Wednesday, 31 August 2016

Is QSuper doing a good job with your money? This is an obvious question for any super fund member and one we continually put to ourselves in managing your retirement savings. Through this blog we’ve spoken about QSuper’s investment philosophy and the changes we made to our investment strategy some years ago. In part the reason for us blogging is to tell you about exactly this.

To recap, in 2009 QSuper took the decision to build an internal investment team. Previously this role was delegated externally. It was pure coincidence that the timing of this took place in the aftermath of the GFC, but the dislocation1 in financial markets at the time did very much influence our thinking. When the QSuper Board of Trustees and the Investment Committee were speaking with our senior team, wondering where we should take the Fund, one priority was high in all of our minds: our members needed better management of their risks.

The sequence of gains and losses that members earn over the course of their lifetimes matters a great deal. Saying ‘just ride it through the long term’ is simply wrong because if the sequence goes against you it can be very damaging indeed.

The traditional default investment approach among Australian super funds – equity-heavy, not very diversified – isn't necessarily wrong but certainly didn't resonate well with our members, based on the stark feedback we received from you at that time.

So we opted to develop an investment strategy which could grow members’ super balances while offering as much protection as possible from the inevitable volatility of asset prices and financial markets.

As a result we established two things. The first was QSuper Lifetime, our default option for the Accumulation account, which is a lifecycle option built around both age and account balance. The concept behind this investment option is that members’ investment strategy automatically alters over time according to age and level of funded-ness.

The second initiative was our attempt to work out how we can do better in terms of asset allocation in our multi-asset class options2. Rather than exposing members heavily to equity risk we wanted to better manage the impact that a potentially disadvantageous sequence of returns can have. You can read about this strategy in more detail.

So if we’re clear on our mission how do we ensure the course we’ve charted is going to get us to our destination?

One way is through ongoing dialogue with those we think are global thought leaders in pension fund design. These include academics, peers, and investment managers and consultants.

One recent example of this is our interactions with the UK government’s default pension fund, the National Employment Savings Trust (NEST)3. NEST is in the unique position of building a fund with very similar purposes to the compulsory super system here in Australia but with the benefit of having a raft of global peers to look to. The fact that NEST maintains a working dialogue with us is both a validation of our own current thinking and is very useful in testing the thinking around some of the technical aspects of our approach.

Another example is that we’ve been invited to speak at the Actuaries Institute colloquium for the last two years. This event brings together more than 180 actuaries from 32 countries. Presenting to a room full of some of the most capable actuarial minds to consider our approach and processes is a sure fire way to get some constructive feedback!

We are also regular contributors to the Investor Intelligence Network which is a closed online forum for global asset owners to shares ideas, seek feedback and discuss challenges and successes with the goal of progressing collective thinking.

Testing and refining our thinking is an ongoing process. It’s also a key part in achieving our goal to get our members to a point of retirement adequacy.

1. Dislocation describes when financial markets, operating under stressful conditions, experience large, widespread asset mis-pricings.

2. This refers to QSuper Lifetime and the Balanced, Moderate and Aggressive investment options.

3. The National Employment Savings Trust (NEST) Corporation is the trustee of the NEST occupational pension scheme, which is run on a not-for-profit basis ( views of the author are not necessarily the views of the QSuper Board. We’ve put this information together as general information only and you should get professional advice before relying on this information.

The views of the author and those who provide the responses to comments posted on this blog are not necessarily the views of the QSuper Board. We’ve put this information together as general information only and you should get professional advice before relying on this information.

Past performance is not a reliable indicator of future performance. Each of our investment options has a different objective, risk profile, and asset allocation.

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