Retail and industry funds performance gap widens

23 August 2017

The widening performance gap between industry and retail superannuation funds is “alarming”, according to Industry Super Australia (ISA).

Pointing to the latest Australian Prudential Regulation Authority (APRA) figures, ISA said not-for-profit industry funds outperformed bank-owned retail funds by a widening margin of 2.89 per cent over one year, 2.44 per cent over three years, and 2.13 per cent over five years.

ISA chief executive, David Whiteley said while it was well known that industry funds dominated the performance tables, it was less known that the performance gap between industry and retail funds was widening.

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“For those Australians who entrust their savings to a bank-owned super fund, the trend is alarming,” he said.

“For the average income earner a two per cent performance gap may be a difference of around $200,000 at retirement. The new figures show the performance gap edging dangerously close to three per cent.”

He noted that retail super fund underperformance was the elephant in the room in public policy debates.

“Policy-makers serious about strengthening the retirement income system, must look at cross-selling, profit flows and performance within vertically-integrated financial institutions,” Whiteley said.

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It's also widely known that Industry Fund asset allocations have skyrocketed over recent years. Explain to me how property or infrastructure can be put in the same defensive basket as cash and bonds? How can a balance fund have 90%+ in aggressive investments? The highest returning industry fund this last year has 16% in property/infrastructure and alternatives, out of the total of 24% defensive. Yet somehow this is the benchmark in which to follow? Let's ask the Ombudsman if they'd view this as balanced if an advised client lost money in this so-called balanced fund.

Totally agree with this comment. At one stage this year I was looking at Australian Super's default Balanced option, it's asset allocation was 88% growth, 12% conservative. That has since shifted to a 78/22 split, presumably so they fit into the 61-80 bracket and can be compared against other "Balanced" options for the purpose of Mr. Whiteley's performance tables. How can a fund with a 61% growth allocation be compared to a fund with an 80% growth allocation on a like for like basis and have one apparently perform better than the other? it's total rubbish.

Industry super funds have proportionately larger investments in direct infrastructure and/or unlisted companies -- the "other" asset class. These "other" assets are not exposed to the blowtorch of market valuations. There is no mark-to-market valuation as there is no market. As we all know, one generally gets the valuation they pay for -- Independent Experts' reports are a classic example -- and this directly impacts reported performance. Mr. Whitely, next time you give a lecture on performance, please explain how these assets are being "valued" by your industry funds and how much they contribute to your annual performance calculations.

Whilst these funds that still have a young client profile compared to Retail Funds make hay with Infrastructure and property that they have valued masquerade as defensive assets, what will happen when the fund profile gets older and the need to redeem funds at retirement or pay pensions starts to even out against the retail super funds as a %. Will they be able to sell off 3 km's of a freeway to fund these no, the funds will get further out of kilter with a true asset allocation and the fund performance will come back to the field as assets are required to be sold off to fund pensions/withdrawals. Just watch will happen to QSupers returns as they lose many of their mandated members.

The ACCC has grossly failed consumers by allowing the industry funds to get away with this nonsense. Investing aggressively and labeling the investments balanced (or similar) is misleading to say the least. It is all fine and dandy now, having dodged a recession for a world-beating 25 years. But when the economy turns, let's see how their aggressive, unlisted, illiquid investments pan out. This is typical of our regulators. They sit idly by doing nothing until the sh1t hits the fan.

Obviously a lot of bias in these comments, bagging the industry super funds when the continuing and ongoing performance result of the industry fund speaks for itself

Hi John, you obviously misunderstand the argument being made in these comments. It's to do with comparing apples with apples not arguing that Industry Funds don't perform well, they do, but they also take a lot more risk with their investment options but are allowed to label them in a way that is misleading.

John's comments show the real success of industry funds over recent years. We've turned a generation into risking their entire future because of one piece of data - a return. Ok yes return is absolutely important, but its not the only factor - a point that John has clearly missed !!!

Is there a point for Super Review, money management et al to have an author if it’s just a cut and paste from ISA media release? Any side can just release whatever fake news they like.
For example, the story is based on APRAs June Quarterly Superannuation Performance June.
A quick look at the source and it looks as though its not to compare performance, rather report on the balance sheets of each part of the sector. It reports on total SUPER ASSETS by sector e.g industry, gov, retail etc.
A balanced review of the data may reveal a different story? For one, ISA has a dozen super funds compared to probably 100s retail funds & options. Remove some outliers from retail sector and you may have diff story?
Black & while on APRA’s report 5yr ROR has ISA 2.10% better. Not consistent with what is report here. Retail has way more in cash & FI. They may have investors who select this (rather than default) what not note that caveat. Most Industry use Bal default.
Then there is AA not considered. Retail have 37 to 28 in cash on TOTAL ASSETS.

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