TelstraSuper has changed its Mysuper Lifecycle options and introduced a High Growth option to reflect that members live and work for longer
In the final quarter of last year, Telstra Super made a series of changes to its MySuper Lifecycle investment options to reflect the fact that people continue to live and work longer and, therefore, would benefit from a greater exposure to growth assets.
On 1 October 2023, the fund introduced a new MySuper Moderate investment stage for those aged between 65 and 70 years. This option has an exposure of 53.8 per cent growth assets and 46.2 per cent defensive assets and aims to achieve a long term return of CPI plus 2 per cent.
Previously, members who turned 65 were automatically transferred to a conservative option. TelstraSuper expects the moderate option to produce higher long-term returns than its conservative option.
TelstraSuper also raised the age-based thresholds at which MySuper members are transferred into more defensive investment stages. Younger MySuper members will remain in MySuper Growth for an extra five years until age 50, rather than being automatically transferred into MySuper Balanced at age 45.
Earlier this month, TelstraSuper announced its MySuper Growth Investment Option earned 9.6 per cent, net of all investment taxes and fees, for the financial year to 30 June 2024.
TelstraSuper also introduced a High Growth option, which is not part of its MySuper Lifecycle default, but which it believes might appeal to younger members, who still have a long investment horizon ahead of them.
This option consists of 90 per cent growth assets and 10 per cent defensive assets, while it has a tilt towards technology and other innovative companies in their early stage of growth. The option targets a return of CPI plus 4 – 4.5 per cent and members should have a horizon of at least 10 years.
“What we are seeing is that working patterns are changing, people are working longer, people are living longer. And retirement isn’t the binary thing that it might once have been, where people simply stop working and stop earning an income,” Graeme Miller, Chief Investment Officer at TelstraSuper, says in an interview with [i3] Insights.
What we are seeing is that working patterns are changing, people are working longer, people are living longer. And retirement isn't the binary thing that it might once have been, where people simply stop working and stop earning an income
“Even people in their late 40s and 50s are likely to have their super invested for many, many years, probably many decades, into the future. And for that simple reason, history tells us that growth-oriented investment strategies over time outperform those with lower growth allocations.
“It just makes a lot of sense for people to invest in a way that’s consistent with their time horizon,” he said.
TelstraSuper has a membership with a relatively high average member age. More than a quarter of its members has been with the fund for more than 30 years. It also has a much higher average account balance than most other super funds, at close to $300,000.
It means that the majority of TelstraSuper members are likely to retire with significant superannuation balances and be in a position where those balances will provide them with financial security for a long period of time.
“What we see for many members, probably most members, is that they tend to phase down their working patterns over time rather than having a hard stop at retirement,” Miller says.
“And so, on the one hand, what we need to balance is making sure that the assets are invested aggressively enough so that they do generate strong investment returns over the longer term time periods.
“But we also can’t ignore the fact that volatility does matter to members and volatility matters to members increasingly as they get older and particularly as they enter retirement and through retirement itself,” he said.
The review of the investment options was also partly inspired by the introduction of the Your Future, Your Super legislation. The performance test under this legislation has made it more difficult to address volatility and risk through idiosyncratic investments and funds have to rely more on asset allocation techniques to align with their members’ interests.
“In a pre-Your Future, Your Super world, we had more degrees of freedom to take, what I might call, off-benchmark positions and to invest in a way that looks different to the market cap weighted indices that are used by the Your Future, Your Super regulations than we do now,” Miller says.
“When we look at the suite of levers that’s available to us in order to manage volatility in our portfolios for our retirees, we’re leaning more on the asset allocation lever these days than we used to, and far less on the portfolio construction lever than we used to,” he says.
Climate Change
In March 2021, TelstraSuper released its Five-Pillar Climate Change Plan, which includes 25 actions to be taken across the fund’s portfolios and operations. As part of this, TelstraSuper has an interim target to reduce the emissions of its listed asset portfolio by 45 per cent by 2030, compared to current levels.
Miller is confident that the fund will meet its interim target.
“We are tracking very well. In fact, we’re tracking ahead of where we thought we’d be, and I’d be confident that the portfolio will meet that milestone when 2030 comes along,” he says.
TelstraSuper is also looking at investments that align with the energy transition and set itself a goal to invest at least 1 per cent of the portfolio over the next three years.
“One way that we can recognise this [transition], is to seek to identify those companies or industries or activities that are likely to be adversely impacted by the transition and to downweight or manage our exposure to those,” Miller says.
“But of course, the other way of recognising the transition to a lower carbon economy is to identify those industries, companies, ideas, opportunities that are likely to benefit from the transition and to proactively invest in those.
“And in order to make that a bit more tangible, we said to ourselves: ‘Well, over a three year period, let’s see if we can find at least $250 million of those opportunities to invest in’. [But] it’s not a hard and fast target,” he says.
Yet, TelstraSuper is on its way to invest more than the targeted $250 million. The fund has found a number of opportunities in infrastructure, but also in more innovative companies that it has invested in under its opportunities portfolio.
“By the end of this year, I expect that we will have invested more than the 1 per cent target, more than the $250 million,” he says.
An example of a co-investment that aligns with the energy transition is Australian company Hysata, which manufactures high-efficiency electrolysers for the production of green hydrogen.
“It is an Australian company that is leading the field in developing a catalyser that very efficiently converts hydrogen into energy. It is another relatively small, but potentially very high returning asset that we’ve invested in that portfolio,” he says.
We have an active co-investment program within our private markets portfolio, and these days, it would be unusual for us to make a commitment to a new private equity fund or a new private markets fund without securing co-investment rights alongside that as part of the conditions of entry
Although this is a relatively small investment, co-investments have become a larger part of TelstraSuper’s investment strategy for its unlisted portfolios.
“Co-investments is definitely an area that has seen increased interest in activity for Telstra Super in recent years,” he says.
“We have an active co-investment program within our private markets portfolio, and these days, it would be unusual for us to make a commitment to a new private equity fund or a new private markets fund without securing co-investment rights alongside that as part of the conditions of entry,” he says.
“Co-investments allow us to reduce the fee burden on our members and invest in commingled funds that would otherwise potentially be prohibitive from a cost perspective. [And] our experience has been that they very often give us access to some terrific opportunities,” he says.
But Miller also says it is important to structure these deals in such a way that the fund is not forced to commit money to certain projects.
“Of course, the way that we structure them is we always have discretion about whether or not to participate, and indeed, the extent to which we choose to participate or not. It gives us more control over the shape of the portfolio and it allows us to emphasise or de-emphasise certain areas, or certain themes, as circumstances permit,” he says.
__________
[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.