Garry Weaven is one of the architects behind Australia’s $2 trillion superannuation industry. He explains why global investing represents the next stage of growth.

It’s been more than 30 years since the ACTU and the Labor government struck historic wages agreement, paving the way for the foundation of Australia’s superannuation industry. Garry Weaven played a key role as ACTU assistant secretary and, while he’s had a range of roles in the industry since then, he remains as influential as ever.

“I'm not getting any younger but I'm still passionate and energetic,” he says.

The executive roles have become non-executive over the years – he chairs fund manager IFM Investors and lender ME Bank – as Australia’s super industry has grown to become one of the largest in the world.

It still drives Weaven today: growth which encapsulates social goals.

“I do like to see growth in all ways: in terms of funds under management and people employed in our business and as a result of our investments,” Weaven says. “But equally, you have to recognize that in the investment business it's actually net return to your investors which is the ticket to growth. If you don't have a track record that points to sustainable solid returns then your ticket to growth is removed.”

Australians now have around $2 trillion in retirement savings. Net super inflows from investors in 2014-15 reached almost $40 billion according to the prudential regulator while the mandated 9.5 per cent super guarantee is set to rise to 12 per cent by 2025.

More growth ahead: the global opportunity

Weaven predicts the industry will likely surpass $6 trillion in assets by 2030 – “barring some sort of crazy political brain snap” – which also represents the industry’s biggest challenge.

“The Australian system can't grow from $2 to $6 trillion without there being a massive uplift in offshore investment. Even if the government gets all the settings right to absorb our investments in their infrastructure programs – and there's no certainty that they would – there would still be a need to invest a bigger proportion of funds offshore.”

While super funds are investing more overseas, the average fund still allocated almost one-third of its assets to Australian equities in 2013, according to the prudential regulator. However, the local sharemarket comprises just 2 per cent of global sharemarkets.

Nonetheless, industry-wide investment returns have been strong despite the global financial crisis in 2007-08, with the median super fund’s balanced investment option posting a 6.5 per cent gain per year over the decade ended June 30, 2015, according to SuperRatings.

Industry funds, overseen by employer and union-sponsored boards, have been particularly strong performers. This has been partly due to their low fees, underpinned by a not-for-profit ethos, and by holding a significant proportion of unlisted investments which have outperformed.

Weaven’s main role today is non-executive chairman of industry fund-owned manager IFM Investors. It counts around 180 institutional investors (the majority which are offshore based) and manages almost $60 billion in assets, including ownership stakes in major infrastructure assets such as Port Botany and Port Kembla in NSW.

However, Weaven says the current political climate and general opposition to privatisation is stopping billions of dollars in super funding being directed towards Australia’s ailing infrastructure.

“We have no certainty there will be growth in the Australian portfolio due to the fact that the deal flow is not that high whereas on a global scale we'd be highly confident that the portfolio will continue to grow strongly.”

Innovation: the long road ahead

Innovation in the super sector has been relatively slow. Member engagement with super has, historically, been poor, while competition via choice of fund legislation was only introduced in 2005.

However, many retail banks have now integrated super accounts into customer transaction accounts – a move that the industry-fund owned ME Bank (which Weaven also chairs) is now embarking on.

Weaven is concerned about another innovation: many industry funds are launching increasingly sophisticated offers to members in an effort to compete with self-managed super funds (SMSFs).

“Trustees need to ask themselves how far they need to go down the path of competing for every high-net worth individual compared to just keeping a basic low-cost simple product. The important thing is they maintain a default position which is genuinely simple and low cost.”

SMSFs are the fastest growing sector in the industry and comprise almost one-third of total assets. Weaven has concerns and says the sector looks more like a day trader platform than a retirement income system.

“SMSFs are a social experiment that we haven't seen the outcome of yet. If it turns out that the SMSF industry generates very poor outcomes – and at the lower level the taxpayer has to pick up the bill in terms of the pension system – then that will have been a very bad experiment. I think it will be a mixed result myself.

“The super industry, and the industry fund sector, has to continually fight to ensure it has public support and in order to do that it has to have a viable and successful product.”

Source:  Coeurdacier and Rey (2011)

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