It is that time of the year again to look back on the previous 12 months to see what piqued the interest of our readers.
Looking through the data for the annual Year in Review article is always an interesting exercise because it tends to give a good insight into the key agenda items of asset owners.
This year’s top stories did not disappoint in this regard.
By far the most read article of 2021 was an interview with Brnic Van Wyk and Ben Hillier, who designed QSuper’s new retirement strategy.
Retirement has featured highly on the agenda of many superannuation funds as the Retirement Covenant will come into force on 1 July 2022.
QSuper is one of the first cabs off the rank with a Comprehensive Income Product for Retirement-style option. As such, many eyes were trained on the fund to see what it would come up with. QSuper’s product has the unique feature of giving members the choice to buy into an income stream with the guarantee that they, at the minimum, get back the money they put in.
In second place, we find an interview with Brett Chatsfield, the Deputy Chief Investment Officer of Cbus, talking about its progress on the internalisation of asset management functions. Internalisation is a big topic as most of the largest funds in Australia are going down this route in some form or another.
The topic of in-house management is not just related to scale, but also mergers. As Treasury, and in extension the Australian Prudential Regulation Authority (APRA), continue to push for smaller funds to merge with larger funds, the average scale of super funds continues to increase.
In combination with the pressures on cost, partly driven by the Your Future, Your Super (YFYS) legislation and the accompanying performance test, funds will look to do more internally. It is therefore no surprise many investors are keen to learn how Cbus goes about it.
In third place is AustralianSuper and its journey into Chinese A-shares. China remains a key talking point for many investors. As Chinese assets continue to be included in large indices, the need to introduce a dedicated allocation becomes more pressing.
But on the macro level, China has been in the headlines too. There has been much concern about the deeply impactful regulatory changes in the country that have affected real estate, education and healthcare.
The Chinese government has also stepped up its pressure on Chinese companies that have listed overseas to bring their listing back to domestic markets.
Although investors usually don’t make investment decisions based on macro trends, these regulatory changes have given many of them reason to pause any further allocations.
In fourth place is IOOF’s plans to expand co-investment projects in the alternative space. Florence Chong spoke with Manish Utreja, Head of Alternatives at IOOF, about expanding the number of co-investments the company makes in the alternative asset space as the fund is looking to gain greater control over its investments at a more efficient price point.
If there is one constant in the superannuation industry, then it is the high rate of change
Finally, in fifth place is State Super’s appointment of a new CIO: Charles Wu.
Appointment stories tend to be the bread and butter of news-based publications. But since we take more of an educational approach to our content, we only publish appointment stories that cover the most senior positions.
The high placing of the Wu story could indicate our readers’ interest in the appointment itself, but is likely to also reflect the innovation he has brought to State Super, in particular the fund’s efforts to integrate machine learning into its investment process.
In a previous interview, Wu explained how machine learning has augmented the fund’s investment process, while many other asset owners are only just dipping a toe in the water.
When we look at our most popular podcasts for the year, a similar image emerges. It is again asset owners that take the top spots.
The most downloaded podcast was an interview with Alistair Barker of AustralianSuper, in which we discussed asset allocation, the impact of the Your Future, Your Super reforms on active management and technological disruption.
This episode was closely followed by an interview with John Pearce, Chief Investment Officer of Unisuper, talking about Pearce’s impressive career. This interview was published only recently, and four months after the podcast with AustralianSuper, so it might still gather listeners in the weeks to come and catch up with AustralianSuper.
Finally, in third place we found a conversation with Daniela Jaramillo, former Senior Responsible Investment Adviser at HESTA and now Director of Sustainable Investing at Fidelity, about environmental, social and corporate governance issues, a key topic in recent years.
Looking Ahead
So what might we expect for 2022?
The Retirement Covenant will continue to drive much fund activity as they are developing their framework for the launch date in July.
But the YFYS performance test, implemented by APRA, will also cause funds to modify their investment decisions and is likely to see more funds at the smaller end of town being directed to merge with larger partners.
This drive throws up some interesting questions for the future of the industry. Consolidation comes at the price of competition. Many funds will find it increasingly difficult to compete on cost and performance with the top 10 super funds, not just the smaller end of town.
But what is perhaps more concerning is now that smaller funds are deemed inefficient, the industry is essentially closed to new entrants.
After all, no new super fund will start with $30 billion in assets from day one, while it would almost certainly fail the performance test in the first couple of years of its existence.
But perhaps I’m getting ahead of myself.
After all, if there is one constant in the superannuation industry, then it is the high rate of change.
Wouter Klijn
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[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.