With the aim of facilitating open and transparent debate about the role of super within this environment, Australian investment manager QIC convened a virtual roundtable discussion on 27 April with eight Chief Investment Officers (CIOs) who, all combined, manage over $600 million in assets for 6.5 million Australians, and have a grouped financial markets experience of over 200 years.
The CIO participants were:
- Jonathan Armitage, Chief Investment Officer, MLC, & General Manager, NAB Asset Management
- Mark Delaney, Chief Investment Officer & Deputy Chief Executive Officer, AustralianSuper
- Damian Graham, Chief Investment Officer, First State Super
- Allison Hill, Deputy State Chief Investment Officer, QIC State Investments
- Graeme Miller, Chief Investment Officer, TelstraSuper
- Ian Patrick, Chief Investment Officer, Sunsuper
- Troy Rieck, Chief Investment Officer, LGIAsuper
- Charles Woodhouse, Chief Investment Officer, QSuper
The discussion ranged from: super’s role in managing the financial impact and economic recovery arising from COVID-19, to the value that illiquid assets provide during increased liquidity pressure – as, at last count, 1.78 million Australians applied for early access to their superannuation.
The economic fallout, so far
By its very nature, superannuation requires a long-term investment horizon and investment strategy. The CIOs stressed that they remain focused on the long term, and they were able to manoeuvre and respond to the current economic and market fallout from COVID-19.
During the roundtable, the CIOs flagged that there was little doubt Australia is headed towards a recession, despite the severity, duration, and shape of the economic recovery still being unclear due to a wide range of evolving factors (such as social distancing restrictions and the rebound pace of the hardest-hit sectors).
At the same time, while market cycles do have ups and downs, all participants agreed that the nature of this crisis is unprecedented: what began as a health crisis very quickly morphed into a market then economic crisis. Economic activity contracted sharply, almost overnight, as major sectors of the economy were shut down. And there is nothing markets like less than uncertainty. However, compared with the wild swings of March where the market dove to historic lows, markets have somewhat settled, pricing in the uncertainty.
For investment managers, the challenge is how pivot to a world with low interest rates, pricing power and inflation, and the implications on asset prices and portfolio allocation decisions.
The roundtable cohort also remarked on the challenging balancing act that the Federal Government faces in mitigating health consequences with fiscal measures, all designed to protect and build a socially-distanced economy. This raises a raft of questions: What are the economic and social costs of remaining “closed for business” compared to the risk of a spike in virus cases? How much stimulus is the right amount? And how can that stimulus be directed to the necessary areas of the economy? The consensus at the QIC-led CIO roundtable was that the Federal Government had hit its stride in responding to its competing demands, with several positive initiatives in the pipeline such as JobKeeper, which has since morphed into JobSeeker and JobMaker.
Against the uncertainty of the external environment, there was an acknowledgement by the roundtable participants of the loss of income and jobs, as well as the negative knock-on effect on consumer demand and confidence. They also flagged the evolution of business models and monopolised revenue streams and how COVID-19 has impacted all things from supply chains to consumer behaviours.
The key message from the CIOs gathered was that while they were responding to the short-term ramifications arising from a global pandemic, Australia’s super funds were well positioned with the correct strategies in place to meet the long-term superannuation needs of their millions of members.
Are super funds overexposed to illiquid assets?
All participants were at pains to stress that despite headlines to the contrary, illiquid assets, including infrastructure, real estate and private equity, always had, and always will, play a major role in contributing to long-term returns for super members. Compared to listed markets, which have diminished over the past 10-15 years, illiquid assets not only offer access to those parts of the economy which are predictable and stable against the backdrop of short-term market cycles and swings, but also direct capital to sectors such as healthcare.
Although there were questions about the liquidity capacity required to pay out applications to the COVID-19 superannuation early release scheme, all participating super funds welcomed the opportunity to assure members they were able to meet their recent liquidity requirements. At the time of writing this article, AUD$12.2 billion had been paid to 1.63 million applications (against 1.78 received applications) with an average payment of AUD$7,476.
Superannuation’s role in the recovery should not be understated
Australia has one of the most robust superannuation systems in the world, and it will continue to play a key role in our economy as we move through the Coronavirus crisis.
Super funds have always contributed substantially to the strength of the Australian economy through their investments in listed markets, but also through corporate debt, private lending, and ownership of real assets such as infrastructure and real estate. There is no reason to believe this will change. Real assets are long-term investments, which make them a perfect match for long-term investors like super funds. The assembled CIOs also signalled that a new opportunity had emerged from the crisis: an enhanced role for super funds to support productivity.
Superannuation’s purpose is to create long-term wealth for members, and the best way to create long-term wealth is to stay focused on long-term strategies while adapting to short-term crises. As one participant noted: a super fund member will likely see three or four bear markets during their investment horizon. The CIOs who participated are some of Australia’s finest, with the experience and capability to make portfolio allocation and investment decisions now to minimise losses in the short term while also crafting investment portfolios that will perform for members over the long term and fulfil their retirement needs.
Our way of life has changed. It is challenging us at every level; how we all work, live and play. But the super funds who are guiding us through our immediate needs, are also providing us with a path towards the future with a continued focus on core long-term investment strategies and vital key role in rebuilding our economies.
