced in the Federal Budget, in-cluding the lifting of the super guar-antee to 12 per cent, will cost theGovernment $2.4 billion over the nextfour years, according to the Ministerfor Financial Services, Chris Bowen.

In a ministerial statement deliv-ered to the Parliament, Bowen saidthose who suggested the changesto superannuation would not costthe Government any money did notunderstand the facts or, worse still,chose to wilfully misrepresent thosefacts.

“Increasing the superannuation

guarantee, refunding the tax paid onsuperannuation for low income earn-ers and raising concessional contri-butions for those aged 50 or over withlower superannuation savings re-duces the tax burden on working Aus-tralians,” he said. “As such, thesemeasures will cost around $2.4 billionover the next four years.”

Bowen also claimed that it was thelevel of Australia’s superannuationsavings that had helped the countryweather the global financial crisis.

“In the 2009 financial year, at atime when liquidity was being rap-idly withdrawn from markets around

the world, Australia remained an at-tractive place to raise capital,” hesaid. “Australian listed companiesraised $90 billion of equity. Investorsupport, including from Australianinstitutional investors, helped to re-store the capital base of companiesthat together employ over 1.6 millionAustralians.

“To put this in context, at theheight of the financial and liquiditycrisis, a greater proportion of the totalmarket capitalisation of listed com-panies was raised in Australian thanin any other major economy,” Bowensaid. SR

Brogden slamsCoalition over SGTHE Federal Opposition’s failure to support a lift-ing in the superannuation guarantee has earneda reprimand from the Investment and FinancialServices Association (IFSA).

IFSA chief executive and former NSW Liber-al Opposition Leader John Brogden has calledon the Federal Coalition to reverse its decisionto oppose increasing the superannuation guar-antee to 12 per cent.

Responding to Opposition Treasury Spokesper-son Joe Hockey’s vow to oppose the SG increase,Brogden said: “The Coalition must reverse itsposition.

“This is a bad outcome for Australians and theirretirement outcomes,” he said. “Australians needmore superannuation if they are to get anywherenear an adequate retirement.”

Brogden said IFSA had been explaining to gov-ernments for years that Australians had not savedenough for their retirement and the superannua-tion guarantee had to increase to at least 12 per cent.

“Our research shows that Australians face a $690billion savings gap, and 9 per cent superannua-tion is simply not enough,” he said. SR

Actuaries says Budget doesn’t cut itTHE Institute of Actuaries of Australia has wel-comed Federal Budget measures to increasenational savings and establish Australia as an in-ternational finance hub, but said not enough wasdone to address Australia’s longevity issues.

Institute president Bozenna Hinton said shewas concerned about the lack of Budget fundingto tackle the issue of Australia’s ageing populationas well as the absence of measures announced

in the Henry Review response.“If we do not act soon, the resulting longevity

risk could be devastating,” Hinton said.To address these issues, the institute recom-

mended allowing the age pension to be deferred,removing barriers to innovation in the annuityproduct market and encouraging workforce par-ticipation by removing earned income from theage pension means test. SR

Bowen hits Hockey on SGTHE Minister for Financial Ser-vices, Superannuation and Cor-porate Law, Chris Bowen, hascriticised the Coalition’s oppo-sition to increasing the superguarantee to 12 per cent.

The Shadow Treasurer, JoeHockey, opposed an increasefunded by the mining tax in hisBudget speech at the NationalPress Club and claimed the Re-sources Super Profits Tax wasa “blatant money grab”.

“It seems odd that taxing anindustry so heavily should lift in-vestment and growth ... It is notthe role of government to collecttaxes for anything more than theneed to fund the necessary pub-lic services that have the supportof the Australian people,” Hock-ey said.

However, Bowen said theShadow Treasurer’s Budget replywas a huge disappointment for

millions of Australians lookingfor bi-partisan support on asuper guarantee increase.

“Increased superannuationsavings will play a key role in

financing Australia’s future in-frastructure needs and will re-duce our reliance on foreignfunds,” Bowen said.

The Federal Opposition in-stead proposed $47 billion of sav-ings by axing the computers forschools program, green initia-tives and the plan to put allMedicare records on a cen-tralised computer database.

Investment and FinancialServices Association (IFSA)chief executive John Brogdencalled on the Opposition to re-verse its decision to oppose theincrease in the superannuationguarantee.

The IFSA chief said that in-creasing the super guaranteerate to 12 per cent over a num-ber of years combined with cutsin corporate tax would have en-sured the increase was not a bur-den on industry. SR

Govt defends cost of super changes

10 BUDGET ROUND-UP www.superreview.com.au

Chris Bowen

John Brogden

Joe Hockey


www.superreview.com.au EDITORIAL 11

Keeping the SG pure

The superannuation in-dustry, quite properly,welcomed the promise

contained in the Federal Bud-get to gradually lift the super-annuation guarantee to 12 percent. By any measure, it is aninitiative that is long overdue.Equally, the Rudd Govern-ment’s approach to its imple-mentation is extremely cau-tious, not to say timid.

And it says something aboutthe Government’s broad strat-egy and attitude towards su-perannuation that the deliv-ery of its policy becameimmediately enmeshed in itsimplementation of the highlycontroversial so-called re-sources company super prof-its tax.

While the entire superannu-ation industry has welcomed

lifting the super guarantee, it isa policy objective capable ofstanding on its own merits andunencumbered by the imposi-tion of a tax which, of itself, ar-guably serves to undermine thevalue of some superannuationfund investments.

Linking the superannuationguarantee to a tax quite sim-ply represents bad policy. Itmay provide the Governmentwith some persuasive argu-ments to take to a FederalElection campaign, but it alsoserves to give the super guar-antee the taint of a tax.

The superannuation guar-antee was never envisaged asa tax and it should not be-come one. Not even by asso-ciation. The superannuationguarantee must remain as itis now: a tax-advantaged non-wage benefit designed to liftAustralian retirement in-comes adequacy.

Placed in the context of theGovernment’s timetable to liftthe guarantee to 12 per cent,it represents the delivery ofthe equivalent of a 3 per centwage rise over five years, or

less than 1 per cent a year –something that should be en-tirely affordable for most em-ployers. Indeed, it is within thepower of the Commonwealth’sown tribunals to ensure any in-creases in minimum wagerates take account of the in-creased super guarantee.

However, by constructing aset of circumstances where-by delivery of the promisedsuper guarantee increase is re-liant upon the implementationof a tax, the Rudd Governmenthas not only set an undesirableprecedent, it has arguably bro-ken faith with the architectsof the original system.

Nor have the Coalition Lib-eral and National parties cov-ered themselves in glory. Theirinsistence that lifting the su-perannuation guarantee willplace Australian employersunder pressure and restrictthe creation of new jobs doesnot hold water.

While it is true that employerorganisations complained loudand long about the original im-plementation of the superan-nuation guarantee, there is noconsistent evidence suggest-ing jobs were lost or that com-panies went broke as it was pro-gressively lifted to its currentlevel of 9 per cent.

History, too, tells us that thereason the SG was not liftedbeyond 9 per cent owed moreto political baggage carried by

some within the formerHoward Government than tothe underlying ability of theAustralian economy to affordthe increase.

Now, as Australia moves in-exorably towards the next Fed-eral Election, there exists thevery real possibility that theproposed 3 per cent increasein the super guarantee will fallvictim to the inevitable partypolitical and sectoral horse-trading that will take placearound the resources compa-nies super profits tax.

What is to be most regrettedis that the Government’s ap-proach to the issue has all buteliminated the small measureof bipartisanship that exist-ed around superannuation,making it difficult for theCoalition parties to supportlifting the super guarantee anytime in the near future.

However, the greater dan-ger to the superannuation in-dustry is the suggestion, nomatter how oblique, that in-creasing the superannuationguarantee is tantamount toraising taxes. It is a nexusthat can and must be broken.

The Government’s inten-tions in raising the superan-nuation guarantee may bewell-meaning, but it has failedto appreciate the broader im-plications, and the industrycan ill-afford the collateraldamage. SR

The Government’s Budget promise to lift the

superannuation guarantee to 12 per cent is one thing, but

to do so within the context of a debate around a new tax

is something else entirely.

Mike Taylor

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Average Net DistributionPeriod ending Mar '102,327

The Rudd Governmenthas not only set an

undesirableprecedent, it has

arguably broken faithwith the architects ofthe original system.

The sole purpose test re-quires a superannuationfund to pay death bene-

fits to the member’s legal per-sonal representative, to any orall of the member’s depen-dants, or to both.

Therefore, unless otherwiseset out in the trust deed, thetrustee has discretion andmust decide how best to dis-tribute a deceased member’sdeath benefit between thelegal personal representative(LPR) and dependants.

The decision must also bemade in accordance with thetrustee’s duties to give due andgenuine consideration and toexercise reasonable care. Thisoften requires the trustee toweigh-up the merits of com-peting claims.

There is now a debate overwhether this discretion shouldbe removed by legislation giventhe fiduciary commitment thatit requires from trustees.There is a view that trusteesshould pay death benefits tothe deceased member’s LPR inall cases.

In its Phase 2 Issues Paper,the Cooper Review raised thequestion of whether “it wouldbe useful to mandate that, inthe absence of a binding deathbenefit nomination, any deathbenefit would simply be paidto the deceased member’s es-tate?”.

Similarly, at the 2008 Asso-ciation of SuperannuationFunds of Australia conference,Michael Rice of Rice Warner Ac-tuaries and Tower Australia’smanaging director, Jim Minto,were part of a roundtable dis-cussion on the topic of ‘shoulddeath, disability insurance andsuper be bed mates?’. The dis-cussion was wide-ranging andincluded a view that trusteescould become bogged-down inclaims and that death bene-fits might not always be paid inaccordance with the wishes ofthe deceased. Some partici-pants in the discussion clearlyagreed with the intent of thequestion posed by the CooperReview.

There are a number of argu-ments in favour of removing thetrustee’s discretion in deathbenefit payments. These in-clude:

■ providing certainty tomembers about who will receivetheir death benefit;

■ extricating the trusteefrom the claim-staking processand allowing the courts to dealwith disputes under the fami-ly provision legislation; and

■ accelerating the pay-ment of death benefits be-cause no discretionary de-cision is needed.

At face value, these argu-ments are self-evident to bene-fit members. However, prob-

lems can arise when a deathbenefit is paid to the deceasedmember’s LPR, which means nochanges should be made to theexisting arrangements.

CREDITORS GET THE FIRST BITEOF THE CHERRY

In the wake of a death, thefirst requirement of a LPR isto discharge the deceasedmember’s debts and liabilities.Only then can distributions tobeneficiaries be made. An LPRwho distributes estate assetswithout paying known debtsis in breach of the duty to paydebts and becomes personallyliable for the loss suffered by thedeceased member’s creditors.

He/she cannot seek a refundfrom the beneficiaries.

Superannuation death ben-efits are not protected like pay-ments from life insurance poli-cies and are available tocreditors.

WHAT HAPPENS IF THE MEMBERDOES NOT HAVE A WILL?

Given the general distrust ofpoliticians in Australia, it isamazing that 42 per cent of usallow them to decide who re-ceives our estate when we die.For these Australians, the waytheir estate is distributed is setout in legislation.

However, following thiscourse of action can lead to an

unintended outcome due to thenature of this one-size-fits alllegislation. For example:

■a deceased member is sur-vived by their de facto partnerof many years and a son froma previous marriage that endsin divorce;

■ the son lives overseas andis estranged from the member;

■ the member has indicatedto his de facto partner that heintends to make a will underwhich she will receive his entireestate, apart from a small lega-cy of $10,000 to assist his son;

■ the member (who lives inNew South Wales) dies beforehe gets the chance to makethis will;

The payment of death benefits within

superannuation can represent a legal

and regulatory minefield for fund

trustees. STEPHEN GRAHAM outlines

how to avoid the pitfalls.

Death benefits contain a


12 DEATH BENEFITS www.superreview.com.au

■ the member’s death ben-efit is $1 million; and

■ the only other assets inthe estate are personal effectsworth $10,000 and investmentsworth $40,000.

Under New South Waleslegislation, the de factospouse would be entitled tothe personal effects, a statu-tory legacy of $393,924 andone half of the remainder ofthe estate, which wouldamount to $323,028. Ratherthan receiving a small legacyof $10,000 as intended by thedeceased, the estranged sonwould receive a distributionof $323,028 from the mem-ber’s estate.

IN MANY CASES THE WILL ISINVALID ANYWAY

As the Law Society of NewSouth Wales notes on itswebsite: “There have beenvery many cases wherehomemade wills were eitherunclear, not properly drawnup or caused an unwantedtax liability. Many of thesecases end up in court andcarry on for years, causingdistress and perhaps hard-ship to the family of the de-ceased.” Costs may also beborne by the estate.

Where the court cannotrectify the will, an adminis-trator will be appointed todeal with the estate underthe law of intestacy, whichcan lead to the problems dis-cussed above.

THE RISK OF DEALING WITH‘INTERMEDDLERS’

In many cases, the size andnature of the assets in an es-tate means that it is not eco-nomic to obtain a grant ofrepresentation (ie, probateor letters of administration).This means that there is noLPR to pay the death benefitto and the trustee is forcedto deal with an executor deson tort (otherwise known asan intermeddler).

It is important to note thatthere is no requirement insuperannuation law for atrustee to request a grant ofrepresentation before payingan LPR like there is in thelife insurance law. In fact,the definition of the term‘personal representative’ inthe Superannuation Indus-try (Supervision) Act 1993(SIS Act) does not require agrant of probate because itrefers to the executor of thewill of a deceased person.

Where the trustee pays adeath benefit to an intermed-dler, there is a risk that it mayhave to pay the death benefitagain, without the ability of re-covering the original paymentfrom the intermeddler, wherethe intermeddler:

■ does not account to thecreditors and beneficiaries ofthe deceased member;

■ no longer has estate as-sets for distribution; and

■ it can be argued that inpaying the intermeddler, thetrustee did not act diligently, oracted unfairly or unreasonably.

FAMILY PROVISION CLAIMS MAY CHANGE THINGS

Where a deceased memberhas not adequately provided forthe proper maintenance, edu-cation or advancement in life ofan eligible person in their will,the court may in its discretiondo so under state family provi-sion legislation. This means thatwhile a deceased membermakes a will and the trusteepays the death benefit to his/herLPR, there is no guarantee thatthe death benefit will be dis-tributed in accordance with themember’s wishes.

Again, where a will is chal-lenged, legal costs are borne bythe estate, reducing the finalamount payable to beneficiaries.

BINDING NOMINATIONS ARE NOT A PANACEA

Unfortunately, in many caseswhat may appear to a memberto be a binding death benefitnomination will not actuallybind the trustee, which meansthat the trustee still has dis-cretion. These cases includewhere:

■ the nomination is morethan three years old and has notbeen confirmed or replaced;

■ a non-dependant (such asa non financially dependentparent or sibling) has beennominated;

■ the nomination has notbeen correctly witnessed;and/or

■ the portion of the deathbenefit to be paid to each nom-inee is not readily ascertainable.

Another difficulty with socalled ‘binding nominations’is that the underlying deathbenefit may form part of the no-tional estate of a deceasedmember under the family pro-vision legislation because thenomination would lead to thedeceased member’s propertybeing held by another personfor no consideration. Accord-ingly, although the deceasedmember may have taken activesteps to ensure that his/herdeath benefit is not part of theestate, the court can deem it tobe part of the estate and adjustthe entitlements of all benefi-ciaries under the member’s willto take the death benefit intoaccount.

It is possible that the bind-ing nomination provisions inthe SIS Act may cover the fieldand therefore override statefamily provision legislation tothe extent of any inconsisten-cy. However, this has not beentested and the ‘cover the field’argument is notoriously diffi-cult to apply in practice.

THE VALUE OF PROPERLYCONSIDERED TRUSTEEDECISION MAKING

The current discretion indeath benefit payments pro-vides trustees with the flexibil-ity needed to prevent theseproblems from occurring. It alsoensures that the most appro-priate outcome is achievedthrough a duly considered

claim-staking process. Procedural fairness is also

provided through the trustee’sinternal dispute resolution pro-cedure and the ability to makea complaint about the trustee’sdecision with the Superannu-ation Complaints Tribunal(SCT). This process has sig-nificant advantages over theprocess for obtaining a familyprovision order because it ischeaper and not adversarial innature.

THE IMPORTANCE OF THE SCTThe SCT is required to en-

quire into and resolve com-plaints in a fair, economical,informal and quick manner.When coupled with the ad-vantages of properly consid-ered trustee decision makingon death benefits, the SCTprocess means that claimantscan have an independent gov-ernment body quickly andcheaply (when compared to acourt) review the trustee’s de-cision to ensure that it is fairand reasonable. The courtprocess takes much longerand leads to significant costsfor the estate, which reducesthe final amount payable tothe beneficiaries.

CONCLUSIONThe payment of death bene-

fits by the trustee conveys valu-able estate planning benefits tothe member and their depend-ents, which takes account ofpersonal circumstances andcomplexities. This is one of themain unseen benefits of super-annuation and avoids benefitsbeing potentially consumed viathe legal system. SR

Stephen Graham is trusteeadvocate at Tower Australia.

sting

www.superreview.com.au DEATH BENEFITS 13



14 ASSET ALLOCATION www.superreview.com.au

Since the inception ofmember choice, the Aus-tralian superannuation in-

dustry has broadened and im-proved its skill set. Frominsurance offerings to accessto financial planning, mem-bers have any number of waysto differentiate individualfunds, and yet the reality isthat for many, asset allocationand the returns it yields rep-resents the ultimate measureof a fund.

Like it or not, an increas-ingly competitive superannu-ation environment means thatperformance continues to beon peoples’ radars, but ac-cording to Mike Wyrsch, sen-ior consultant at Frontier In-vestment Consulting, it isn’tpast performance that’s im-portant. “Clearly, asset allo-cation explains the bulk of re-turns but what we’re alsoseeing now is an environmentwhere you have memberchoice,” he said. “And broadasset allocation calls aren’t al-ways made by trustees.

“But the question here iswhat past performance tellsyou about future perform-ance,” Wyrsch added. “Somefunds have gone incrediblywell for a period of time andthen subsequently gone in-credibly poorly.

“You really have to under-stand how these funds have settheir asset allocation and whatflexibility they have to changethem if conditions alter, be-cause it’s what happens in thefuture that actually counts.”

Simon Eagleton, businessleader for Mercer’s Invest-ment Consulting businessin Australia and NewZealand, said a focus onshort-term performancewas one of the more unfor-tunate by-products of in-creased competition in Aus-tralia’s super industry.

“Obviously there is evidenceof more and more short-termperspectives on performance,”he said. “It’s disappointingthough and clearly not in thebest interests of long-term re-tirement savings.

“Fortunately, I’m not seeinga lot of evidence that superfunds are overly sensitive tothe trend,” Eagleton contin-ued. “Most adhere to well di-versified long-term strategies,but focusing on short-termnumbers is always a danger,particularly in a highly com-petitive environment.”

Of course, a focus on short-term performance has notcome solely from increasedcompetition. The massive mar-ket upheaval seen through theglobal financial crisis (GFC)has had all investors on edgeand had an impact on super-annuation account balancesthat many members have beenunable to ignore.

Yet while the impact uponsuper funds’ investments andreturns was significant,Wyrsch said that most superfunds had been cautious inmaking significant shifts totheir strategic allocations.

“I think people have been

aware for some time that mar-kets aren’t efficient and thatthere are times when they’regoing to be better value thanothers,” he said. “But there arealways lessons in these things,and there were certainly les-sons from the GFC.

“Many are probably stillmulling over and reviewingthose lessons and how theymight better go about things,but I think that a lot of peopleactually saw this coming,”Wyrsch continued. “Sub-primewas something that was pret-ty clear fairly early and mostinvestors made sure theyweren’t exposed to it.

“It certainly spread furtherthan most people thought itwould and I think there weredefinitely lessons around howquickly these kinds of eventscan move and exactly howmuch they can impact.”

LIQUIDITY MISMATCHIn line with Wyrsch’s senti-

ments, Eagleton said that oneof the key lessons of the GFChad been in liquidity mismatch.

“A lot of funds have seen thatrunning at a huge liquidity mis-match was a dangerous thing todo,” he said. “So many will haverethought their entire portfoliosin that area.

“There would also havebeen lessons in terms of di-versification,” Eagleton con-tinued. “There would be fundsout there which thought theywere diversified but then saweverything go to custard at thesame time.

“Investors have to look un-derneath asset classes be-cause assets like fixed in-come, which they might havethought of as defensive, hadbecome more and more ex-posed to credit and in thatkind of environment, of courseit was going to go down.”

According to Eagleton, inaddition to super fund in-vestment teams rethinkingthe roles of specific assets, hehad also seen a lot of inter-est in genuinely alternativestrategies. “So investmentsthat are truly diversified andassets that have nothing to dowith capital markets,” he said.

“Those hedge funds wherethe returns are coming frommanager skill have also gar-nered increased interest, butoverall there seems to be a lotmore consideration of oper-ational risk.

“Trustees are looking verycarefully at what is happeningwhere the rubber hits the roadand realising that they justhaven’t done enough workthere.”

Commenting on whetherthere had been assets thathad failed to deliver the di-versity expected through thefinancial crisis, Nicole Con-nolly, director of alternativesconsulting for Russell Invest-ments, said funds had cer-tainly been looking very care-fully at asset correlation.

“Without a doubt there’sbeen closer scrutiny of anumber of asset classes thatperhaps were more highly

correlated than was expectedor anticipated,” she said. “Youcould say that hedge funds fellinto that category, but if youlook back at hedge fund re-turns over the last couple ofyears, the reality is that theyhave provided a superior riskadjusted return compared tomany other risky assets suchas equities or property.

“They did fail to deliver onan absolute return basis over

With a number of funds having gone from hero to zero on the back of

unwise asset allocation calls, DAMON TAYLOR reports that reliance on

past performance represents a foolish strategy.

Looking in the wrong

direction

www.superreview.com.au ASSET ALLOCATION 15


2008 and that was certainlydisappointing for some in-vestors, but hedge fundsshouldn’t be expected to de-liver absolute returns everysingle year,” Connolly added.“Over the longer term they’redesigned to give a cash-plusreturn, but there will be yearswhere they will produce neg-ative returns, and obviously2008 was an example of that.”

Alternatively, Eagleton said

the problem lay in the factthat hedge funds did not al-ways rely on their managers’skill.

“The ones that do are theones we like but they aren’tall like that,” he said. “Manyheld large exposures to riskyassets during the GFC, largeexposure to directionalityand gave what was illusorydiversification,” he said. “It’sproof that there’s just no

substitute for good detailedmanager research.

“To some extent, it’s simplyabout being more discerning.”

Asked whether she felttrustees were re-examininghedge funds on the basis ofwhat had occurred through2008, Connolly said that manyprobably were, but not on thebasis of the returns that theyprovided.

“It relates more to the

structural issues of the inter-mediaries or the hedge fundof fund managers,” she said.“Often there was a mismatchin terms of liquidity, so thefund of fund was offering liq-uidity provisions that didn’tmatch the liquidity provisionsof the underlying managers.

“There were also extremecurrency movements late in2008, which meant that fundof funds often had to raise

capital within their structuresby selling down highly liquidand often more profitablemanagers,” Connolly contin-ued. “So a lot of people wereunable to get their money outof fund of fund hedge fundsduring that time, and thatcaused concern for investors.

“It’s not necessarily thatthey were disappointed with

Continued on page 16 ☞


16 ASSET ALLOCATION www.superreview.com.au

hedge funds per se, it was theaccess mechanism to hedgefunds that was the problem.”

Of course, hedge funds arejust one part of the alterna-tive investment picture. Forthe last few years it seems ex-posure to alternatives has be-come increasingly popular forsuper funds, but while Wyrschsaid he hadn’t seen any evi-dence of the trend altering, hewarned there were lessons tobe learned here as well.

“Our clients have been wellset in alternative options forquite some time, so it’s notsomething we’re particularlyincreasing our focus on,” hesaid. “But there does seemto be a greater focus on al-ternatives within the industryand a realisation that, as withany other asset class, you haveto look through at what thevalue is and understand whatyou’re investing in.

“This is probably yet anoth-er lesson out of the GFC,”Wyrsch continued. “And it’sabout how important the cap-ital structure is and, regardlessof what investment you have, ifyou gear it too highly you’regoing to have problems in a dis-tressed environment.

“It really doesn’t matterhow defensive it is or howstrong the earnings are or howimpervious the revenues areto economic downturns, ifyou’ve over-geared it thenyou’re going to be in trouble.”

In saying that she saw in-vestment into alternativescontinuing for super funds,Connolly pointed out that theasset class held clear diversi-fication benefits.

“For instance, if you look atstrategies on an isolated basis,

private equity is a clear returnenhancer for any portfoliowhere you expect a listed eq-uities return plus a premium,”she said. “Alternatively, hedgefunds are designed to be avolatility dampener whereyou’re targeting a more con-sistent return over time, andthen there’s infrastructure in-vestments that provide a yielddriven return, and in somecases are linked to inflation.

“There are a number of op-tions available in alternativesand I think a lot of trusteeshave recognised that.”

SOCIALLY RESPONSIBLEINVESTMENT

But with respect to whatseems to be an increasingpropensity towards environ-mentally and socially respon-sible alternative investment(SRI) on the part of institu-tional investors, asset con-sultants seem to have mixedviews.

“There’s a feel-good elementto investing in these types ofstrategies but increasinglythere’s an investment case aswell,” she said. “And certainlythe Government’s target tohave 20 per cent of electricitysupply coming from renewableenergy sources by 2020 is alarge part of it.”

Similarly, Wyrsch’s take onSRI investment was that whilefunds were open to them, theyhad to stack up on investmentgrounds.

“It’s an area that will beongoing for many investors,”he said. “But ultimately, itwill be subject to exactly thesame disciplines as any otherinvestment.”

Eagleton said that whileMercer had clients with ex-posure to what was broadly

referred to as responsible in-vestments, he didn’t see anywidespread increase in de-mand from the super industry.

“It’s more about productavailability and picking up theright opportunities as theyarise,” he said. “But we are see-ing increased interest in thepolicy aspects of investment.”

The unlisted assets thathad been the bread and but-ter investments of industrysuper funds for so long mightalso find their place in port-folios questioned this year.With valuations lagging thelisted markets, they are anasset class that still seems tobe in a recovery phase, butwithin portfolios Wyrsch saidhe could see trustees havinga greater appreciation forwhy an illiquidity premiumexisted.

“I think people have nowgot more appreciation forwhy you have an illiquiditypremium,” he said. “But whatI would also say is that theunlisted asset class was areal standout in the way theywere managed during the

GFC because they didn’t typ-ically raise money.

“Equity was at its most ex-pensive, but they didn’t fleefrom investments and theydidn’t favour some investorsover others,” Wyrsch contin-ued. “I actually think that theGFC was a real advertisementfor the benefits of unlisted as-sets and unlisted funds.

“On the one hand, yesthere’s a cost to liquidity, buton the other hand, in terms ofgovernance and the way thesefunds behaved, there weresome real benefits in com-parison to the listed market.”

Connolly said that while theGFC had highlighted the prob-lems with illiquid invest-ments, most super funds hadmanaged their unlisted ex-posures well.

“Most trustees and invest-ment teams managed illiquid-ity within their fund by target-ing no more than perhaps 30per cent exposure to unlistedassets,” she said. “And whilethat was stretched and pushedto its limits during the crisis,most funds managed to get

through that period relativelywell.

“Funds are looking closelyat the type of illiquid invest-ments they have within a port-folio, but the diversificationbenefits of having an illiquidexposure is still very relevant.”

Ultimately, there is nodoubt that there will alwaysbe common themes withinsuper fund allocations. Theyare, after all, put together tofoster the best possible re-tirement income for mem-bers, but while investmentchoices are bound to reflectthat, Connolly said there werepoints of difference.

“It would probably be in thealternative investment strate-gies that asset allocation dif-fers the most,” she said. “Forexample, private equity, infra-structure, hedge funds, com-modities, active currencies –it’s whether or not super fundsor investors consider thesestrategies within the broaderasset allocation framework oras a separate allocation.

“Most do to a certain degree,but I think that it is within

☞ Continued from page 15

Looking in the wrong

www.superreview.com.au ASSET ALLOCATION 17


those strategies that you’llsee the most divergence inallocations.”

From the Frontier per-spective, Wyrsch said that thevariation to be found withinAustralian super fund assetallocations had a lot to dowith how well the local mar-ket had performed in recentyears, but he added that assetconsultants could only workwithin the objectives thattrustees had set.

“That has a big bearing onwhere asset allocations mightbe,” he said. “But things arepretty good in Australia com-pared to most of the world,and I think Australian fundshave probably been able totake more positions in riskthan we’ve seen offshore, bothpsychologically as well asphysically.

“That fact certainly helpedin the last year but I thinkthere’s also different views onhow much illiquidity you wantto take as risk,” Wyrsch con-tinued. “Clearly some peopleare of the view that the worldis always ending whereas oth-ers simply see opportunity.

“But the key difference is inhow much risk people arewanting to take at the mo-ment, and there’s differentviews on that and differenttimeframes.”

And adding yet another per-spective to the mix, Eagletonsaid that he saw the bulk ofallocation variation in unlist-ed investment philosophies.

“So that’s mainly funds’ tol-erance to unlisted propertyexposure, infrastructure ex-posure and so on,” he said.“But there are also differencesin funds’ preparedness to di-versify globally, and that’ssomething Mercer is a strong

proponent of in terms sourc-ing alpha as well as exposureto different underlying assetclasses.

“The one other point of dif-ference is in super funds’ pre-paredness to deviate and shifttheir allocations in response tomedium-term risk or oppor-tunity. In an increasingly com-petitive industry, like it or not,trustees need to have some re-gard for medium-term per-formance.

“They need to be aware ofthe need to rebalance.”

On the topic of dynamicasset allocation or medium-term portfolio tilting, Wyrschsaid it was a strategy Frontierhad advocated for some time,but that he also saw trends to-wards it growing.

“We’ve done it for sometime and I think there isprobably a greater focus onit, but it’s about how you ex-ecute these things,” he said.“I’d say there’s a theoreticaladvantage in doing it attimes but you’ve got to beable to actually do it, and it’snot always easy.

“You’ve got to put the tilt onwhen markets are about tooutperform and then take itoff when they’re about to un-derperform, and that can beeasier said than done.”

When all is said and done,though a super funds’ re-turns and the asset alloca-tion that yields them mighthave the most significantbearing on members’ retire-ment savings, the reality isthat there are very few waysby which this can be meas-ured. Various research hous-es provide fund performancefigures periodically, but forEagleton, those figures cannot reflect all of what makes

up an investment strategy. “There are a lot of things

going on in a super fund’s in-vestment strategy,” he said.“Part of it is asset allocation,part of it is their active strate-gies, part of it is recognisingopportunities to shift, partof it is the cost of implemen-tation, part is tax manage-ment and so on.

“So looking at any partic-ular fund’s performance overthe long term is difficult, andin the short term, peopleshould realise that a lot ofwhat is measured is noise –it can have more to do withluck than skill,” Eagletonsaid. “Of late, I think there’sbeen too much focus on rel-ative performance and notenough on whether a fund isachieving what it has set outto achieve and provide formembers.

“Thankfully the industryhas done a pretty good job ofachieving those outcomes, butif people are going to draw anyconclusions over whether onesuper fund is better than an-other, it has to be done overthe long term.”

MEASURING PERFORMANCE With regard to the return

figures released by researchhouses, Connolly said thatsuper funds could not helpbut be aware of their own rel-ative performance.

“I used to work at a superfund and we certainly lookedat the super returns on amonthly basis,” she said.“You do look at them and youdo compare yourselves tothem.

“You certainly know whichfunds you’re going to see atthe top of the charts in cer-tain environments and you

know that there’s going to beothers at the bottom of thecharts when that environmentchanges.

“It’s probably somethingmembers shouldn’t be lookingat on a monthly basis and, tobe honest, we as an industryprobably shouldn’t be lookingat them either.”

Reiterating his point thatpast performance had little todo with future performance,Wyrsch said that providingmembers with the retirementbenefits they would at somepoint rely upon was whatcounted.

“When it comes right downto it, funds are interested inretirement benefits for mem-bers that are a consumerprice index [CPI] basedmeasure,” he said. “The trou-ble is, you really can’t investin CPI plus 3 per cent, at leastnot directly.

“So when these figurescome out and people measurethemselves against them, allthings being equal, it’s betterto be at the top than the bot-tom,” Wyrsch continued. “Butat the end of the day, it’s aboutproviding retirement benefitsfor members.

“That’s what’s got to count.” SR

Simon Eagleton

You’ve got to put the tilt on when

markets are about to outperform and

then take it off whenthey’re about to

underperform, andthat can be easier

said than done.

direction


18 INTERNATIONAL EQUITIES www.superreview.com.au

W ithin Australia’s su-perannuation envi-ronment, investment

into international equitieshas always held strong di-versification benefits acrossboth developed and emerg-ing markets. Yet in what canstill be termed the global fi-nancial crisis (GFC) after-math, overall market un-certainty means thatoffshore investment contin-ues to be a bumpy ride and,according to Stuart James,senior investment special-ist, international equities,for Aberdeen Asset Man-agement, one requiringcareful navigation.

“In general, global equi-ties performance for theyear to date has been fair-ly mixed,” he said. “Returnsfor the start of the year wererelatively healthy but sincethen there have been a num-ber of aftershocks in Dubaiand also in China.

“Over the last month in-ternational equities marketshave been very nervous, sothere’s a bit of uncertaintyout there at the moment.”

Commenting on howemerging markets faredcompared to developed mar-kets, James indicated that

the equation was a trickyone.

“Long term, I’d say thatemerging market funda-mentals look better,” hesaid. “They have much lowerdebt at all levels and gener-ally have much strongergrowth.

“Unfortunately, in theshort term, if uncertaintycontinues, investors arelikely to become risk averseand stick to the US dollar re-lated stocks,” James added.“And in turn, that kind of re-action will have an inap-propriate impact on themarket.

“For January through toApril of this year, we’re talk-ing about returns of -4.65per cent for internationalequities overall and -1.25per cent for emerging mar-kets. So while emergingmarkets are still a littleahead, it certainly hasn’tbeen so clear cut this lastmonth.”

With a similar take onhow international equitiesmarkets have shaped upsince the beginning of 2010,James Soutter, senior port-folio manager, internation-al equities, for Perennial In-vestment Partners, said that

performance had been fair-ly mixed.

“We’ve seen large move-ments in global equities,which started off in Januarywith quite a steep fall beforerecovery a couple of monthsafter as better economic andcompany news camethrough,” he said. “Corpo-rate news in places like the

US has been incrediblystrong and in the last re-porting season we’ve seencompanies’ reported earn-ings far outstripping ana-lysts’ predictions.

“There’s also been a bit ofan upward trend globallythat’s been driven by goodcost management throughthe down cycle,” Soutter

continued. “And we’re nowseeing margin expansionand top line growth.”

Unfortunately, Souttersaid the global equities pic-ture changed markedly to-wards the end of May.

“Nearly all of those gainshave now been given up ona year-to-date basis and I’dsay that every major market

Markets may have been recovering

but, as DAMON TAYLOR reports,

sovereign debt and other issues have

emerged to create new challenges

and uncertainties around allocating

towards international equities.

Uncertainty a global

certainty

www.superreview.com.au INTERNATIONAL EQUITIES 19


in the world is down, where-as at the beginning of[May], the majority wouldhave been up, with the ex-ception of places likeGreece and Spain,” he said.“Just last night marketsclosed down 4 per cent butbefore then, it was basicallybreak even.

“We’re now also seeing a

very different shift in cur-rency, and that’s having avery large impact on returnsfor Australian dollar in-vestors,” Soutter added. “I’mlooking at some bad marketshere, with Spain down 22per cent in local currencyterms, Italy down 17 percent and even Hong Kongdown 10.5 per cent.

“The strongest performingarea has virtually been theUS; in only being down 2 to3 per cent, it’s actually beenthe most resilient throughthis, followed closely byJapan.”

Providing a backgroundfor recent US market sta-bility, Soutter said the USand Japanese markets oftenconstituted safe havens forinvestors looking to with-draw capital from risky as-sets in foreign markets.

“Certainly over the lastmonth, developed marketshave held up better, andthat’s a risk aversion thing,”he said. “The corporate newscoming through from emerg-ing markets has actuallybeen very strong, as it haswithin developed markets,but as capital gets with-drawn, it finds a naturalhome back in markets likethe US, Japan and the UK.

“The only sure thing at themoment seems to be thatthere are interesting timesahead.”

EMERGING MARKETSBut while judging emerg-

ing and developed marketsmight have been difficult inrecent months, the story wassomewhat different 12months ago. At that time,global equities experts weretipping emerging markets toprovide the lead out of thefinancial crisis downturn,and James believes suchpredictions proved accurate.

“Largely, emerging mar-kets did provide the lead,”he said. “Year to date, over-all international equitieshave delivered 9.87 per cent

as compared with emergingmarkets, which delivered24.37 per cent, and that’s inAustralian dollar terms.

“There’s no doubt thatduring 2008, emerging mar-ket shares were sold offmore heavily,” James con-tinued. “But since March oflast year, we’ve seen peo-ple recognising the strongfundamentals in emergingmarkets, to the point whereI’d say they’re now tradingat a slight premium to de-veloped market shares.”

Taking a slightly longerview, Grant Forster, chiefexecutive officer of Princi-pal Global Investors (Aus-tralia), said that in deliv-ering an average return of 6per cent, emerging marketgrowth rates had been rea-sonably consistent.

“In Australian dollarterms, emerging market re-turns have been 24 per centfor the 12 months to Apriland 12.5 per cent for the fiveyears to April,” he said. “Bycontrast, the five-year fig-ures for developed marketsare 8.7 per cent, so emerg-ing markets have certainlyrebounded pretty well on anunhedged basis.

“Emerging markets didn’tgo into the financial crisisanywhere near as much asdeveloped markets,” con-tinued Forster. “Commodi-ties held and kept emergingmarkets afloat, and becauseof that resilience, what tran-spired was almost the re-verse of what you’d expect.”

Forster said it was also in-teresting to note that where


Emerging marketsdidn’t go into thefinancial crisis

anywhere near asmuch as developed

markets.



the Australian equities mar-ket had delivered returns of32.5 per cent to the end ofApril, investors had received36.2 per cent from global eq-uities, provided they hadhedged their currency ex-posure. He added that theless flattering unhedgedglobal equities return was7.4 per cent.

“So because developedmarkets tanked so badly,they’ve actually done prettywell over the last 12months,” Forster said. “Sowhether we’re talking aboutemerging markets or devel-oped, there are lessons to belearned here in looking verycarefully at both currencyrisk and hedging.

“Investors need to ac-knowledge that risk and adopta considered strategy.”

Looking at emerging mar-kets and their performancethrough the financial cri-sis more broadly, Soutterpointed out that some of thestronger markets werefound well away from themore familiar Asian regions.

“Some of the strongermarkets were actually inplaces like Brazil,” he said.“Asia actually kicked off veryearly in that piece and, inthe case of China, has beenmoving in a negative fashionsince about June/July lastyear.

“So they ran very hardvery early and have reallycome off since then,” Sout-ter continued. “The strongermarkets have actually beenin places like Brazil, whereyou’ve had strong internal

demand, good mining projectsand also a very agricultural-ly driven economy as well.

“If anything, the real re-acted marginally strongerthan the Australian dollar atthat point, so you’ve had amarket and currency that’sbeen marginally strongerthan Australia’s, and I thinkreturns reflected that.”

Soutter said one of thethings that had often pulledback emerging markets, par-ticularly those found in Asia,were their links to the USdollar.

“So you’ve had the cur-rency headwind but verystrong underlying markets,which I think have definite-ly led the world through thelast 12 months.”

DOMESTIC VS GLOBALBut while a number of

fund managers were able topredict the steadier per-formance of emerging mar-kets through the GFC, thereality for many investorswas that there was little topick and choose between do-mestic equities and their in-ternational counterparts. Asa consequence, the argu-ment from a number ofsuper fund executives wasthat equities portfolioscould be viewed less dis-tinctly, but according toSoutter, the compositionand risk inherent in globalequities dictated an inde-pendent approach.

“From my point of view,domestic and global equi-ties have to be seen as twovery distinct allocations,”Soutter said. “Equities maybe similar across the board,

but the composition andrisk inherent in global eq-uities versus domestic isvery different.

“In terms of composition,the Australian market isbased on two sectors inbanking and resources, andthey form its two drivers,”Soutter continued. “One ispurely domestic, being thebanking sector, and theother is very much overseasdriven, being resources, butglobal equities give you farmore scope in composition.”

The reality, according to

Soutter, is that by invest-ing globally, investors canaccess industries, sectorsand companies the likes ofwhich are simply not avail-able within Australia.

“The next considerationfrom an institutional stand-point has to be the diversi-fication of risk in terms ofhedging,” Soutter said. “Sodespite recent underperfor-mance due to a strong Aus-tralian dollar, by having anunhedged portfolio you’reactually diversifying risk fur-ther by taking on the risk of

different economies aroundthe world.

“For example, you’ve ac-tually got global equities giv-ing a positive return in un-hedged currency for themonth to date,” he contin-ued. “So while we’re lookingat our portfolios and see-ing them going up, the un-derlying investment is goingdown, and you’re gettingwhat is essentially lowervolatility in returns.

“In my mind, there are dif-ferent risk and diversifica-tion elements inherent in

☞ Continued from page 19

Uncertainty a global

www.superreview.com.au INTERNATIONAL EQUITIES 21


global versus domestic eq-uities, and I think that froma super fund standpoint,that has to be taken intoconsideration.”

Stacking up medium-termglobal equities performanceagainst that of the localmarket, James said that inAustralian dollar terms, thedisappointing performanceof global equities had per-haps altered peoples’ viewof the investment.

“Looking at the figures,we’ve got domestic marketsdelivering 8 per cent per

annum over the last five yearscompared to global markets,which delivered about 0.6 percent per annum,” he said.“And on that kind of per-formance, there will havebeen a number of investorswho have shied away.

“The recent strength ofthe Australian dollar has re-ally hurt local investorslooking to go offshore,”James continued. “But peo-ple also have to be consciousof what happens in the re-sources sector.

“And in the long run, peo-ple do need to keep a diver-sified portfolio.”

For James, the very dif-ferent opportunity setsavailable in global equitiesdemanded that they beviewed separately.

“Domestic equities in-vestment may have the ad-vantages of better frankingcredits and no currency risk,but the market is also quitenarrow,” he said. “In inter-national shares there aredifferent markets and dif-ferent cycles to play in bothemerging and developedmarkets.

“It’s an altogether differ-ent game.”

Of course, the advantagesof domestic equities invest-ment mentioned by Jameswere those most often citedby institutional investors aswell. Why wouldn’t theyhave a strong local bias onthe back of a tax advantageand what have also beenbetter returns?

And at the moment, it’s aquestion that James seesbeing answered far too easily.

“For that local bias to

change, what we’d need tosee first of all is strong in-ternational equities re-turns,” he said. “Like it ornot, people are going to lookat past performance, and atthe moment, all the badnews seems to be flowingfrom offshore, where thingslocally have been faringmuch better.

“The main risk in the Aus-tralian market is an overde-pendence on the resourcessector and some of the ques-tion marks out there on Chi-nese growth,” James con-tinued. “And for manyinvestors, that could cer-tainly prove the tippingpoint for reconsideration.”

Seeing similar potentialfor the Australian resourcessector to prove a catalystover the longer term,Forster said the Govern-ment’s response to Aus-tralia’s Future Tax SystemReview had done little tochange the local investmentenvironment.

“The tax advantages arestill there, so I don’t expectsuper funds will look to a re-duction of Australian equitiesexposure in favour of globalequities any time in the nextfive years,” he said. “The onlyother point here is that if com-modities come off, it couldlead to a drop in the Aus-tralian dollar and may meanchange in the next few years.

“But even so, it would haveto be meaningful change to tipthe scales away from the do-mestic market.”

GOVERNANCEHowever, beyond the

question of what could tip

the balance of superannua-tion investment in favour ofoffshore markets is the ob-vious need for good corporategovernance and transparen-cy when investing globally.These considerations werehighlighted among the les-sons learned post-GFC, andfor Soutter, the experiencehas shown that there remainsreason for both caution andvigilance.

“I actually sit on an ESG[environmental, social andgovernance issues] com-mittee and when looking atglobal equities, the land-scape of corporate gover-nance changes tremendous-ly from markets such as theUK, with good corporate gov-ernance, to markets such asIndonesia which, though veryattractive, have very poor cor-porate governance and a lotof family ownership,” he said.“So you’re often trying toweigh poor corporate gover-nance against what look likegood companies.

“As a fund manager, weactually go out and see com-panies and question themabout corporate governance,and the issues that come upare in board structure, theindependence of the boardand so on,” Soutter contin-ued. “But I think fund man-agers have a job to ensurethey’re putting pressure oncompanies to make sure ap-propriate governance andtransparency is there.”

Adding to his comments,Soutter pointed out that Aus-tralia had not been immuneto corporate governance


So you’re oftentrying to weigh poor corporate

governance againstwhat look like good

companies.

certainty

problems and regulationbreaches during the GFC.

“You only have to look atABC Learning to see an ex-ample of what was systemicacross the globe in therebeing just too much easymoney allowing leverage,”he said. “Regulation and cor-porate governance is some-thing that is vitally impor-tant, and perhaps more of anissue in international equi-ties because you’re lookingat a far greater landscape.

“In the domestic marketyou have the level playingfield of dealing with one reg-ulator, one government andone set of accounting rules,but in global equities thechallenge is to marry themall up.”

In line with Soutter’s com-ments, Forster said therewas certainly room fortighter regulation aroundglobal equities corporategovernance and that therewas no reason why fundmanagers themselves couldnot influence improvement.

“People in the old daysworried about governanceand transparency in emerg-ing markets but I thinkwe’ve seen in the last fewyears that the issues cancome from the US and de-veloped markets just as eas-ily,” he said. “Enron, for in-stance, is probably proofthat problems can occuranywhere.

“Personally, I know we’dwelcome increased regula-tion as a result of the inci-dents we’ve seen throughthe GFC.”

According to Forster, oneof the facts many people didnot realise was that withinthe US market, less than 30per cent of trades actuallywent through the New YorkStock Exchange.

“So as a consequence, anumber of trading issueshave developed that havefundamentally changed theway the US market tradesand functions,” he said. “AndI don’t think the regulatorshave been able to keep up.

“In the case of superfunds, they should be look-ing to their managers to

makes these calls, but we’vealso been pushing for thesesorts of changes to even theplaying field.”

For his part, James ad-mitted that the GFC hadbrought home the impor-tance of good corporate gov-ernance and transparencyfor most, if not all, investors.

“When markets are goingup, people don’t focus onthese things,” he said. “Andit’s only when the tides goout that you realise peoplehave been swimming naked.

“Corporate governance

has definitely improved foremerging markets, butthere really isn’t any otherway to handle the situationthan to have fund managerswho go over everything witha fine-tooth comb,” Jamescontinued. “Because the re-ality is that disasters canstill happen.”

James said that in a num-ber of cases, the events ofthe last 18 months hadn’t re-ally been countered.

“The solutions thus farhave really been about ac-counting, about movingdebt,” he said. “People aretrying to repair balancesheets, but the reality is thatit’s going to take time andhonestly, I don’t think we’reout of the woods yet.

“In this kind of environ-ment, investors should beseeking those companiesthat have good managementteams, good balance sheets,low gearing and a good trackrecord,” James continued.“Also look out for revenuemismatches where compa-nies have their revenue inlocal currency but havetheir debt in foreign cur-rency or vice versa.

“At this point in time, in-vestors don’t need to be tak-ing unnecessary risks.”

TIMES HAVE CHANGEDBut while the bumpy ride

for global equities seems setto continue, the one cer-tainty seems to be that thedays of vanilla investmentinto the United States andUnited Kingdom are welland truly over. Opportuni-ties in offshore markets areeverywhere and, according

to Soutter, that is a fact wellrecognised by fund managers.

“We tend to think that theMSCI benchmark, so the oneused most often in Australia,has become totally outdat-ed,” he said. “Where it is still50 to 55 per cent NorthAmerican stocks, globalisa-tion has made countries thatwere ignored 10 years ago vi-tally important.

“The world is a differentplace, with companies inemerging markets deliver-ing far higher returns, andwe don’t think the MSCI re-flects that,” continued Sout-ter. “Places like Korea andTaiwan, for instance, arestill considered developing,but they’re seeing a greatdeal of growth and havemuch lower debt.

“They’re markets weshould all be investing inand I think it’s surprisingthat they haven’t seengreater allocations.”

Offering similar advice,James said that investorsneeded to think about re-moving global equities la-bels entirely.

“Just because a stock isclassified as emerging, thatdoesn’t necessarily mean it’sgoing to be riskier,” he said.“Australia has done verywell, but it’s a very smallpart of the global economyand I’d advise investors tolook beyond the vanilla andbeyond the traditional.

“There are different in-vestment themes and op-portunity sets everywhere,and in a diversified portfo-lio it makes a certainamount of sense to embracethem.” SR



☞ Continued from page 21 Just because a stock is classified as

emerging, thatdoesn’t necessarilymean it’s going to

be riskier.

Stuart James

Uncertainty a global certainty


BT Financial Group has appointedformer ING Investment Manage-ment (INGIM) senior portfolio man-ager Ron Mehmet as portfolio man-ager, fixed interest.

Mehmet was with INGIM for 12 years,where he worked as a portfolio man-ager for Australian and global bonds andreal estate investment trusts in thefirm’s multi-manager group. He willleave the firm on 25 June.

In his new role, Mehmet will be re-sponsible for managing Advance’s in-terest in multi-manager funds.

Mehmet’s appointment will allowcurrent portfolio manager, fixed in-terest/economist, Andrew Dowie toconcentrate on his economist roleon a full-time basis.

AMP Capital Investors has grownits Future Directions Funds team inresponse to market growth, with theappointment of senior portfolio man-ager Van Athukorala. His focus willbe on large and small cap Australianequities and international equitiesportfolios.

Athukorala’s previous role was sen-ior investment manager within ipac’sinvestment management division from2001. He has also worked with CSRAustralian Superannuation Fund andGIO Asset Management.

Future Directions Funds portfoliomanager Tanya Debakhapouve hasrelocated to AMP Capital’s Singaporeoffice where she will focus on glob-al emerging equities and Asia (ex-Japan) equities.

The Investment and Financial Ser-vices Association has appointedPauline Blight-Johnston andBradley Cooper to its board.

Blight-Johnston is the managingdirector of RGA Reinsurance Com-pany of Australia, while Cooperis chief executive officer of BT Fi-nancial Group. They replace formerdirector Alan Griffiths and GeoffLloyd, who have both resigned. SR

GESB has appointed Kate Bud-iselik and Edwin Schultz as investment strategists.

Budiselik worked most recently as

portfolio manager for MGPA in HongKong and will be responsible for for-mulating and managing the fund’s realestate and infrastructure asset classstrategies and multi manager line-ups.She has extensive real estate invest-ment experience, having previouslyhad roles as associate and assistantvice president for Citigroup PropertyInvestors.

Schultz has responsibility for assetallocation and currency. He joins GESBfrom Coronation in South Africa, wherehe spent 10 years as a portfolio man-ager and joint head of the absolutereturn unit. He was also the chiefstrategist and a founding member ofCapital Alliance Asset Managers. SR

GESB recruits investment team

Events Calendar

Super Review’s monthly diary of superannuation industryevents around Australia and abroad.

JUNE

AUSTRALIAN CAPITAL TERRITORY

1 – ASFA Luncheon. The lessons I have learnt… Speaker: Dr DonStammer. Venue: Boathouse by the Lake, Grevillea Park. Menindee Drive,Barton. Enquiries: ASFA Member Services Unit. Ph: (02) 9264 9300 or 1800 812 798.

VICTORIA

9 – ASFA Luncheon. The future of group insurance – can we make iteasier? Speaker: Damien Mu, chief distribution and marketing officer, AIAAustralia. Venue: Park Hyatt Melbourne. 1 Parliament Square offParliament Place, Melbourne.

NEW SOUTH WALES

17 – ASFA Luncheon. Why financial literacy must be part of thenational curriculum. Speaker: Paul Clitheroe AM, executive director, ipacSecurities. Venue: The Westin Hotel. Ballroom, Lower Ground Floor. No. 1Martin Place, Sydney. Enquiries: ASFA Member Services Unit. Ph: (02) 9264 9300 or 1800 812 798.

24 – IFSA Deloitte Leadership Series Lunch. Speaker: John Brogden,chief executive officer, IFSA. Venue: Four Seasons Hotel, Grand Ballroom.199 George Street, Sydney.

QUEENSLAND

21 – ASFA Luncheon. The evolving super fund member. Speaker: MarkMcCrindle, principal, McCrindle Research. Venue: Stamford Plaza Brisbane.Corner of Edward and Margaret Streets, Brisbane. Enquiries: ASFA MemberServices Unit. Ph: (02) 9264 9300 or 1800 812 798.

GESB appoints Kate Budiselik and EdwinSchultz as investment strategists.

Fax details of conferences, seminars and courses toSuper Review on (02) 9422 2822

Kate Budiselik

Bradley Cooper

www.superreview.com.au APPOINTMENTS 23

ROLLOVER T H E O T H E R S I D E O F S U P E R A N N U A T I O N

Everything old is new again

Got afunnystory?

ROLLOVER late lastmonth found himself re-searching the history ofthe industry superan-nuation funds move-ment with a view to writ-ing a story about thepattern of consolidationthat had occurred.

As part of that re-search he came acrossa story published inMelbourne’s The Agenewspaper in 2005 re-porting that industryfunds stalwart GarryWeaven was talkingabout entering retire-ment the following year.

Now, to be fair, Weav-en indicated in the in-terview that he waslooking to an active re-tirement with contin-uing involvement in su-perannuation, butthere would be plentyof people involved inrunning retail mastertrusts who would beprepared to believe henever retired at all.

Some say it’s notwork if you’re enjoyingyourself. SR

ROLLOVER believes that,like many other sections ofsociety, the superannuationindustry is subject to fash-ion fads.

Why, a mere four or fiveyears’ ago outsourcing was allthe rage – if it wasn’t core itwas outsourced. You lookeddamned uncomfortable not tosay decidedly unfashionableif you were still taking a DIYapproach to things such as su-perannuation administration.

But fashions change –something Russell Invest-ments proved last monthwhen it decided to insourcethe Australian Member Ad-ministration Centre func-tions it had once seen fit to

outsource to IBM.Indeed, if Rollover’s mem-

ory is not playing tricks onhim, it was Russell’s decisionto outsource to IBM thatprompted speculation aboutIBM becoming the next bigsuperannuation administra-tion player in Australia.

Perhaps thankfully, ‘bigblue’ has never really gainedserious traction as a stand-alone player in the superan-nuation administration space,and perhaps now it never will.

Despite the trillions of dol-lars some suppliers can seeflowing through the superan-nuation industry, administra-tion remains a high intensity,thin margin endeavour. SR

ROLLOVER wishes to offer his hearty con-gratulations to ‘battleship’ Ron O’Hanleyon being headhunted out of BNY Mellon tohead up Fidelity.

O’Hanley who, until early May, was thevice-chairman of BNY Mellon based inBoston, found himself lured away to headup Fidelity Investments, leaving some ofhis former colleagues feeling a tad dis-oriented, not to say disappointed.

Super Review nicknamed O’Hanley ‘bat-

tleship’ because our only locally producedphotograph of the great man was taken atthe National Maritime Museum with theguns of a retired destroyer as a backdrop.

Somewhat coincidentally, Rollover laterlearned that O’Hanley had decorated hisBoston office with maritime art.

While Rollover knows O’Hanley will bemissed at BNY Mellon, he is delighted thatsomeone in their 50s can still be head-hunted. SR

‘Battleship’ Ron sets sail

AGE and rank hath their privileges.One such privilege is being able to say ‘no’ without

feeling any undue guilt or embarrassment.And such was the case when Rollover politely declined

an invitation from AMP Capital Investors to abseil downthe (in Rollover’s view extremely tall) AMP buildingoverlooking Sydney’s Circular Quay.

Having once in his youth jumped out of a perfectlyserviceable aeroplane, Rollover believes he has used upa large slice of his luck and should not push the issue.

Rollover is not averse to sitting atop tall buildingsfronting Circular Quay, however, he likes to do so fromthe relative safety of a table at Café Sydney.

He is pleased to report, however, that two of his youngfemale colleagues volunteered to take up AMP Capi-tal Investors’ invitation, arguing they were extremelywell qualified and desired some excitement in their lives.

And here was Rollover thinking that working with himwas excitement enough. SR


The height of tempting fate

Workingfor aliving

about people in the superannuation industry?

Send it to Super Review and youcould be raising a glass or two. Super Review is giving away abottle of bubbly for the funnieststory published in our next issue.

Email [email protected] send a fax to (02) 9422 2822.

Ashleigh McIntyre and Lucinda Beaman hanging out.

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