Home / Annual Reports / ARIA Annual Report 2010-2011
Investments
Investment structure
The CSS fund, the PSS fund and the PSSap fund are invested jointly. This gives economies of scale, thereby reducing the cost of managing the funds. The CSS fund, PSS fund and the PSSap fund investment options are divided into asset classes. Professional investment managers manage the funds within each asset class.
Each of the funds’ investment options tap into the same asset class pool, thereby achieving the same asset class performance and having their investments managed by the same investment managers.
Investment arrangements
ARIA’s investment team gives investment advice, implements and manages Trustee investment decisions and monitors, reviews and reports on investment performance.
ARIA retains Macquarie Investment Management Ltd for advice on Australian and Asian private equity, Altius Associates for advice on international private equity, Albourne Partners Ltd for hedge fund advice and Franklin Templeton Real Estate Advisers for international property advice.
TopCustodian services
The master custodian for the three funds is JPMorgan, whose custodial function includes:
settling trades
physical custody and safekeeping of securities
collecting dividends, preparing accounts and disbursing dividends
receiving all monies available for investment from the scheme administrator and allocating them on the instruction of the investment team to investment managers in accordance with the mandates set by ARIA
holding (but not owning) the assets that comprise the funds
unit pricing
maintaining consolidated accounts and tax records for the fund
reporting to ARIA on individual fund manager and aggregated investment returns.
Investment managers
Under its legislation, ARIA is required to invest through investment managers. ARIA appoints investment managers who specialise in investing in particular asset classes. ARIA provides investment guidelines and direction to each of its investment managers.
Investment managers are paid a fee that is generally based on the value of assets that they manage for ARIA. The fee reflects the investment costs applicable to each particular asset class sector and the investment style (for example, passive or active) employed by each manager. In addition, some managers are paid a performance fee for exceeding a pre-determined benchmark or hurdle rate of return, within pre-specified risk limits, which is generally a share of any excess risk-adjusted performance above that agreed benchmark.
| 452 Capital Pty Limited |
| Alleron Investment Management Limited |
| AMP Capital Investors Limited |
| Anchorage Capital Offshore Fund Limited |
| Arcadia Funds Management Limited |
| Aurora Investment Management LLC |
| Balanced Equity Management Pty Limited |
| BlackRock Financial Management |
| Bridgewater Associates, Inc |
| Colchester Global Investors Limited |
| Colonial First State Property Limited |
| Concord Capital Limited |
| Dexus Property Group Limited |
| Eureka Funds Management Company |
| GMO Australia Limited |
| Graham Global Investment Fund Limited |
| Gruss Global Investors Limited |
| Holowesko Partners Limited |
| Integrity Investment Management Limited |
| JCP Investment Partners Limited |
| Lend Lease Real Estate Investments Limited |
| Loomis Sayles & Company LP |
| Luxor Capital Partners Offshore Limited |
| Macquarie Investment Management Limited |
| Marathon Asset Management Limited |
| Marvin & Palmer Associates Inc |
| Northward Capital Investment Management Limited |
| Orbis Investment Management Limited |
| Paradice Investment Management Limited |
| Pharo Macro Fund Limited |
| PIMCO Australia Pty. Ltd. |
| Platinum Asset Management |
| Rogge Global Partners PLC |
| Schroder Investment Management Australia Limited |
| Solaris Investment Management Limited |
| State Street Global Advisors Limited |
| Steadfast International Limited |
| Stone Harbor International Partners LP |
| Vanguard Investments Australia Limited |
| Wellington International Management Company Pte Limited |
| Winton Futures Fund Limited |
Investment objectives
CSS Default Fund
With the accumulation component of members’ total benefit tied to the investment performance of the fund, ARIA is focused on achieving competitive returns over the long term. This is explicitly recognised in the fund's objective, which focuses on long-term real returns in an attempt to ensure that the real wealth of members increases over time.
The fund’s investment objectives specify the target or acceptable levels of portfolio risk and return. ARIA expects to achieve an average real return of 4.5% per annum after tax and fees over the longer-term. Consistent with the mid-point of the Reserve Bank’s inflation target range of 2% to 3%, this equates to an average nominal return of at least 7% per annum over the long term.
In developing an investment strategy to achieve this objective and recognising that the average person might have a working life of around 30 years, ARIA has adopted the following constraint in order to manage risk: on average, nominal fund returns are expected to be positive in 24 years out of 30.
This constraint defines the ‘tolerable’ level of risk for the fund. Furthermore, for prudential reasons, the fund's investments in illiquid assets will be limited to an average of around 25%.
TopPSS Default Fund
The total benefit payable to members is set by the governing legislation and rules of the PSS. It does not depend on the earning rate of the fund, except for preserved benefit members where investment performance has a more direct impact on the level of final benefits. The difference between the total benefit payable to a member and the accumulated member and productivity contributions (including fund earnings) invested in the fund is paid from consolidated revenue. The call on consolidated revenue will depend upon the investment performance of the fund. The better the investment performance of the fund, the smaller the call on consolidated revenue. In these circumstances, it is the employer who bears the investment risk arising from the investment of the fund.
The fund has a long-term perspective, but managing risk is also imperative. The fund’s investment objectives specify the target, or acceptable, levels of both portfolio risk and return. They are distilled from the characteristics of the scheme, including benefit design, crediting rate policy and liability position.
ARIA expects to achieve an average real return of 4.5% per annum after tax and fees over the longer-term. Consistent with the mid-point of the Reserve Bank's inflation target range of 2% to 3%, this equates to an average nominal return of at least 7% per annum over the long term.
In developing an investment strategy to achieve this objective, and recognising that the average person might have a working life of around 30 years, ARIA has adopted the following constraint in order to manage risk: on average, nominal fund returns are expected to be positive in 24 years out of 30.
This constraint defines the 'tolerable' level of risk assumed by the fund's investments. Furthermore, for prudential reasons, the fund's investments in illiquid assets, will be limited to an average of around 25%.
TopPSS and CSS Cash Investment Options
All CSS members and PSS preserved benefit members may choose to have the taxed components of their accounts (that is, their member and productivity components) invested in a Cash Investment Option.
The key investment objective is, before the payment of tax, to match the return from the UBS Australian Bank Bill Index.
PSSap investment options
PSSap members’ total benefits are tied to the investment performance of the investment option(s) within the PSSap fund. Therefore, achieving a good return over the long-term is vital. This is explicitly recognised in the objectives that ARIA has set for the PSSap investment options, which is to maximise the long-term real return of the options within acceptable risk parameters.
Trustee Choice (default option)
The key investment objective is to outperform the Consumer Price Index (CPI) by 4.5% per annum over the medium to long-term.
Conservative
The key investment objective is to outperform the Consumer Price Index (CPI) by 3% per annum over the medium to long-term.
Balanced
The key investment objective is to outperform the Consumer Price Index (CPI) by 4% per annum over the medium to long-term.
Aggressive
The key investment objective is to outperform the Consumer Price Index (CPI) by 5% per annum over the medium to long-term.
Government bonds (previously fixed interest)
The key investment objective is, before the payment of tax, to at least match the performance of the Barclays Global Treasury GDP Weighted by Country Index.
Australian shares
The key investment objective is, before the payment of tax, to at least match the performance of the ASX 300 Accumulation Index.
International shares (unhedged)
The key investment objective is, before the payment of tax, to at least match the return of the unhedged MSCI World ex Australia Index.
International shares
The key investment objective is, before the payment of tax, to at least match the return of the MSCI World ex Australia Index with a hedging ratio determined by the Trustee.
Property
The key investment objective is, before the payment of tax, to outperform the Consumer Price Index (CPI) by 5% per annum over the medium to long-term.
Sustainable
The key investment objective is, before the payment of tax, to at least match the performance of the ASX 200 Accumulation Index.
Cash
The key investment objective is, before the payment of tax, to match the return from the UBS Australian Bank Bill Index.
TopAsset allocation
The following tables set out the actual asset allocation for the CSS and PSS default funds as at 30 June 2011.
| Asset class | Actual asset allocation | |
|---|---|---|
2010 |
2011 |
|
| Australian equity | 27.1 |
26.5 |
| International equity | 27.6 |
28.6 |
| Long/short equity funds | 2.2 |
1.9 |
| Real Assets | 14.3 |
12.8 |
| Alternatives | 11.8 |
13.8 |
| Fixed Income | 11.8 |
11.5 |
| Cash | 5.2 |
4.9 |
| Total fund | 100.0 |
100.0 |
| Asset class | Actual asset allocation | |
|---|---|---|
2010 |
2011 |
|
| Australian equity | 27.2 |
26.5 |
| International equity | 27.6 |
28.7 |
| Long/short equity funds | 2.2 |
1.9 |
| Real Assets | 14.3 |
12.8 |
| Alternatives | 12.0 |
13.8 |
| Fixed Income | 11.9 |
11.5 |
| Cash | 4.8 |
4.8 |
| Total fund | 100.0 | 100.0 |
The following table sets out the actual asset allocation for the PSSap diversified, pre-mixed investment options as at 30 June 2011.
| Asset class | Trustee Choice | Conservative | Balanced | Aggressive | ||||
|---|---|---|---|---|---|---|---|---|
| Asset allocation | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 |
| Australian equity | 27.1 | 26.5 | 11.7 | 12.2 | 15.3 | 15.8 | 36.9 | 37.5 |
| International equity | 27.6 | 28.7 | 8.9 | 9.2 | 14.3 | 14.8 | 30.7 | 31.1 |
| Long/short equity funds | 2.2 | 1.9 | - | - | 3.9 | 4.1 | - | - |
| Real Assets | 14.3 | 12.8 | 6.0 | 6.0 | 12.1 | 12.0 | 8.1 | 7.8 |
| Alternatives | 12.0 | 13.8 | - | - | 20.2 | 19.7 | 8.1 | 7.8 |
| Fixed Income | 11.9 | 11.5 | 43.3 | 42.7 | 24.2 | 23.7 | 6.1 | 5.9 |
| Cash | 4.9 | 4.8 | 30.1 | 29.9 | 10.0 | 9.9 | 3.0 | 2.9 |
| Total fund | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 |
Events during the year
Some of the key investment related events for 2010/11 are described below.
Australian equities
The portfolio was reconfigured upon the termination of an investment manager arising from the departure of that manager’s key staff and the subsequent closure of their operations. This portfolio reconfiguration culminated in the termination of two additional investment managers, the reweighting of the five remaining incumbent managers and the appointment of a new investment manager. Over the year, the number of investment managers making up the actively-managed portfolio declined from eight to six, with two of those six managers investing in mutually exclusive parts of the market as defined by market capitalisation (50 Leaders versus ex-50 Leaders). In addition, late in the year a cost-effective passively-managed mandate was introduced into the portfolio.
International equities
An active global investment manager was terminated early in the year, with funds being reallocated to an existing passively-managed large cap mandate. Other portfolio changes throughout the year were largely confined to flows to and/or from the passively-managed portfolio, associated with maintaining Fund asset allocation targets. The portfolio now comprises three active global managers and one country-specific active manager, together with two passive managers with separate large cap and broad cap mandates. The foreign currency hedging policy was revised during the year from a strategic hedging range of 40-75% to a range of 0-100%. At the end of the 2010/11 financial year, 30% of the Fund's developed market foreign currency exposure was hedged back into Australian dollars, down from 60% one year earlier.
Emerging market equities
The two-manager line-up did not change during the year, comprising separate actively-managed and passively-managed regional portfolios (Asia and Global ex-Asia respectively). Portfolio changes throughout the year were confined to flows to both managers reflecting Fund asset allocation changes. The foreign currencies held in the emerging market portfolio remain fully unhedged.
Private capital investments
The fund’s exposure to private capital investments increased during the year, reflecting commitments of $A 236m to new Australian and international private equity funds.
Some of the funds previously committed to private equity and opportunistic property were drawn down during the year, while some investments were realised and the proceeds returned. The net result of these flows was that the net asset value of these investments increased from $A 1,225.4m at the start of the year to $A 1,592.7m at 30 June 2011.
Market neutral funds
Consistent with the strategic direction of ARIA’s portfolio, seven new market neutral managers were appointed, providing exposure to the following strategies: directional, equity long short, event driven and credit long short. Investments with a multi-strategy investment fund were redeemed during the year.
Long/short equity funds
The portfolio comprised a single global manager throughout the year. This investment was redeemed as at the close of the financial year, with the proceeds transitioned to a sub-portfolio within the Fund's international equities exposure for future deployment.
Global investment grade credit
The annual portfolio review resulted in the global investment-grade credit benchmark being changed from the Barclays Global Aggregate ex Treasuries ex Government Related Index hedged into Australian dollars, to the Barclays Global Aggregate ex Treasuries ex Government Related ex US MBS index hedged into Australian dollars. A rebalancing of manager weights amongst the three incumbent active investment managers was also implemented, to better reflect our level of conviction in each manager's ability to generate positive excess returns, market conditions and manager suitability to those conditions.
Global government bonds
The inflation-linked global government bonds sector remains passively managed. The passive nominal global government bonds mandate was terminated during the year, and replaced with two active manager mandates. One of these is with a nominal developed market government bonds manager and another with a nominal emerging market government bonds manager.
Australian bank term deposits are incorporated as authorised investments within the Cash portfolio to take advantage of higher interest rates offered relative to that of bank bills.
Property
A new direct property acquisition mandate was awarded to an existing investment manager during the period. The first acquisition under this mandate was completed in February 2011, being the purchase of 55 Clarence Street, Sydney, an office building located in the north-western corridor of the Sydney CBD.
Development consent was received for the proposed major redevelopment of the fund’s directly-owned retail asset, Indooroopilly Shopping Centre. Development planning is ongoing.
Redemption proceeds totalling $364 million were received during the year from an indirect property fund investment, representing full exit from this investment.
TopFund performance
CSS and PSS Default Funds
In the 2010/11 financial year, the CSS Default Fund posted a net return of 7.3% and the PSS Default Fund posted a net return of 7.2%.
After achieving strong gains in 2009/10, Default Fund performance remained solid in 2010/11. Most of the Funds' returns were achieved in the first half of the year, with second half performance constrained by a slowdown in developed market economic growth and an escalation of the European debt crisis. Australian listed equities finished the year with a return of just under 12%, with returns buoyed by strong rises in materials, industrials and utilities stocks. International equities rose over 14% in hedged terms, but by only a little under 3% in unhedged terms. Unhedged returns were very negatively impacted by the translation effect of a strong rise in the value of the Australian dollar.
Other asset class performance was generally robust. Global inflation-linked government bonds achieved a return of over 11% as investors sought to protect themselves from higher rates of inflation, while global investment grade credit advanced by just under 8%. Global nominal government bonds and market neutral funds advanced by around 5%, which was in line with the return from cash.
The CSS Default Fund achieved an average net return (after fees and tax) of 0.1% per annum in the three years to 30 June 2011. This compared with a five-year average net return of 2.8% per annum and seven year average net return of 5.8% per annum. The fund is a little below its target return objective over the seven year period to June 2011.
The PSS Default Fund achieved an average net return (after fees and tax) of 0.1% per annum in the three-years to 30 June 2011. This compared with a five-year average net return of 3.0% per annum and seven-year average net return of 5.8% per annum.
CSS and PSS Cash Investment Options
The CSS Cash Investment Option posted a net return of 4.2% and the PSS Cash Investment Option posted a net return of 4.3% for the year ending 30 June 2011. This is in line with their target net return objectives once the impact of tax on returns is taken into account.
PSSap investment options
Over the financial year to 30 June 2011, the PSSap default fund (Trustee Choice) advanced by a solid 7.1%, as strong financial market performance was tempered by the constraining impact of a slowdown in developed market economic growth and an escalation of the European debt crisis in the second half of the year. The other three pre-mixed, diversified options also produced solid returns in 2010/11. The Aggressive option recorded a net return of 7.7%, reflecting a higher exposure to listed global equity markets. The Balanced and Conservative options achieved net returns of 6.6% and 6.4%, respectively.
Single asset class option performance in 2010/11 also generally reflected the solid results generated by financial markets. Strong positive returns were recorded by the Australian Shares, Sustainable and International Shares options, while the returns from the Property and Government bonds option were more subdued.
In the six years since inception, the highest single asset class option return was achieved by the Property option, which rose by 8.1% per annum.
TopPerformance by asset class
Performance figures in the following single asset classes are before tax, but after fees.
Australian equities
The Australian equity market, defined by the S&P/ASX 300 Accumulation Index, rose by 11.9% in 2010/11, although all of the increase came in the first half of the financial year. The market's strength in 2010/11 was due to gains of 20% in materials, 16% in industrials, and 15% in utilities stocks. At the other end of the spectrum, information technology stocks fell by 14%, while telecom and consumer discretionary stocks recorded very small declines. ARIA’s actively managed portfolio underperformed the S&P/ASX 300 Accumulation Index by 1.8% during the year to deliver a total net return of 10.1%.
International equities
International equity markets experienced a strong year, with developed world equity markets rising by 14.5% in hedged terms. Again, the majority of the increase came in the first half of the year. A strong rise in the value of the Australian dollar, particularly against the US dollar and Yen, meant that investors who did not hedge their foreign currency exposures experienced a developed world equity market return of just 2.7%. ARIA’s portfolio underperformed its benchmark indices by 1.3% during the year. ARIA has a structurally higher-than-average allocation to emerging market equities, which underperformed their developed market counterparts over the shorter one year period.
Corporate debt markets
Over the last year, global investment grade credit markets rose by almost 8%. This strong return was assisted by sound corporate balance sheets and healthy investor appetite for corporate bonds. Within this environment, ARIA’s portfolio outperformed its benchmark index by 1.0%.
Government bonds and cash
Government bond markets had a solid year, which was highlighted by investors attempting to come to terms with oscillations in global economic growth rates and inflationary expectations. Global inflation linked government bonds returned a very strong 11.4 %, as investors sought to protect themselves from possible increases in global inflation. Meanwhile, global nominal government bonds returned a more subdued 5.4%, reflecting investor concerns over a possible pick-up in inflation, which hurts the value of nominal bonds. There was just one increase in the level of Australia’s short term interest rates, from 4.5% to 4.75%. In this environment cash recorded a return of 5%.
Market neutral funds
The year provided a more challenging environment for market neutral strategies. ARIA’s portfolio performed in line with its benchmark index, thus translating into a total return of around 4%. .
Long/short equity funds
The objective of this asset class is to match the return from international equities in the long run, but with a lower level of return volatility. This sector generally underperforms through strong bull markets in listed equities, but outperforms through down markets. Typical of this style, the long/short equity funds sector underperformed the strong performance in listed international equities in 2010/11 but still returned a positive contribution to absolute performance.
| Holdings at 30 June 2010 $m |
Holdings at 30 June 2011 $m |
Proportion at 30 June 2011 % |
|
|---|---|---|---|
| Total fund investments | 4 503.1 | 4 341.7 | 100.0 |
| Note: Total fund investments is after tax and fees. | |||
| Australian equity | 1 222.6 | 1 156.3 | 26.5 |
| International equity | 1 243.1 | 1 248.4 | 28.6 |
| Long/short equity funds | 100.2 | 82.7 | 1.9 |
| Real Assets | 642.4 | 557.4 | 12.8 |
| Alternatives | 531.1 | 602.8 | 13.8 |
| Fixed Income | 531.5 | 504.5 | 11.5 |
| Cash | 233.9 | 212.8 | 4.9 |
Note: Sectors are before tax and after fees.
| = | One-year performance | Three-year performance | Five-year performance | Seven-year performance |
|---|---|---|---|---|
| % | % | % | % | |
| Total fund performance | 7.3 | 0.1 | 2.8 | 5.8 |
| Note: Total fund performance is after tax and fees. | ||||
| Australian shares | 10.1 | 1.2 | 2.5 | 8.4 |
| International shares | 13.3 | -7.3 | -2.3 | 2.6 |
| Emerging market shares | -1.9 | - | - | - |
| Australian private equity | 3.2 | -0.3 | 2.8 | 5.5 |
| International private equity | 8.1 | -4.9 | 3.3 | 7.9 |
| Long/short equity funds | 6.8 | -4.3 | 0.3 | - |
| Objective based funds | 16.4 | - | - | - |
| Market neutral fund | 3.8 | 2.0 | 5.0 | 6.0 |
| Property | 8.4 | 2.8 | 6.7 | 8.9 |
| Investment grade bonds | 8.6 | 8.9 | 6.9 | 7.0 |
| Index-linked bonds | 10.8 | - | - | - |
| Government bonds | 2.3 | - | - | - |
| Opportunistic credit | 6.7 | - | - | - |
| Cash | 5.2 | 4.9 | 5.7 | 5.4 |
Note: Sectors are before tax and after fees.
| Holdings at 30 June 2010 $m |
Holdings at 30 June 2011 $m |
One-year performance % |
Three-year performance % |
|
|---|---|---|---|---|
| Total fund | 254.0 | 245.7 | 4.2 | 4.0 |
| Holdings at 30 June 2010 $m |
Holdings at 30 June 2011 $m |
Proportion at 30 June 2011 % |
|
|---|---|---|---|
| Total fund investments | 11 353.7 | 12 463.5 | 100.0 |
| Note: Total fund investments is after tax and fees | |||
| Australian equity | 3 067.9 | 3 304.8 | 26.5 |
| International equity | 3 122.3 | 3 577.0 | 28.7 |
| Long/short equity funds | 251.6 | 236.4 | 1.9 |
| Real assets | 1 611.2 | 1 592.9 | 12.8 |
| Alternatives | 1 354.5 | 1 722.8 | 13.8 |
| Fixed income | 1 348.3 | 1 441.8 | 11.5 |
| Cash | 547.9 | 599.2 | 4.8 |
Note: Sectors are before tax and after fees.
| One-year performance | Three-year performance | Five-year performance | Seven-year performance | |
|---|---|---|---|---|
| % | % | % | % | |
| Total fund performance | 7.2 | 0.1 | 3.0 | 5.8 |
| Note: Total fund performance is after tax and fees | ||||
| Australian shares | 10.1 | 1.2 | 2.5 | 8.2 |
| International shares | 13.3 | -7.3 | -2.2 | 2.6 |
| Emerging market shares | -1.9 | - | - | - |
| Australian private equity | 3.2 | -0.3 | 3.0 | 6.1 |
| International private equity | 8.1 | -4.9 | 4.6 | 9.1 |
| Long/short equity funds | 6.8 | -4.3 | 0.3 | - |
| Objective based funds | 16.4 | - | - | - |
| Market neutral fund | 3.8 | 2.0 | 5.1 | 6.1 |
| Property | 8.4 | 2.8 | 6.7 | 8.8 |
| Investment grade bonds | 8.6 | 8.9 | 6.9 | 7.0 |
| Index-linked bonds | 10.8 | - | - | - |
| Government bonds | 2.3 | - | - | - |
| Opportunistic credit | 6.7 | - | - | - |
| Cash | 5.2 | 4.9 | 5.7 | 5.7 |
Note: Sectors are before tax and after fees.
| Holdings at 30 June 2010 $m |
Holdings at 30 June 2011 $m |
One-year performance % |
Three-year performance % |
|
|---|---|---|---|---|
| Total fund | 29.0 | 27.1 | 4.3 | 4.0 |
Note: Holdings and performance are after tax and fees.
| Investment option | Holdings June 2010 $m |
Holdings June 2011 $m |
One-year performance % |
Three-year performance % |
Five-year performance % |
|---|---|---|---|---|---|
| Conservative | 12.1 | 18.4 | 6.4 | 3.3 | 3.9 |
| Balanced (50/50) | 18.4 | 29.8 | 6.6 | 2.1 | 3.7 |
| Trustee Choice | 1 770.7 | 2 515.0 | 7.1 | 0.2 | 2.8 |
| Aggressive | 53.8 | 74.7 | 7.7 | -0.2 | 2.5 |
| Cash | 39.2 | 46.7 | 4.2 | 4.0 | 4.6 |
| Government bonds (previously Bonds/Fixed interest) | 4.9 | 6.6 | 2.3 | 2.4 | 2.6 |
| Australian shares | 30.1 | 44.9 | 10.3 | 2.1 | 2.8 |
| International shares (unhedged) | 1.9 | 3.5 | 2.3 | -4.2 | -3.5 |
| International shares | 3.4 | 5.2 | 9.3 | -5.5 | -1.6 |
| Property | 9.0 | 13.6 | 7.4 | 2.4 | 6.7 |
| Sustainable | 6.8 | 9.9 | 8.0 | -0.2 | 1.6 |
Note: Holdings and performance are after tax and fees.
Investment information
Further information on investment performance is available from:
| Web | www.aria.gov.au |
| Postal address | ARIA GPO Box 1907 Canberra City ACT 2601 |
| Phone | 02 6263 6999 |
| Fax | 02 6263 6900 |
| secretary@aria.gov.au |
Allocating earnings
ARIA’s earnings rate policy (effective on and from 28 June 2007) is summarised below.
CSS and PSS
The applicable earnings rate for the last day of a calendar month is used to apply earnings to member accounts for that month, other than for transactions to and from the member accounts recorded during that month, which are processed using the rate that applies on the date of the transaction.
Processing transactions to member accounts
Transactions will be processed from and to member accounts after validation, in accordance with the scheme rules and the terms of the agreement between the administrator and ARIA.
Preserved and associate members with account balances in the CSS and PSS funds greater than $1,000 may switch the entire balance of their account between the Default Fund and Cash Investment Option twice yearly. The cut-off for these switch transactions is the last Friday of a month with the transaction processed once per month on the following Wednesday.
PSSap
Members’ interests in the PSSap are valued in units. Contributions and other amounts transferred to the PSSap are used to buy units which are invested in accordance with members' investment choices. There are 11 investment options to choose from.
The fund’s net earnings are allocated to members' accounts through changes in the unit price which fluctuate in line with investment markets. The unit price for an investment option reflects the total value of assets in the investment option (net of taxes and expenses) divided by the number of units issued in the investment option.
A buy/sell spread is applied to all the investment options to reflect the costs associated with the purchase or sale of assets. Calculation of the value of assets in each investment option is based on the latest available market value at the end of each business day and published daily on the fund’s website at www.pssap.gov.au. Where fees are payable directly from a member's account (for example, insurance premiums and switching fees), units are sold to the extent required for payment.
TopARIA’s approach to corporate governance
ARIA’s approach to investment governance reflects the framework laid out by the United Nations Principles for Responsible Investment.
ARIA believes it has a responsibility to ensure that funds are not exposed to undue risk because of poor corporate governance behaviour. Therefore ARIA actively pursues principles of good governance in its own operations, and seeks them in service providers and in the companies in which it invests.
ARIA considers corporate governance to be an important element of risk management. It recognises that poor environmental, social and corporate governance (ESG) can lead to a decline in investment value. ARIA undertakes a number of initiatives and practices in relation to managing risk in its investments, including:
the casting of proxy votes in the Australian and international companies in which it invests
publicly communicating its ESG policy and practices
governance research and engagement through Regnan.
Proxy voting
In keeping with its belief in the value of good governance, ARIA exercises its right to cast proxy votes in the companies in which it invests.
This activity underscores ARIA’s commitment to ensuring long term shareholder value for members.
It also sends a clear signal to companies that as a shareholder, ARIA will vote on company resolutions in the best interests of its members..
Regnan – Governance Research and Engagement Pty Limited
Regnan was established to protect and enhance shareholder value for members by identifying environmental, social and corporate governance risks in present and future investments, to actively communicate those risks to relevant stakeholders and engage directly with companies as required.
The boards appointed the service to actively research governance risk in the fund's Australian equities investments and make recommendations on how constructive engagement might reduce such risks. ARIA's Australian equity investments represent funds under management of around $4.7 billion.
Regnan is Australia's only investment risk management service to focus on an engagement service to meet the oversight needs of institutional investors. It addresses portfolio exposure to environmental, social and governance risks by directly engaging with companies and performing specialist research and analysis. Regnan's research universe includes all companies in the S&P/ASX200.
ARIA’s ESG and Proxy Voting Policies are published on the member website. Reports on the implementation of these policies, including progress against the UNPRIs are also available on the website.
The United Nations Principles for Responsible Investment
ARIA became an asset owner signatory to the United Nations Principles for Responsible Investment (UNPRI) in December 2006 and is actively committed to aligning investment activities with the Principles in the best long-term interests of the beneficiaries of schemes administered by ARIA. ARIA acts in the belief that application of the Principles is expected to lead to better long-term financial returns and a closer alignment between the objectives of institutional investors and those of society at large.
The six UNPRI are:
PRI1.We will incorporate ESG issues into investment analysis and decision-making processes.
PRI2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
PRI3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
PRI4. We will promote acceptance and implementation of the Principles within the investment industry.
PRI5. We will work together to enhance our effectiveness in implementing the Principles.
PRI6. We will each report on our activities and progress towards implementing the Principles.