The ‘dirty secret’ of super funds

It is the “dirty secret” of the superannuation industry that most super funds cannot beat passives, according to AustralianSuper, and funds should not spend members’ money trying to do so. 

Speaking at the Australian Institute of Superannuation Trustees (AIST) conference, Mark Delaney, chief investment officer, said many funds found it difficult to beat passive funds.  

“The dirty secret of the super industry is that most funds don’t do much better than the passive portfolios,” Delaney said. 

“If we took the median asset allocation of SuperRatings and then gave them all the index returns, we will get roughly what the median fund earns. That’s been the case for a long time so a lot of people would be better off taking a median asset allocation and indexing everything.” 

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He said that overall returns were the most important thing for members and that if managers could not beat these, they should not be wasting members’ money. 

“The overall return is the thing that matters to members as that is what they will have to live on in retirement so we have to generate the biggest returns we can for members using both strategies and value add to do so,” Delaney said. 

“The most important thing for them is to make sure they are in a high-returning fund. How the money is made is less important than how much money is made. 

“If you can’t make more money than passive then why should you spend members money. It’s not your money. Your job is to get the best outcome you can with their money.” 

Asked by moderator, Elysse Morgan, over what timeframe super funds should be judged by members, he said: “If you are no good [at beating the benchmark], then you should quit. That’s a question for pension plans, if you have a manager on their books who hasn’t beaten their objectives over five years, would you still hire them or would you terminate them? Very few would keep them after five years. So how should they be treated themselves?” 

He said fees on super funds were too high but was doubtful whether Your Future, Your Super reforms could have an impact on reducing them. 

“Fees have come down a lot but what we should be doing is maximising returns for as little a fee-load as possible and I think we’ve been pretty good at it,” Delaney said.