Super funds warming up to derivatives
Australian superannuation funds are embracing derivatives for various investment functions, according to a new Milliman survey.
The survey showed roughly four in five funds (79 per cent) used derivatives “always” or “often” for risk management and hedging while other popular uses included fund manager transition management and portfolio rebalancing.
Milliman head of fund advisory services, Michael Armitage said: “Milliman’s survey results show the Australian industry has a mature and healthy approach to derivative usage”.
“Most super funds are using derivatives not only for risk management, but for dynamic asset allocation, physical security replacement, and to enhance yield.”
The ‘Milliman 2017 Australian Derivative Survey’ showed 55 per cent of funds “always” used derivatives for risk management and hedging, while 24 per cent “often” used it for that purpose.
“However, as an ageing population is faced with increasing exposure to sequencing risk and demand for more retirement-focused products, funds will increasingly turn to more explicit portfolio protection strategies using derivatives to manage more complex retirement dynamics,” Armitage said.
Almost half (48 per cent) “sometimes” or “often” used it for fund manager transition management.
Armitage added he was pleased to see funds were not using derivatives to take on excessive risk, with 85 per cent of funds saying they “never” used derivatives to leverage exposure.
The most popular method to employ derivatives was through an overlay structure (65 per cent), followed by an external manager mandate (47 per cent), and as a core component of asset allocation (26 per cent).
Recommended for you
Financial Services Council chief executive, Blake Briggs, is urging Minister for Financial Services, Stephen Jones, to take advantage of the QAR opportunity to reduce regulatory duplication and ensure advice is affordable.
Former chair of the House of Representatives’ Standing Economics Committee, Tim Wilson, is planning a return to politics after losing his seat in the 2022 federal election.
Morningstar is going to offer research ratings of funds in the $3.5 trillion superannuation sector for the first time in response to demand from financial advisers.
Treasurer Jim Chalmers has opened a consultation into the design of the annual superannuation performance test, canvassing views on a range of reform options.
