Perspectives on Your Future Your Super legislation from a superannuation fund leader
Global Investment Insights
with Kate Farrar, Chief Executive Officer, LGIAsuper
Kate Farrar is the Chief Executive Officer of LGIAsuper, having been appointed to lead the organisation, following the completion of its merger with Energy Super, from 1 July 2021.
2021 has been all about inorganic growth for LGIAsuper, in keeping with the superannuation industry’s rapid consolidation trend. Aside from its merger with Energy Super, on 28 April 2021, LGIAsuper was announced as the preferred buyer of Suncorp Super due to occur in 2022.
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Your Future Your Super will drive superannuation funds to take less risk against their Strategic Asset Allocation decisions.
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“From a portfolio perspective, having spent the last six months preparing to reach our merger date with a harmonised MySuper product and underlying portfolio, we are now turning to a more comprehensive review of how we should integrate Energy Super’s and LGIAsuper’s underlying portfolios and products. This is particularly important in the context of all the new legislation aimed at uplifting member outcomes, like the Design and Distribution Obligations, Member Outcomes, and Your Future Your Super”, Kate explained.
On the point of Your Future Your Super, Kate highlighted that, although LGIAsuper completely supports the intent of the legislation to improve outcomes for members, “the asymmetric payoff of the legislative design will drive superannuation funds to take less risk against their Strategic Asset Allocation decisions” (if you fail the performance test twice, you cannot accept members into your product any longer).
Kate continued, “this will likely push funds towards more passive investing and more fee-efficient and low tracking-error positions, which may cut out some really high-performing sources of returns for members, which they have been able to access over the past decade. It will also change the timeframe of trustees’ investment focus, from (for example), a legislated 10 years for a MySuper product, to an annual performance test, which may not be in the best interest of younger beneficiaries, particularly.”
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Your Future Your Super may cut out some really high-performing sources of returns for members and push funds towards more passive investing and more fee-efficient and low tracking-error positions.
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The Your Super Your Future legislation will drive a huge shift in the way funds look at investing, because of the asymmetrical payoff if they fail twice in a row.
For this reason Kate believes that arbitrage strategies; increased leverage against low-volatility asset classes; and low-tracking error yield plays will become increasingly important. “This will reinforce a trend already underway. Where, in a world where many countries have negative interest rates, defensive products are starting to take on more credit risk, and so are increasing allocations to private or structured sector-specific debt that generates good income. This trend will also support implementation of more yield-oriented products for retirees, which will be an increasing focus as the Retirement Incomes Covenant is ultimately implemented”, Kate remarked.
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In a world where many countries have negative interest rates, defensive products are starting to take on more credit risk.
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The competitive and regulatory pressures facing the superannuation industry are pushing funds towards more fee-efficient and lower tracking error, net return outcomes. In response LGIAsuper is putting in more active indexed strategies to optimise exposure to beta and receive some alpha in a very fee-efficient way, Kate revealed.
“I have a background in quant investing, so it is exciting and fascinating to me to see how far active indexed investing has come and how sophisticated the methodologies are, as well as the consequential great outcomes for members”, Kate remarked.
She continued, “the other key development in investing is of course ESG. Now that our merger is complete, LGIAsuper is looking forward to being able to leverage the great work that Energy Super has done on ESG across our whole portfolio and investment processes.”
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LGIAsuper is putting in more active indexed strategies to optimise exposure to beta and receive some alpha in a very fee-efficient way.
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Kate left us with some perspectives gained from her career which served her well on her journey thusfar that may serve as practical advice to others as they forge their own path through their career and those with aspirations of becoming a leader.
“I am fortunate to have worked across multiple sectors – I started as a bond trader, and then moved to energy trading, energy retailing, and ultimately into superannuation – and I have found that whilst each sector has its own technical nuance, the fundamentals of running a business remain the same.
If you are prepared to be curious as to how you can deliver genuine excellence to customers or members in whatever you do, ultimately the members, and the organisation, will win out over time. Not being afraid to ask that first question, and take a journey down a rabbit-hole you don’t necessarily understand up front, is the key to always growing and improving as a person and a leader.”
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Not being afraid to ask that first question, and take a journey down a rabbit-hole you don’t necessarily understand up front, is the key to always growing and improving as a person and a leader.
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Disclaimer
The views expressed in this publication are solely those of the individual and do not reflect those of their employer organisation.
All information contained within this publication is general advice only, as the knowledge levels and needs of all individual and corporate investors vary greatly this publication should not be used solely as a decision-making tool, further opinions and information should be sought before making an investment decision. It is the recommendation of Global Investment Institute (GII) that you seek the opinions of a fee-for-service, independent investment adviser before making any investment decision.
The authors, directors or guest writers may have a financial interest as investors, trustees or directors in investments discussed or recommended in this document. It has been assessed by the editors that these financial interests have not had an impact on the material contained here within.
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