Home / Capital stewardship the big new topic for super funds

(pictured: Tom Garcia) 

The big topic of “capital stewardship”, as a kind-of overlay for responsible investing and ESG that have been embraced by super funds and other fiduciaries, was a key theme at last week’s AIST Australian Superannuation Investment annual conference in Cairns.

Tom Garcia, AIST chief executive, said the 430 capped-attendance to what is the largest specialist investments conference on the Australian calendar included the largest-ever number of trustees, who also actively discussed investment strategy in the difficult world of low returns.

“Capital stewardship” encompassed the notion of being entrusted with a body of money and its long-term importance for an economy and society. “It’s more than RI (responsible investing),” Garcia said. “We had a couple of sessions on that… It’s an expansion and appreciation of investment governance and everything it contains. ESG, including climate risk, is a subset.”

The plenary session by Mark Blyth, political economy professor at Brown University in the US, was one of the highlights. He discussed how to “price” current politics, including the phenomena of Brexit and the US presidential elections, which reflected disenchantment with institutions, as well as where to find upside in a “long and low” investment environment.

Garcia said funds discussed getting the balance right between strategy and compliance. What the “low and long” investment climate would mean for returns. CPI was also low, so should funds adjust their targets and asset allocation?

“There is an enormous challenge for the industry to communicate all this to the members,” he said. In his opening speech at the conference Garcia observed that funds had not done a good job in communicating their level of professionalism and their IP – all the work that goers into producing returns. This played into the hands of those who think they can do just as well on their own.

The inevitable fee debate continued with recognition that funds needed to be concerned about net (after fees, tax and other costs) returns. “We don’t want to be cheap cheap cheap for the sake of it,” Garcia said.

AIST is working on a manual for the proposed introduction of RG97 next year which demand greater disclosure of fees at all levels, which some have predicted will add significantly to compliance costs.

“We’re working with APRA on that,” Garcia said. There’s still some confusion about its implementation, with different funds having different interpretations.”

Another focus of APRA has been on fund flows. About 45 per cent of APRA-regulated funds now have negative flows, because of the combination of lower returns and increased benefits payments due to the demographic trend for retirement, and 25 per cent had reduced net assets.

“They’re not saying wither the strategy is right or wrong; it’s a question of whether it’s appropriate for the changed environment,” he said.

But, on the related matter of retirement strategies and products, Garcia said that the CIPR (comprehensive income product for retirement) proposal which came out of the Financial System Inquiry was a “golden opportunity” for funds.

Although he thought the name was not the best, as it emphasized “product”, the notion of having a “soft default” for retirees which balanced risk, income and flexibility was a very good one.

“It won’t be considered advice, and so therefore accessible to everyone. We know that advice only touches about 20 per cent of members. Jenny Wilkinson, division head of retirement income policy at Treasury, told the conference that Treasury would be producing a paper on the subject by the end of the year.

Craig Hurt, the head of AXA Investment Management Australia and New Zealand, who brought out Laurent Bourlard, the global chief executive of AXA Life Invest to speak at the conference said afterwards that in their discussions with both not-for-profit and for-profit funds the two main concerns were access to capital and flexibility.

“There is a surprising level of common ground between the two sectors,” Hurt said. “The main areas of difference is average balance – tending to be much higher for members of retail or for-profit funds.”

Bourlard commented that, in the accumulation phase for members, if once every 10 years returns are going to disappoint – which is a statistical fact – that is not a major problem when there is time to catch up. But in retirement it can be. In retirement you can’t afford to live statistically.

– Greg Bright