mast image

Impact Investing

IPE special report May 2018

Sections

Qantas Super seeks yields adequate for retirement

Related Categories

After becoming a director of Qantas Superannuation Plan in March 2004, Anne Ward was elected chairman in April 2005. With approximately 33,000 members and almost A$6bn ($6.2bn) in assets, Qantas Super has no intention to be a public offer fund, according to Ward.

 However, it does have an offering for spouses, for employees who have left Qantas, those who are transitioning to retirement, and a pension stream for those who have retired. Five of the board’s directors are appointed by Qantas, and five are elected by the fund’s members. “The challenge for us is to be the fund of choice for Qantas Group employees and their families, and to create and protect value for our members, and for Qantas.

“We’ve witnessed enormous volatility in investment markets in the past decade, and with factors such as sovereign risk and banking concerns in Europe and a question mark over the sustainability of China’s growth, this uncertainty is likely to continue for some time and present a challenge for all super funds.”

Qantas Super seeks to ensure that each investment option is diversified by asset class, investment manager and geography relative to the objectives of the member’s chosen option, she adds. “At the same time, we invest in predominantly high quality, relatively liquid assets. We undertake rigorous stress-testing to ensure that each investment option can withstand a range of economic and financial market scenarios, and still deliver outcomes that are within the stated risk and return tolerances.”

Qantas Super has adopted a fully outsourced investment model using carefully selected partners, while its internal investment team manages the Plan’s investments in terms of strategic direction and approach, according to Ward. “We believe strongly in building trusted relationships with aligned service providers that will help deliver the best long-term risk-adjusted returns, net of taxes and investment costs, to our members.”

In recent years, Qantas Super has reduced its exposure to listed equities and increased its investment in alternatives, such as Australian infrastructure and global return-seeking credit. “We have spent considerable time over the past few years developing our alternatives program in order to deliver more stable investment outcomes than one would typically expect from listed equities. This has involved the initiation of an infrastructure strategy in Australia and more recently in Asia. Examples of Australian infrastructure investments we have made include the Tasmanian Gas Pipeline, the Port of Portland and an environmentally friendly municipal waste processing facility currently being constructed in Western Australia.”

The Plan’s split between Australian and global investments differs between each investment option, but it retains a strong domestic bias in areas such as unlisted infrastructure and property, fixed interest and cash. In terms of currency risk, it currently has a strategic hedge ratio of 50% for developed world equities and 100% for global alternatives. “We do not directly take active positions in relation to foreign currency given our investment belief that it is difficult to consistently generate excess returns in this area.”
The Australian superannuation sector is undergoing profound and fundamental change driven by the “Stronger Super” legislation, “Super Stream” and the introduction of the Australian Prudential Regulatory Authority’s (APRA’s) prudential standards, according to Ward.

She believes these reforms are part of the natural evolution of superannuation regulation, reflecting the growth in size and complexity of the industry, and bring opportunities with them. “We have recognised the opportunity to improve our benefit design as we implement our MySuper offering, to develop stronger relationships with our sponsor and with APRA as we work through the changes, and improve our management and understanding of investment risk through improved tools and techniques. We have also taken advantage of the Stronger Super reforms to identify quality solutions and product enhancements that are meaningful and relevant to our members over the long term.”

However, the time, effort and resources needed to understand and comply with the new requirements should not be underestimated, she adds. “Implementing changes increases operational risks. Like all funds, we need to ensure our business operations, systems and administration platforms are able to keep pace with our requirements, and meet our members’ expectations.”

Indeed, Ward believes the sector is facing changes in community expectations of superannuation and its governance. Many people are establishing self-managed superannuation funds and the sector needs to continue to work hard to maintain confidence in superannuation as a long-term investment vehicle. “After 20 years of compulsory contributions, Australian workers are questioning whether the system will yield adequate savings for their retirement and are demanding greater transparency and disclosure in how super funds are managed and governed. At the same time, years of low returns and frequent changes in taxation rules for super have eroded public confidence in the system.

“The issue of engaging members is a perennial one for most super funds. Super is future-focused, and most people don’t think about it until they need benefits such as insurance, or when they are approaching retirement. The best approach is to engage people and get them thinking about super as early as possible in their working life. So we are working to engage our members through improved communications.

Australia is widely regarded as having one of the best superannuation systems in the world, Ward adds. “Relative to other countries, our system benefits from a number of key features, including compulsory contributions that provide strong and predictable cash flows and a robust ‘safety net’ in the age pension.

“However, it also has shortcomings, such as the continued focus on lump sum benefits, the lack of a competitive and healthy annuity market and the emphasis on short term investment returns.”

Although governance standards are strong, I believe there is a still room for improvement. “We have much to learn from the systems in countries such as the Netherlands, Canada and Sweden – and they can no doubt learn from us. I’ve attended a number of international forums where there are representatives from other systems and the one thing we all agree on is that no superannuation system is perfect.”

 

 

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2436

    Asset class: Real Estate - Core Open-ended Real Estate Equity Fund (non-listed).
    Asset region: Asia Pacific.
    Size: Approx. CHF 70-100m per investment.
    Closing date: 2018-05-25.

  • QN-2438

    Asset class: High Yield Bonds.
    Asset region: US.
    Size: USD 300 million.
    Closing date: 2018-05-25.

  • RE-2441

    Closing date: 2018-05-31.

Begin Your Search Here