A model superannuation funds should strive for
HOSTPLUS is the industry superannuation fund for the hospitality, tourism, recreation, sports and related industries, although membership is open to all. The super was announced as the Pension of the Year winner at the SuperRatings awards in October and its board was named in the 2011 Cooper Review as the model to which all superannuation funds should strive for.
Given its industry focus, HOSTPLUS’ members are typically young, which is both an opportunity and a challenge, according to David Elia, who has been CEO of HOSTPLUS since August 2003. This enables the fund to invest with long time horizons rather than chase short term returns. At the same time, being young, many members are not particularly engaged with their superannuation. “One of our major challenges is to encourage them to pay super some attention. If we can engage with our members early and motivate them to take an interest in their super, we can provide them with the best chance of a comfortable retirement.”
In addition, the transient nature of the hospitality industry means HOSTPLUS’ members are more likely than average to have multiple jobs and therefore multiple superannuation accounts, which can ultimately decrease their total savings. “We need to constantly remind our members that HOSTPLUS can be their fund for life and to continue to choose HOSTPLUS when they change jobs. A large proportion of our members join HOSTPLUS when starting their first job, so we are in a privileged position of being able to retain members throughout their working life by demonstrating value and by educating young members about their super more broadly.
“Of course, some are further into their careers, giving us the opportunity to help them with financial planning services and pension products, for example.”
Since its inception HOSTPLUS has entirely outsourced its investment management. The trustee periodically reviews this model and assesses whether any part of investment management should be brought in-house, but Elia adds: “Our model has served our members well to date so we have no immediate plans to make any major changes to this approach.”
HOSTPLUS invests in a range of asset classes including both listed and unlisted investments. The trustee has appointed JANA Investment Advisors as the fund’s asset consultant to provide advice on investment issues including strategic asset allocation, portfolio construction, and investment manager selection and implementation. “The volatility which has been evident in many investment markets in the recent past has provided the fund with an opportunity to acquire high quality assets at low valuations. For example, the trustee has made a decision to allocate new funds to the equity markets on three separate occasions during the last 12 months.
“In making these investments the trustee does not deviate from the long term investment focus which has always been an important part of the fund’s investment strategy. The intention is, rather, to take advantage of the significant asset valuation discounts that are available in the marketplace as a result of negative investor sentiment.”
In addition, HOSTPLUS invests both domestically and internationally (see table). Given the proportion of its A$10bn ($10.4bn) portfolio invested in overseas markets, currency risk is a major consideration for HOSTPLUS. Its board has implemented a hedging policy for its investments denominated in overseas currencies and its currency overlay manager has been tasked with managing currency exposure in line with this policy.
HOSTPLUS’ approximate domestic-international split of investments for various asset classes and for the fund as a whole:
Asset Class Domestic International
Equities 58% 42%
Direct Property 90% 10%
Private Equity 41% 59%
Infrastructure 51% 49%
Alternatives 0% 100%
Fixed Interest 96% 4%
Cash 100% 0
Total Fund 67% 33%
HOSTPLUS’ investments in alternative asset classes currently amount to approximately 37% of its total exposure. Elia says the main focus has been on direct property, private equity and infrastructure investments, and that its 10 year return is among the highest in the market.
One area that has changed during Elia’s time in superannuation is the industry’s own professionalism. “Super is now a major component of the economy. It is a A$1.4trn industry, forecast to grow to A$3trn in the next decade and has become a major employer. The growth in the number of people I see working in the industry now, and the quality and professionalism of those people, is certainly a positive.
“People often associate super with ongoing rule changes and too often past changes to regulations have been more about tinkering around the edges rather than wholesale changes. More recently, though, we’ve seen substantial and very positive reform announcements that will provide increased transparency and equity, position the industry favourably for future growth and deliver benefits for workers and the nation.
“I would like to see more focus on ensuring that members can make fair and reasonable comparisons between products to enable workers to make the right choices for their retirement savings. Although there have been some improvements here, the reality exists that too many members, and for that matter their employers who select default funds, don’t have the capacity to really scrutinise the products on the market to ensure they are getting the best value available with a full understanding of the costs involved. Super remains quite a unique product in that regard.”
Elia adds the introduction of compulsory superannuation has to be one of the most important socio economic reforms made by any Australian Government since Federation. “It was a far-sighted piece of policy making and even though the system continues to mature, the nation and more specifically workers have been benefitting for the last two decades. Australia’s retirement savings framework is the envy of virtually every other economy around the globe and I think the key here is the value of both foresight and patience from policy makers.”
One of the major stabilising factors that led to Australia avoiding the economic crises that other Western and European countries experienced and continue to experience was the role played by the superannuation system, Elia says. “It helped re-capitalise corporate Australia in its time of need. Other nations and their economies simply didn’t have the capacity to tap into their nation’s pool of savings in the way the Australian economy was able to do.”