Active Super and Vision Super are now entering the home stretch of a drawn-out merger process that will create a new $29 billion fund with 170,000 member accounts.
The NZ Superannuation Fund has made half-a-dozen fresh investments over the previous few months across an eclectic range of strategies including US timber, a quant trend-follower and a life science specialist.
Perfect storm for superannuation funds – QIC
(Pictured: Matthew Peters)
QIC chief economist, Matthew Peters, says a combination of four factors could lead to a perfect economic storm for superannuation funds as they try and boost returns for members over the next few years.
At the same time as interest rates are at record lows, funds are facing increasing pressures to maximise income, as more members enter pension phase.
Market volatility and a changing regulatory environment are the other two factors that will weigh heavily on superannuation funds.
“You start to wonder about the prospects for returns going forward and the first idea is you are going to have very low yields to bond portfolios,” Peters says.
It’s going to be difficult for funds to hit their return objectives in a low rate environment and that could force them into more risky assets.
“If super funds are forced in someway…to sort of move away form lump sum payments to the provision of pensions, then the pursuit of short run returns to maximise a lump sum payout will start to fade and there will have to be a long term goal of preserving an income stream.”
The regulatory pressures on funds could include changes in the default fund requirements, as a result of the Murray review, which will see increasing competition amongst all funds as they vie for preferred fund status in employment agreements.
As funds start to understand and adapt to this new regime, there may be a seismic shift in investment approaches.
“If superannuation funds start to get more into post-retirement funds on behalf of superannuants, they are sort of looking at a liability asset matching environment,” Peters says.
But that could create opportunities for fund service providers as well, as superannuation funds look to outsource the risk of matching their future liabilities.
“These are really tricky things for superannuation funds to tackle,” Peters says.
Real assets like infrastructure and real estate may be better suited for liability matching due to their long-term income generating capabilities.
“To the extent that those real assets better matched to a long term investment, they’re sort of good assets to be in,” he says.
Australia is also fortunate in that it has a good supply pipeline of these kind of real assets.
“There is a search for yield element to it as well but there is also an element of diversification away from equities…but it is better for liability asset matching.”
