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Our risk management and governance

We were the first Australian superannuation fund to implement a detailed bottom up security level risk system in 2009 that is a fully integrated but flexible whole of portfolio approach.

We were pioneers in recognising that risks interact with each other over time, and began capturing this in an aggregate model. Investment risk function is embedded within the investment team and central to all decision-making, it does not sit outside in a compliance role—it’s part of our DNA.

We regularly conduct forward-looking scenario analysis, historical stress testing as well as significant event reviews. 

The impact of uncertainty on the value of assets can be short, medium and long term. Risks are easier to anticipate in the short term, with measurable data and transparent markets. Longer term risks tend to be more intangible and are harder to identify, measure and manage well because there are more complex interactions. This is why we continue to refine our active ownership approach to systematically, holistically and objectively manage long term ESG+ risks.

We recognise that brand capital, human capital, organisational capital, and natural capital are as important as financial capital risks when thinking about the long-term sustainability of business cash flows.  These risks may have very long incubation periods and can manifest through the most obtuse of triggers, so they must be considered.

Scenario analysis and stress testing

Investment markets are not static and are prone to shocks that can persist. The range of potential outcomes is wide and variable and can be subject to unforeseeable surprises. So, there may be times when objectives are not likely to be consistently met as conditions change.

To manage risk and uncertainty, we use scenario analysis (under a range of possible investment regimes such as high inflation, slowdown or recession) to determine:

  • The minimum amount of risk that can be taken without jeopardising the option’s ability to achieve its real return objective,

  • The maximum amount of risk that can be taken without jeopardising the option’s ability to manage capital loss.


    We also stress test the portfolios using historical high risk environments where portfolios were vulnerable to extreme fluctuations, e.g. global financial crisis 2008, Technology bubble late 1990s, oil shock 1970s.

Every investment has a precise role in the portfolio

We are objective and disciplined in our portfolio building. This means that we don’t pay for any unnecessary risk exposures that we already have in the portfolio. We aim for every new investment to:

  • Enhance returns
  • Protect capital
  • Hedge against inflation
  • Diversify the portfolio against different risk environments

We create investment portfolios with an aim to achieve the objectives of each investment option by diversifying across different underlying risks. We consider the role of each investment in terms of their contribution to the total portfolio’s risks and returns, by standardising the investment’s expected risk compared to the long-term equity risk equivalent*. 

This fund-level focus is key to trying to achieve the best retirement outcomes for our customers because it considers the net impact of any additional investment for the total portfolio and avoids biases that can result from a siloed ‘asset class’ approach. 

*Standardising risk by comparing all investments to ‘long-term equity equivalent’ allows us to compare apples with apples. In this way the relative risk of different investments, compared to the ‘standard’ share market can be compared at any point in time as well as across time.


Examples of investments in your portfolio and their role

  • Private equity investments, such as emerging businesses in the information technology and health care sectors, can enhance returns;
  • Cash and government bonds may preserve capital through periods of economic downturn and recession;
  • Infrastructure assets, such as Canberra Data Centres (CDC), can hedge against inflation and generate high quality cash flows;
  • Alternative strategies like hedge funds, which exploit price discrepancies between markets and between securities can diversify the portfolio away from reliance on listed public markets alone for growth. These strategies provide a stream of returns that are less dependent on the actual direction of equity markets.

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