APRA heatmap identifies sustainable outcomes for customers

The regulator of the Australian superannuation industry, APRA recently released a ‘heatmap’ to assess MySuper products against certain criteria. The heatmap aims to compare the investment performance and fees of every MySuper product—such as PSSap and ADF Super.

15 Dec 2019

Both PSSap and ADF Super’s MySuper options outperformed peers across most categories—including Net Investment Returns after investment fees and costs (NIR) over five and three year periods, administration fees and sustainability of member outcomes. According to the heatmap, PSSap and ADF Super’s total fees were slightly higher than peers.

We support APRA’s aim to provide transparent assessment of Australian superannuation funds in the sustainable delivery of quality customer outcomes. APRA’s findings are consistent with CSC’s investment strategy [1].

Value for money—unique benefits for our customers’ needs

Our primary investment objective is to maximise long-term net real returns for our customers. We always endeavour to eliminate unnecessary costs.

Our investment strategy relates directly to the absolute retirement outcomes we target for our customers. We seek to maximise the probability of delivering this outcome for all of our customers. 

As at 30 June 2019, our average full-time PSSap customer is on track to achieve 126% of the ASFA comfortable standard [2]. For our average ADF Super customer, that funding ratio is 133%.

Our investment fees (called Indirect Cost Ratio or ICR) will vary over time as a result of our investment strategy to solely focus on the adequacy of retirement incomes for our customers; the value created for the costs we incur both in terms of returns and risk reduction; and the structuring of our fee arrangements to better align our external fund managers with the needs of our customers.

We invest in high quality assets that deliver growth for our customers

We invest in high-quality assets that increase the probability of robust growth and downside protection. While the costs associated with this can be higher, the cost per unit of value created is very competitive and a benefit to our customers, as endorsed by an independent Harvard Business School review of our portfolio in 2016. APRA also recognises that, “Some MySuper products have been able to generate strong net investment returns by accessing (higher growth) asset classes and investments that typically incur higher costs (e.g. through allocations to active management and/or illiquid assets).” [3]

Examples in our portfolio include high-quality private infrastructure and property assets, where the costs of actively managing unlisted assets are higher than through listed markets.

We expect these assets to contribute to sustainable wealth creation by providing benefits to customers such as: diversification away from reliance on listed markets alone for growth; inflation-linked and high quality cash flows; greater resilience through periods of economic downturn and recession. 

In short, what matters to us is making sure the cost of managing your super is more than compensated with strong investment returns, and that your wealth is less vulnerable to market conditions right up to the time you retire.

Historically in PSSap, we have captured 86% of the positive returns when markets rose, while avoiding 51% of losses in falling markets compared to peers.

Figure 1: PSSap MySuper Balanced returns 10 yrs to 30 Sep 2019

PSSap MySuper Balanced returns 10 yrs to 30 Sep 2019

CSC has a ‘hub and spoke’ model for managing its investment portfolio—our skill-based internal team is complemented by specialised external fund managers. CSC has carefully and deliberately designed fee agreements with CSC’s fund managers to ensure they align with our customers’ interests so that profits are shared, to a maximum limit, but so are losses.

The practical result of this is that our fees vary through time, and therefore so does our published Indirect Cost Ratio (ICR). This reflects the fact that performance fees are calculated as a limited proportion of excess returns. When there are no excess returns for our customers, our external fund managers do not achieve their performance fees either.

Rewarded risk-taking—global best practice barbell of governance and innovation

Every one of CSC’s investment options, including our MySuper Balanced Option, has been designed to generate a strong, sustainable and competitive return for customers, in accordance with the risks taken. These have been independently reviewed and recognised as global best practice, including:

[1] “APRA MySuper Product Heatmap – Data Insights” p9

RSE licensees establish and implement an investment strategy for their MySuper product that reflects the level of investment risk deemed appropriate for the members of the product, and incur investment (and administration) fees and costs in its implementation. Net investment returns (after investment fees and costs) and the management of investment risk are central to delivering quality outcomes for members.

[2] CSC’s primary goal is to build, support and protect better retirement outcomes for all our customers and their families. Our goal is for our customers to afford a comfortable lifestyle in retirement, so we measure our customer’s expected retirement income against the Australian Superannuation Fund Association’s (ASFA’s) ‘Comfortable Retirement’ standard. https://www.superannuation.asn.au/resources/retirement-standard

[3] "APRA MySuper Product Heatmap – Data Insights" p10

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