For the last couple of years, I've been working in a building in the CBD where one of the largest industry superannuation funds has its headquarters. As their office is directly below ours, I've had to share the lift with their staff on a daily basis, and boy, has that proven an annoying experience.
I don't know about the rest of you, but first thing in the morning I don't want to be privy to a banal discussion about whether the shop in the back of the ground floor lobby serves 50c less expensive sandwiches than the one out in Little Collins Street, or whether you should apply for a larger locker in the basement storage area so that you can fit in another set of soiled cycling gear. For heaven's sake, do us all a favour and save it for when you get to the office in 45 seconds time.
At first, I put my irritation down to the lack of consideration these people gave their fellow passengers, but then one day as I was listening to some drivel about whether the quickest way from Hughesdale to Chadstone was via Poath Road or Neerim Road I realised there was another dimension to it. I mean, these people are running one of the largest superannuation funds in the country and managing over $100 billion of employee money, and this is the sort of thing that occupies their minds? Not once in 2 years have I overheard a conversation about things like the global economy, investment markets or interest rates, all of which you would expect from a bunch of people whose job it is to manage other people's money.
However, the lack of nous doesn't surprise me at all given how this particular fund conducted itself during the Global Financial Crisis. When the biggest liquidity crisis in 75 years hit the property markets in 2008 and some of the best real estate in the country was on sale for bargain basement prices, the group was flush with cash and were perfectly poised to make a killing. Instead, it was like they were a rabbit caught in the headlights. Unable or perhaps too frightened to make investment decisions, they made precisely no acquisitions in Australia and watched the market sail by, to the complete and lasting detriment of their clients who would now be sitting on over 100 per cent capital gains in some cases.
This got me thinking more generally about what is structurally wrong with management of superannuation funds, and why that is a deep concern for all of us. Like a lot of other western countries, we are facing an increasing problem with the need to support an ageing population, and the strain on the public purse that entails. The whole point of the superannuation scheme implemented during the 1980s was to enable people to be self-sufficient in retirement and not rely on government welfare. But if their superannuation is being managed by people who just aren't up to the job and deliver bad returns on their money, what hope have they got?
To me, there are three obvious areas which need to be addressed. The first is, the industry needs to start attracting good money managers. To do this, they need to lose the idea that not paying external managers or staff well is somehow going to lead to better returns for their members. I don't know about you, but honestly, every time I see that idiotic industry funds ad on the television extolling the benefits of fee-free management I want to hurl the remote control at the screen. Since when did paying less or nothing for something result in a better quality of product? Take the airlines for example. I know that if I pay a bit extra to fly Qantas I stand a chance of having a movie to watch, a glass of wine and something to eat, and I am also going to get to my intended destination roughly on time. Fly Jetstar however and I have to stare at the seat in front of me for 2 hours, get charged an eye watering amount for bringing a pair of pyjamas with me and have to pray that the plane in fact flies instead of plummeting. It is no different in the funds management business, if you are prepared to pay decent money, then you will attract good people who are diligent and know what they doing. Pay poorly and you get the sort of earnest but exceedingly dim people who work on the floors below me.
The second area is, fixing the investment process. I know from my own experience and that of other colleagues in the industry that a superannuation fund would be the absolute last resort option for taking an investment proposal to. They are just too slow and too niggardly with sharing the success of an investment with their fund managers to bother with. Many would be the time that some functionary would take an eternity to get the approval of whatever investment committee they needed to, by which time the opportunity would often be lost. In the unlikely event that it would still be available, then the superannuation fund would try and get away with offering you a fraction of the remuneration that you could get from another investor. As a result of this conduct, their investors were, and no doubt continue to be, deprived of the chance to participate in some very good investments.
The third area is imposing more scrutiny on the industry, similar to that which publicly listed companies or other managed investments schemes are under. I can go search the ASX website and find an incredible amount of detail on BHP, CSL, Macquarie Bank or any other major company, including annual reports, Q and A with the CEO, and investment proposals they make during the year. Try doing that with the likes of HESTA, REST and C+BUS and see how you go.
Of course you can always run the argument that if you aren't a member of the superannuation fund in question, then why should you be entitled to view their information? To which I would answer, as a taxpayer who is picking up the shortfall for looking after these people in retirement because you have done a bad job, then I am entitled to scrutinise you as much as I like. In fact, now that the banks have had all their dodgy practices laid bare in a Royal Commission, it's high time we had one in the superannuation industry. It would wake people up to the laziness, cronyism, crippling red tape and poor investment decisions that go on in some of the major funds. Plus it would give the people who trust these funds with managing their hard earned money a chance at redress, in much the same way that the victims of the banks are now being compensated.
The sheer volume of cash being placed into these funds now and the growing funding problem we face as a country as the baby boomers wither and die demands that this industry is run as well as it can. I don't know however when we will see some meaningful or intelligent reform. Labor has always enjoyed a fairly cosy relationship with the industry super funds so I think there will be a lack of political will from them to do much while in government. Even if they did have the will, they are likely to be delivered a Senate which is about as functional as a Boeing 737 Max operated by Jetstar, so heaven knows how any legislation will get through in the next Parliament.
Which is a pity. Hard working employees deserve a lot better, and I'd really like to be able to enjoy the lift ride up to my floor in blissful silence.
