On 31 May, the Australia-Israel Chamber of Commerce, together with partners Gilbert + Tobin and ACS hosted a business lunch on the changing role of the chairman and CEO in the superannuation sector with AustralianSuper’s Chair Heather Ridout AO and CEO Ian Silk, in conversation with Dr. Martin Fahy, CEO of ASFA.
The Australian newspaper recently reported an increase of $80 billion into industry superannuation funds over the past year – almost four times the rate of rival retail funds. Under Heather Ridout and Ian Silk’s stewardship, Australia’s largest industry super fund, AustralianSuper, has experienced extraordinary growth.
The $155 billion fund is forecasting $16 billion in cash inflows for the financial year about to end, a sharp increase on last year.
Speaking about the success of the fund, Chair Heather Ridout said “the fund is a great Australian success story, like BHP. We play the long game, and in a 10 to 15 year forecast, we are number one. It started with a very strong culture, the members first culture. It is a very good organisation.”
Chief Executive Ian Silk agreed that the culture underpinning the organisation was key.
“As a profit for members fund, AustralianSuper is different to a commercial entity,” he said.
“I don’t have to drive the board. One of the benefits of the equal representative structure is that they live the member experience, it’s part of the culture of the organisation.”
In terms of growth in membership and members’ assets, Mr. Silk said the ultimate measure of success was the performance of the fund.
“Our objective is to perform. This will drive new members to the fund and will be the catalyst for further growth,” he said.
Mr. Silk that the bulk of new inflows to the fund has come from the big four banks and AMP in the wake of the royal commission.
When moderator Dr. Martin Fahy suggested AustralianSuper had had a “good” royal commission, Mr. Silk said that he simply had a good story to tell.
“I was just telling the AustralianSuper story, others were carrying the organisation on their shoulders and that’s a heavy load to bear,” he said.
He agreed that the fund emerged fairly well and that the subsequent shift in market share was partly reflective of that.
With regards to lessons learnt from the royal commission, the pair were reflective.
Ms. Ridout said “it put our processes under scrutiny, it showed up strengths and weaknesses, however the cost to the fund was enormous, well over a million dollars of members’ money.”
Mr. Silk said that the royal commission had an enormous effect on the financial services industry and broader corporate Australia.
“Corporate and individual reputations were lost, share prices were trashed. Will it improve general corporate behaviour? Yes, that will happen, but the question is how long lasting will that be?” he said.
There are some major changes afoot for the country’s largest industry superannuation fund.
Projected to reach $300 billion in assets by 2025, AustralianSuper is forecast to increase its allocation to overseas investments from about half to about 60% by 2024.
“The next wave of change is going to be a much greater allocation offshore and a much greater direct investment,” Mr. Silk said.
“We will continue to be investing in Australia, it’s just the greater share of new money will be going offshore to protect the interests of members in the fund,” he said.
The AustralianSuper chief called this a “very significant shift” in the way the fund invests.
Twelve years ago, all its capital was handled by external managers; now, only 60 to 63% is managed by external parties and the rest is managed in-house.
Mr. Silk said, “we were previously an organisation that focused on managers; increasingly, we're going to be an organisation that focuses on securities.”
“And many of those decisions to purchase these securities are going to be made by people that work in our office,” he continued.
Regarding the move towards more active management of assets internally, Ms. Ridout said “I can't think of one good company that wouldn't want AustralianSuper in their shareholding, because we're long-term investors – we're into long-term value creation…we're patient capital.”
On the subject of the ‘culture wars,’ Ms. Ridout said she was happy to hear that the newly appointed Assistant Minister for Superannuation, Financial Services and Financial Technology, Jane Hume, wanted to bring an end to the longstanding feud between retail and industry funds.
“We want strong performing funds for all Australians; everyone has the right to be in a well performing fund. There are issues the industry needs to deal with like multiple accounts and fees – we need to get the industry into the best place it can be,” she said.
AustralianSuper expects returns of about 7% this financial year, compared to double-digit returns in previous years.
However, Ms Ridout cautioned members about moving their money to cash.
“Be very careful about taking your money out and putting it in cash,” she said. “A lot of people did in the last quarter last year and they've missed the recovery from that volatility.”
When asked her view on global capital markets, she said we were entering a more “cautious and volatile” world, and that global politics had “intruded” on investment markets more than she had seen before.
But she said the market volatility last year was caused by trade tensions and other factors, rather than economic factors.
“I think we’re into a slower world going forward, and the post-GFC double digit return I think is probably, unfortunately, not going to necessarily characterise the next five years, but who knows,” Ms Ridout said.