2022 Annual Member Meeting

ROSE KERLIN: Welcome to the AustralianSuper 2022 Annual Member Meeting. Let me begin by acknowledging the Traditional Custodians of the land on which we meet and pay my respects to their Elders past and present. I extend that respect to Aboriginal and Torres Strait Islander peoples watching this event.

My name is Rose Kerlin. I’m the Group Executive, Membership & Brand at AustralianSuper and it’s my pleasure to be your MC for this event. AustralianSuper has been holding Annual Member Meetings for 17 years. It’s just one of the ways in which we work to be transparent and accountable to members.

Before this meeting, we held nine SuperTalks and ran four virtual Information Booths to help members navigate their super journey. More than 80 colleagues volunteered to be on hand to connect with members and provide live guidance and answers. I hope those of you who participated found these sessions informative and valuable.

This meeting is important to the Fund for three key reasons. First, we want to share an update on AustralianSuper’s activities for the financial year 2022. We’ll provide an update on the Fund’s investment performance and outlook and some of the plans and initiatives we’re delivering to help you achieve your best financial position in retirement. Secondly, we want to hear directly from you. This meeting is a great opportunity for you to ask questions and make suggestions about your Fund. I will let you know how you can do that at the end of the presentations. And, thirdly, we hope that hearing about AustralianSuper’s performance, outlook and future plans will leave you feeling more confident about your superannuation and your life in retirement.

The formal presentations will be followed by a Question and Answer session with the panel. We have a quorum of AustralianSuper Directors present this evening, along with our actuary and our auditor, PwC, represented by Craig Cummins.

We aim to have the presentations complete in an hour, followed by the Q&A session for up to 45 minutes. You will be able to type a question and we will do our best to answer them all but please note we will not be able to answer questions about your personal circumstances.

This is your Fund and it’s the Fund run to benefit almost three million Australians. AustralianSuper is a profit-for-member fund so we don’t pay profits or dividends to shareholders. The money we make is for members, and your best financial interests drive our decisions.

To begin, I’d like to introduce Dr Don Russell to provide an update on behalf of the Board. Don joined the AustralianSuper Board as an Independent Director in May 2019 and was appointed Chair in September of that year. Don is also a Director of the Centre for Policy Development. His previous roles include Global Investment Strategist at BNY Mellon, Australia’s Ambassador in Washington and Principal Adviser to The Honourable Paul Keating both during his time as Treasurer and Prime Minister. Don has an exceptional background in a wide variety of sectors and brings a deep understanding of finance, superannuation and public policy to the Fund. Welcome, Don Russell.

DR DON RUSSELL: Thank you, Rose, and welcome, everyone. Thank you for taking the time to attend our Annual Member Meeting. I hope you find it informative. I would like to acknowledge my fellow Directors who have joined us this evening, including Philippa Kelly, who was appointed after the last Annual Member Meeting and is the Chair of the Fund’s Investment Committee. You will hear from Philippa shortly regarding our investment strategy.

I’d like to start by reflecting on a challenging year. Geopolitical uncertainty, inflation and a rise in global interest rates, volatility in investment markets and the lingering effects of the pandemic have brought daunting challenges for the Fund and all of us. We have found that the past year has also brought more people than ever to the Fund and more members looking for trusted help, guidance and advice.

Superannuation is a long-term investment. That does not mean we stand still when markets move or the outlook changes. Far from it. Market turbulence and a changing world economy are often times when there are great investment opportunities. The Fund’s Chief Investment Officer, Mark Delaney, and the Investment team have worked hard to position the portfolio to a more defensive strategy as the outlook has weakened. They have done this with a determined view that the Fund should be in a strong position to take advantage of attractive opportunities as they present themselves. Mark and Philippa will speak to you about the Fund’s investment approach presently.

Throughout the financial year, the Board remained focused on ensuring the Fund was well placed to navigate this uncertainty, while remaining true to our commitment to Members First and our long-term strategic trajectory. Consistent with this, we have taken the opportunity to put in place a number of programs to enhance our understanding of members and further improve our risk culture. The Board is also very conscious that our 1,300 colleagues are at the heart of our capacity to deliver for members. Supporting colleagues is how we can continue to deliver exceptional service for members and ensure our Members First culture remains central to everything we do.

Two significant events during the period were the Fund’s mergers with Club Plus Super and LUCRF Super, and I welcome members from those Funds and all those who joined the Fund in the last year.

We wouldn’t have superannuation in its current form without the passage through the Parliament of the 1992 Superannuation legislation. This year is the 30th anniversary of that historic event. Thirty years ago, most Australians approached retirement with considerable trepidation, appreciating that they could look forward to little more than the government age pension. Underlying the passage of the 1992 legislation was the strategic insight that the boomer generation would not retire gracefully on 25% of the average weekly earnings. The Super Guarantee rate still has to advance to 12%, and the system is not yet at full maturity, but we know from the experience of AustralianSuper members that superannuation has been significant in helping millions of Australians achieve a better financial position in retirement.

A member with AustralianSuper for 30 years - back when we were known as STA or ARF - who had $50,000 in the Balanced option in 1992 would have seen this grow 10 times over that time, to be over half a million dollars today. This growth highlights the key benefits of superannuation: ongoing contributions and the magic of compounding investment returns over a working life. Over the last 30 years, the Balanced investment option - where most members are invested - has returned, on average, 8.13% each year.

Since the last Annual Member Meeting, we have seen some important changes to the Board. In addition to Philippa Kelly, we welcomed Jo-Anne Schofield and Michele O’Neil. I am pleased that Michele was also appointed Deputy Chair. With these appointments, the Board now has seven female members and five male members, consistent with our commitment to gender balance in the Fund. During the year the Board farewelled Dave Oliver and Lucio Di Bartolomeo. I would like to take this opportunity to thank Dave and Lucio for their service to the Fund over many years.

I would also like to thank Director Brian Daley, who retired in September this year after 30 years’ service to the Fund and predecessor funds. Brian’s lifetime of service to AustralianSuper members and our Fund has been characterised by an unwavering commitment to ensuring the Fund always acts in the best interests of members, in particular those members who may require additional service and support.

I would like to acknowledge the work of all AustralianSuper colleagues, our Executive and Board members who have worked incredibly hard on behalf of members over what has been a difficult year. Throughout this period, the Fund has been ably led by Paul Schroder, who took on the role of Chief Executive in October last year. I would like to say that Paul has taken to the new role with great poise and is working hard to make sure that your Fund continues to succeed and deliver for you.

Finally, I would like to thank you, AustralianSuper members, for the trust you continue to place in us. We remain committed to harnessing our size, scale and skill to deliver top long-term investment performance, low fees, good-value products, services, help and guidance for members in order to help you achieve your best financial position in retirement. Thank you.

ROSE KERLIN: Thank you, Don, for those opening remarks on the focus of the Board. Our next speaker is the Chief Executive of AustralianSuper, Paul Schroder. Paul is responsible for the overall leadership and strategic direction of the Fund. He was appointed in October last year following 14 years with the Fund in multiple executive roles, including as Chief Risk Officer. To provide an overview of what the Fund has been delivering for you for the 12 months to 30 June and the focus for the future, welcome, Paul Schroder.

PAUL SCHRODER: Hello and thanks very much for joining us for what I believe is the most important meeting we hold during the year. I’m Paul Schroder, Chief Executive of your Fund, and I’m looking forward to talking with you about how we’ve been managing your retirement savings and the services and support we’re providing to help you feel confident looking ahead to your retirement.

First, I’d like to acknowledge that it’s been a challenging year for many. Together we’ve seen the continued impacts of the pandemic, along with uncertainty and conflict around the globe. In addition, many of you – and your families – have encountered the devastating effects of extreme weather events. The economy has been characterised by rising inflation, increasing interest rates and volatility in investment markets.

Throughout this period of uncertainty, AustralianSuper has remained focused on providing trusted support and services for members who are looking for information, help and guidance; carefully positioning the investment portfolio so we can continue to deliver strong, long-term returns for you; prudently managing our costs and fees; advocating for changes to improve the superannuation system for the benefit of members and for all Australians; and continuing to grow the Fund and to keep using our size and scale to deliver even better outcomes for you.

Amidst the uncertainty, I want to assure you that AustralianSuper has successfully navigated change, in the interests of all members, since our inception over 16 years ago. Our experience means you can remain confident that, as we grow, adapt to meet your needs and expectations, manage new regulatory requirements and a changing industry, that we’ll continue to keep your best interests at the heart of everything we do.

Helping you achieve your best financial position in retirement is our purpose and is at the heart of everything we do. We’re a profit-for-member fund, which means we don’t pay profits or dividends to shareholders and the money we make is for you. As an example, during the last financial year, over 1.13 million members saw the cost of their insurance decrease by almost $90 million. In June we announced changes to our admin fee structure, which came into effect in September, and, as a result of these changes, nearly 2.3 million members have a reduced or unchanged administration fee. Members with a balance of less than $50,000 in accumulation will pay, on average, almost half the admin fees they did before the changes. And members with a Choice Income pension account will have, on average, a decrease in their administration fee of 25%.

The change in the structure of the admin fee places greater weight on the amount of savings you have with us, and that’s why some members will pay more. However, the average increase for those members is only a little over $1 per week and we also now have a fee cap to give all of you certainty.

Importantly, the Fund’s administration fees are now amongst the lowest in the industry, including for members with higher balances. In financial year ’22, more than 635,000 people joined AustralianSuper – a record number. Our good long-term investment performance, strong reputation and well-known brand, along with low fees and being a large fund, are some of the reasons members have given for joining AustralianSuper. We’re very mindful of the trust you place in us to invest your retirement savings and to help you make good decisions about your retirement.

AustralianSuper has now 2.9 million members and remains Australia’s largest super fund. We’re also the 20th largest pension fund in the world, and this size and scale matters because it means we can use it for your benefit.

This slide gives an indication of some of the many member interactions and services we’ve delivered over the year. I’m pleased to say we’ve been able to provide these services while experiencing increases in demand of up to 130% for some of them and maintain almost 100% availability.

While providing service and support to a growing number of members who are increasingly active with their accounts, we have also worked to improve the member offer, including by enhancing our digital tools and resources on both our website as well as the AustralianSuper App; improving the transparency and usability of our investment holdings information so it’s easier for you to see where we are investing your money; and by upgrading our Member Portal to meet the needs of more and more members who are preferring to self-serve online.

AustralianSuper has always placed a great deal of importance on helping you make good decisions about your future. We recognise that many members have been anxious about changing investment conditions and the impact on their super. Through the year we’ve provided live webinars, videos, articles and emails to assist. AustralianSuper’s range of education videos, known as SuperTalks, are available to watch on demand and we provide a range of financial advice options.

To help us make decisions about the products and services we offer, we conduct deep member engagement, analysis and research, including our extensive customer listening program. This year we introduced a Members First culture program, and this program will continue to ensure that all colleagues are aligned in their focus on delivering for you, no matter which part of the Fund they work in.

I now want to talk briefly about cybersecurity. Protecting your personal information is imperative to AustralianSuper. We have robust security measures and processes in place which are designed to keep your accounts, personal data and your retirement savings safe. In light of the recent attacks, we’ve taken additional steps to keep your accounts secure and prevent fraudulent activity. We’re continually refining and strengthening both our processes and our controls. You can take additional steps to help keep it even more secure, and you can find that information on the home page of our website.

Our purpose is to help you achieve your best financial position in retirement. Simply put, our job is to help you have more money for your retirement. Last year was a challenging year for investors, and many of those challenges continue. For the first time since the Global Financial Crisis in 2008/9, the Balanced investment option, where most members are invested, had a return at the end of the financial year of negative 2.73% for super and negative 3.02% for members in Choice Income. I know that a negative return is not a result that you want, nor is it one that anyone at the Fund wants. It was driven by falls in investment markets globally following a period of global supply chain blockages, the war in Ukraine, higher inflation globally and rising interest rates here in Australia. Mark Delaney and Philippa Kelly will provide more detail in their presentations shortly.

It’s important to remember, though, that negative returns are expected over a lifetime of superannuation investing as markets move through growth and decline cycles. For example, while last financial year there was a negative return, the year before was a record positive result. Last year was one of only four negative financial year returns for the Balanced option since its inception in 1985, which is 37 years ago. So it’s really important to take a long-term view when thinking about your super.

At June 30 this year, the Balanced investment option has delivered an average annual return of 9.32% over the last 10 years and 7.84% for each of the last 20 years. The Balanced option was ranked in the top two funds over 7, 10 and 20 years. For Choice Income members, the Balanced option’s average annual return over 10 years was 10.27% and it was also ranked in the top two over that same period.

As you can see on this slide, the worst-performing fund delivered a negative 8.7% return for the last financial year. AustralianSuper outperformed that fund by 6% and we outperformed the median fund by 0.7%. Over three years, AustralianSuper outperformed the poorest-performing fund by 3.3% and the median fund by 1.3%. Over 10 years, AustralianSuper returned 2.8% more than the poorest-performing fund and 1.3% more than the median.

Being able to deliver this outperformance year after year after year is having a material impact on your retirement savings. These percentages that may sound small add up to a lot over a working life. As you know, super is a long-term investment, even for many people in retirement, and I’d like to show you the difference that performance makes over time. Just imagine three people. One could be your child, and a couple of their friends. They earn the same wage, they receive the same amount of super and in all other respects are entirely the same, except for the super fund they have their super invested with. One of them is in that poorest-performing fund, one in the median fund and one is in AustralianSuper.

So let’s do a comparison. The assumptions are identical across this comparison. Let’s assume an average income of $78,000 a year – a good income - and in the workforce for 40 years and we’ll use the 10-year average annual returns for that poorest-performing fund, the median fund and AustralianSuper’s 10-year average return and we’ll apply it over a 40-year working life.

That poorest-performing fund delivers about $537,000 in retirement savings for that person. The median-performing fund delivers $761,000 – already a huge difference on the poor performer. AustralianSuper, with all the same conditions – same income, same contributions, same 40-year working life – delivers more than $1 million to that member in this example.

A difference in investment performance of even just 1.3% per annum between the median fund and AustralianSuper results in a difference of $284,000 in retirement savings. And the difference of 2.87% per annum between the poorest-performing fund and AustralianSuper results in a difference of $508,000. These are based on the same 10-year average returns for AustralianSuper and the 10-year average returns for the other funds.

Now, we can’t predict 40 years of returns - and you would have often heard the disclaimer that past performance is not an indicator of future performance - but this example is a clear demonstration that being with a top-performing fund will help you achieve a better financial position in retirement. And AustralianSuper has a history of delivering market-leading long-term returns to members.

In addition to helping you achieve your best financial position in retirement, as a Fund we have an overarching ambition, and that is that all Australians should live well in retirement. As Australia’s largest super fund, we believe that in delivering for you, we can also be part of a broader contribution to Australia.

AustralianSuper is one of the largest investors in Australian companies and assets, with $130 billion of members’ retirement savings invested in Australia. This includes investments in many of Australia’s largest companies and in some just starting out, as well as stakes in unlisted infrastructure and property. We also invest in bonds issued by the Australian Government and in large corporates, and we lend directly to Australian companies. Each of these investments contributes to strong long-term returns for you. They also have the benefit of contributing to the Australian economy.

In addition to these investments, you may have seen the Federal Government’s Housing Accord in the news recently. This Accord aims to address the real and pressing issue of housing affordability, recognising that access to safe, secure and affordable housing is a key to wellbeing.

AustralianSuper has already sought to address housing affordability through our relationship with Assemble Communities and its innovative build-rent-to-own as well as resident financial coaching initiatives. In fact, construction is due to commence shortly on more than 370 units as part of two new developments in Brunswick and Kensington in Melbourne. We’ve worked hard with Assemble to develop a model that is sustainable, scalable and attractive to institutional investors like us.

We’re committed to delivering strong, sustainable long-term returns to you, and through the Accord, we’re pleased to explore the potential to do this while responding to a national challenge. Innovative thinking, collaboration and true structural change is what is needed for Australia to tackle housing affordability, and that’s why we’re looking forward to being part of that conversation through the Accord.

I want AustralianSuper to be the leading superannuation fund for you, in the best superannuation system in the world. We believe that member outcomes can be improved if the superannuation system as a whole is improved. That’s what drives our advocacy efforts. It’s why we supported the Superannuation Guarantee increasing to 10.5% on the 1st of July, on its way up to 12% by 2025. It’s also why we support measures to improve performance and transparency for all funds in the system – so members can know if they’re with a good fund or not and then make decisions about what suits them best. And it’s why we supported the removal of the $450 threshold, which happened earlier this year. That change means that from the 1st of July this year, employees earning less than $450 a month are now being paid super by their employer, where they previously weren’t. This has a really positive impact for casual and part-time workers - disproportionately women - and also for workers in the gig economy.

We will continue to proactively engage on public policy questions, with an ambition to ensure that Australia’s superannuation system is the best in the world and can deliver more for members - you.

Last year we launched our 2030 Strategy, which is centred on our purpose to help you achieve your best financial position in retirement. Over the course of the last financial year, we’ve delivered a range of initiatives supporting this strategy. We opened a New York office and expanded our presence in both London and Beijing. Having a strong local presence allows us to provide better oversight of international investments and to access opportunities local to those offices, helping us achieve market-leading long- term performance. And we continued to reduce investment costs through the ongoing internalisation of the investment program. Over the last seven years, this program has saved members more than $1 billion. And we continued to build scale through strong growth in member numbers and members’ assets under management. I’m pleased to say we’ve also achieved an Employee Engagement score of 85%, which is above the global average.

As we look towards the future, we continue to assess, plan and continuously improve on our ability to be a leading super fund, delivering strong investment performance and meeting your needs as members while running the Fund prudently and efficiently with a strong Members First culture.

I want to thank each of you for the trust you place in AustralianSuper and hope this presentation demonstrates that the Fund is well positioned to act as your trustworthy guide on your journey through and to retirement. As Chief Executive, I want every member to have the confidence that together we have the size, the scale and the skill to help you achieve your best financial position in retirement.

So thank you for attending our Annual Member Meeting and we look forward to answering your questions shortly.

ROSE KERLIN: Thank you, Paul, for your excellent update of how the Fund has been working to deliver great outcomes for members and how we’ll continue to harness our scale and skill to help members achieve their best financial position in retirement.

It’s now my pleasure to introduce the Chair of the Investment Committee, Philippa Kelly, to provide an investment overview. Philippa was appointed to the Board in November last year as an Independent Director. She has significant experience in senior roles that span law, investment banking and the property industry. In addition to her Board positions, she is currently the Deputy Chancellor of Deakin University and is Chair of its Finance & Business Committee. We are fortunate to have her breadth of knowledge and experience at both the Board and the Investment Committee.

Following Philippa’s address, Mark Delaney, AustralianSuper’s Chief Investment Officer and Deputy Chief Executive, will provide a detailed look at last financial year’s investment performance as well as the investment outlook and strategy going forward. Welcome, Philippa Kelly.

PHILIPPA KELLY: Thank you, Rose. Hello, everyone. I'm delighted to be here at my first Annual Member Meeting. Today I'll talk about how we are progressing our investment strategy to deliver long- term financial benefits for you as members.

The past financial year was a volatile one for investment markets. This volatility is likely to continue, while we're seeing uncertainties around global growth, persistently high inflation and rising interest rates.

Investment markets move up and down in the short term, and superannuation returns will vary year by year. However, superannuation is a long-term investment, which is why our focus on returns over the long term is critical to delivering the best outcomes for you.

We navigate market volatility with a dual lens - actively managing the portfolio day to day while also executing on our long-term investment strategy. Our long-term investment strategy hasn't changed. The Investment team, under Mark's leadership, has developed the expertise to manage and grow members’ balances over the long term, including through periods of market downturn and volatility such as we’re currently experiencing.

As an active investor, we focus on three key elements in implementing our investment strategy: first, internalising our Investment team. The Fund now manages more than 53% of the portfolio internally. Building this scale and expertise internally provides benefits to members by lowering investment costs, giving better access to investment opportunities and enabling more agile and informed investment decisions.

The second key element is by increasing the Fund's exposure to private market assets. One example is our recent investment in Canada Water. Canada Water is a significant regeneration project in central London. Spread across 53 acres, the development will over the next 10 years include a new town centre, with homes, offices, shops and schools. Investments such as this allow us to leverage our long- term investment horizon, scale, global execution capability and strong track record as a responsible investor and owner.

Thirdly, we are increasing our on-the-ground presence in key financial markets. Our London and New York offices have together grown to more than 80 colleagues. We expect these offices to grow further as we expand our investment capabilities, including the development of a global fixed-income team to be led from London. Building our international presence allows us to better understand local markets and grow our business relationships to provide greater access to new investment opportunities.

Responsible investment is at the core of our investment approach, and while Mark will go into more detail on this in his presentation shortly, I want to briefly outline our approach to ESG. We aspire to be both a good investor and good owner because we believe this will build members’ balances in a sustainable way. Our ESG and Stewardship program is embedded across our investment process.

As large and active owners, we also believe that engaging with companies and using our voting rights enables us to encourage positive behaviour on issues that can impact investment returns. As an example, we encourage companies to adopt ‘Say on Climate’ advisory votes to improve the transparency and consistency of climate change reporting and to provide an opportunity for investors to assess companies’ low-carbon transition and climate change strategies. Over the past financial year we voted on 37 ‘Say on Climate’ resolutions globally, supporting 73% of the resolutions.

Before I close, I want to recognise the leadership and dedication of the outgoing Chair of the Investment Committee, Jim Craig. Jim's role in stewarding the development of our long-term investment strategy has been integral to the success of the Fund, and on behalf of the Investment Committee, I thank Jim for his commitment and contribution.

In what has been a challenging year in investment markets, I also want to thank the AustralianSuper Investment Committee and Investment team for their hard work and dedication. And, importantly, I want to thank you, AustralianSuper members, for your ongoing support. I'll now pass to the Chief Investment Officer, Mark Delaney.

MARK DELANEY: Hi, everybody. It’s great to see so many members listening in. This evening I’ll be discussing investment returns, how we manage market volatility for members, and our long-term investment strategy and outlook.

It’s been a volatile year for investment markets. Geopolitical tensions, high inflation and rising interest rates all impacted performance, resulting in the Balanced option’s first negative annual return since the Global Financial Crisis. After many years of positive returns, we understand that it can be unsettling for members to see their super balance go backwards, especially for members in or close to retirement.

Given that super is a long-term investment, it’s important to look at returns in a long-term context and stay focused on your long-term retirement goals.

This chart shows that over the last 36 years, the Balanced option has had only four years of negative returns. For reference, we generally estimate the Balanced option could have about five negative annual returns over any given 20-year period. Our long-term investment performance remains consistently strong. At 30 June, the Balanced investment option has delivered an average annual return of 9.32% per annum over the last 10 years.

At AustralianSuper we believe that to be a successful long-term investor, we need to understand both the drivers of return and the risks associated with our investments, including ESG risks. Our approach to managing these risks is tailored to each asset class and whether we’re investing directly or through external managers. As such, our ESG and Stewardship program is embedded across our investment process.

We actively manage our capital and use our influence to create sustainable long-term value for you. We do this by considering a range of environmental, social and governance impacts. We prioritise those that we believe present the greatest risks and opportunities to member returns.

As a direct investor in some of Australia’s largest companies and assets, we exercise our rights and responsibilities through active stewardship. Our objective is to communicate our long-term investment interests in a way that is consistent with maximising long-term value for members. We actively influence change in our publicly listed investments through direct engagement with management, as well as participation in shareholder votes and class actions. Last year alone, we voted on roughly 40,000 resolutions globally.

For our unlisted investments, we have commenced an ESG training program for the non-executive directors of our larger, directly held assets. We continue to use our influence to encourage companies to appoint well-functioning and diverse boards, deliver better environmental and social outcomes, and provide appropriate executive pay.

This slide illustrates some of our larger strategic themes and priority topics for last year and this year. I’d like to highlight two of these specifically: climate change and modern slavery. AustralianSuper has committed to a Net Zero 2050 climate goal. To achieve this goal, we are advocating for the companies and assets we invest in to develop and act on credible transition plans and demonstrate progress against targets. During FY22, we expanded our internal carbon foot-printing analysis across our Australian and international equities, property and infrastructure portfolios. Through this process, we identified the largest contributors to portfolio emissions and are actively engaged with them on their climate action plans.

Modern slavery is another significant global issue. It impacts an estimated 50 million of the most vulnerable people around the world. AustralianSuper recognises our responsibility to address modern slavery across our investments and operations. In FY22, we continued to expand and refine our approach to this issue through comprehensive portfolio company engagement, expanded supply chain assessments and active membership in established industry groups. We will be publishing our third Modern Slavery Statement later this year.

AustralianSuper holds strategic leadership positions on these key investor initiatives. Our Head of ESG & Stewardship, Andrew Gray, is the current Chair of Climate Action 100+. And AustralianSuper is a founding member and Steering Committee member of the Investors Against Slavery and Trafficking Asia Pacific. We believe this approach to responsible investing will continue to support long-term value creation and better investment outcomes for you.

Turning now to the performance of the portfolio over the past year, after a record year for the Balanced option in FY21 and a strong first half of FY22, the global economy and investment markets were impacted by several key factors, including, firstly, geopolitical tensions. The Russian invasion of Ukraine was deeply concerning from a humanitarian perspective. It also had a large impact on investment markets, further disrupted global supply chains and quickly led to the Russian market becoming uninvestable.

Secondly, high inflation. As we transitioned out of the pandemic environment, pent-up consumer demand and supply chain blockages contributed to inflationary pressures. This was especially felt in the prices of food, energy and other commodities.

And, finally, rising interest rates. Central banks are now responding to persistently high inflation by raising interest rates, which has continued at a rapid pace this year. This has caused investment markets to fall, as investors became cautious about the impact of higher prices and higher interest rates on consumer spending and business profitability.

All of these events dominated headlines and resulted in falls in investment markets. The Australian share market lost more than 6% and the international share market lost more than 8% for the 12 months to 30 June 2022. In comparison, the Balanced option’s annual return was -2.73% for the accumulation accounts and -3.02% for the Choice Income accounts. This speaks to the benefits of diversification and active management, both cornerstones of AustralianSuper’s long-term investment strategy. As this slide shows, different parts of the portfolio respond differently to changing market and economic conditions.

Let’s look a little closer at the returns for each asset class for the past year. Listed share markets around the world were negatively impacted by rising interest rates. Our Australian shares portfolio outperformed its benchmark, the S&P/ASX 200 Index. A key driver of this outperformance was our high- conviction portfolio strategy - investing larger amounts of capital into a smaller number of high-quality companies.

Along with the broader global share market, our international shares portfolio was heavily impacted by rising interest rates and concerns over global economic growth. This asset class had performed exceptionally strongly over the past few years, particularly technology and consumer discretionary companies, though there has been a sharp reversal over the past year as the market reassessed the growth profile of some of these companies.

The fixed interest asset class, which is historically a safe haven during public share market falls, was negatively impacted by rising interest rates. This is because when interest rates rise, bond prices fall. As a result, the value of fixed interest assets went backwards. On the other hand, private market assets helped to cushion the fall of listed equity and fixed interest markets. Private equity, unlisted property, unlisted infrastructure and private credit all outperformed listed asset classes. Private equity in particular benefited from the strong operating performance from a number of portfolio companies, resulting in very strong returns.

In our property portfolio, positive performance from our mixed-use development assets and industrial properties contributed favourably to overall returns. Infrastructure assets, specifically transport, regulated utilities, energy transition and telecommunications sectors, were also positive contributors.

Private credit also performed well, specifically in commercial real estate and infrastructure loans. Cash returns remained at historically low levels in FY22 in line with short-term market interest rates.

Let’s look at the performance across our investment options. As you can see here, each of the PreMixed options experienced negative returns in FY22. The more growth-orientated options, such as High Growth, Balanced, Socially Aware and Indexed Diversified, were negatively impacted by lower international and domestic shares performance. The more conservative options, such as Conservative Balanced and Stable, experienced negative returns, largely driven by poor fixed interest performance.

While this year’s returns were negative, our long-term results continue to provide favourable financial outcomes for members. As you can see here, the PreMixed options have continued to deliver strong performance over the longer term. Each has outperformed their peer median benchmark and CPI objective over the past 10 years. This has similarly been the case for our Choice Income PreMixed options, shown in this slide. For the Balanced option, we aim to deliver returns of CPI plus 4% over the medium to longer term. This out-performance above inflation is designed for members to achieve a return that builds their retirement savings. Inflation has risen to the highest rate we’ve seen in the past 20 years. However, members can be reassured by the knowledge that the Fund remains well positioned to achieve its long-term investment objectives.

This is my favourite slide. At the end of the day, this is what we’re here for - helping you achieve your best financial position in retirement. Super is a long-term investment and, as I mentioned earlier, market ups and downs are a normal part of investing. It’s natural to feel like you should be doing something when you’re hearing negative news and seeing your super balance go down. While it might feel like you’re protecting your retirement savings by considering switching to cash or other investment options, by doing this you may actually be locking in your losses and preventing you from participating in any subsequent market rebound.

As this graph shows, it’s not about timing the market; it’s about time in the market. As you can see here, if $100,000 had been invested in the Balanced option on 30 June 2002, it would have grown to over $450,000 by 30 June 2022. That’s four times the initial investment amount. While volatility impacts returns day-to-day, history shows that staying invested in a diversified portfolio of quality assets grows member retirement balances over time. The Balanced option has strongly performed and grown members’ super over the long term, despite historic market cycles and events. When you look at the big picture, even large events like the Global Financial Crisis and COVID-19 sell-offs look manageable.

It’s important to remember how we got to where we are today and how we’re positioned to grow into the future. As a long-term investor, we’re focused not only on managing through the current market cycle; we must also focus on the trends we believe will impact our investment strategy and program into the future.

In the nearer term, these themes include the implications of a potential global recession in 2023; the global effort to get inflation under control; and managing the impact of China’s transition to lower growth. In the longer term, we are focused on a number of themes including geopolitical pressures, particularly the implications of a potential US-China conflict; the technological disruption; and climate change and global energy transition. Our research into these themes informs our thinking about the risks and opportunities that lie ahead, as we continue to build a portfolio that is well positioned to grow members’ retirement savings for years to come.

After more than a decade of strong growth, our outlook suggests weaker economic growth, continued volatility in investment markets and moderating investment returns. The global economy has entered a particularly challenging period, with a recession likely for many major economies. As a result, we’ve shifted to a more defensive strategy and prepared the portfolio for a lower growth environment.

As the economic cycle progresses and markets respond, we will continue to adjust the portfolio to manage risk and take advantage of long-term investment opportunities. By adjusting the allocation to different asset classes, we can control the level of risk in the portfolio and reduce the impact of volatility on returns, while positioning the portfolio to capture growth when the market recovers.

We’re patient investors but that doesn’t mean we sit passively on the sidelines. Periods of market volatility also create compelling investment opportunities for long-term investors. The investment team is anticipating and adapting to changing market conditions to protect members’ super in the short term while investing in attractive opportunities to grow members’ super in the long term.

As you can see, we are well into our journey. We continue to leverage our size and scale to benefit members, to access investment opportunities not available to smaller funds and to build a truly global investment management capability.

This timeline shows some of our key milestones from the past decade. In addition to our Australian- based investment team, we now have three investment offices overseas: London, New York and Beijing. Having teams based on the ground in key global markets allows us to source the best global investment opportunities for members, directly oversee our offshore investments and build strong relationships with world-class investment partners.

We have also internalised the management of more than half of our investment portfolio. Since we began internalising management back in 2013, our portfolio has grown from roughly $65 billion to over $260 billion. This has led to a substantial reduction in our investment costs. Last year alone, the Fund saved over $300 million from our internalisation strategy. Over the past eight years, that internalisation has delivered almost $1 billion of cost savings.

As you can see here, these long-term investments have had a direct impact on our performance. The purple area shows the performance of the median Balanced super fund, while the orange shows AustralianSuper’s performance and outperformance over all time periods. We’re proud to say we’re ranked in the top two of the best-performing options over 7, 10, and 20 years at 30 June 2022.

As Australia’s largest super fund and one of the top 20 largest pension funds globally, our size, scale and global investment capabilities allows us access to world-class investment opportunities to maximise long-term returns to you. Last year alone, the Fund deployed nearly $13 billion into unlisted assets. This includes the investments in key strategic assets that are integral to the Australian economy. Members own significant stakes in the WestConnex motorway network, Sydney Airport and Moorebank’s Logistics Park. These investments are expected to contribute to member returns and the Australian economy for many years to come.

I would like to close by thanking the Investment Committee and the Investment team for the hard work and dedication to delivering the best possible outcomes for members. Finally, and most of all, I’d like to thank our almost 2.9 million members for their ongoing support. With that, I’ll hand over to Rose.

ROSE KERLIN: Thanks to Philippa and Mark for their insights into our investment strategy, performance and market outlook. That concludes the formal presentations. We will now proceed to the live Question and Answer session. For those that are not joining us, thank you and good evening. For those that are joining us, please note that questions can only be typed into the questions box. If we aren’t able to answer all questions at this meeting, a response will be provided afterwards via the Minutes of this Meeting, which will be available on the website.

I would like to remind you that if you choose to send any questions to us during the Annual Member Meeting, these questions and our responses may be made publicly available to other meeting attendees in real time as part of the Meeting. They’ll also be recorded in the Minutes of the Meeting, which will be made publicly available on our website.

Please note that to protect your privacy, do not include any personal information in the messages or questions you submit to us as part of the Annual Member Meeting, other than your name and email address. We are not able to answer questions relating to your personal account or personal situation. Please contact us via the website, contact centre or the AustralianSuper App in these instances.

To ask a question, click on the Q&A button at the bottom of your screen and type your question into the questions box. We’ll give you a moment now to enter your questions. Thank you.

ROSE KERLIN: For those of you who have just joined and weren't at the previous presentation, welcome and thank you for joining us at the AustralianSuper 2022 Annual Member Meeting, our Question and Answer session. My name is Rose Kerlin and I'm the Group Executive, Membership & Brand.

So let's get started. Just to reiterate, to ask a question, please click on the Question box on the bottom of your screen that says Q&A and type in the question field that says "Enter your question" and then press "Submit". As a reminder, please don't put any personal information into the question box. If you do happen to have a question of a personal nature, please contact us via our website, the AustralianSuper App or by calling the contact centre.

To answer your questions, we have a number of subject matter experts available in the studio and via videoconference. We have a quorum of AustralianSuper Directors joining us, including some of those you heard from in the presentations, Dr Don Russell and Philippa Kelly. We also have with us the Chief Executive, Paul Schroder; the Chief Investment Officer and Deputy Chief Executive Mark Delaney; our Fund Actuary and Fund Auditor PwC, represented by Craig Cummins.

For questions that we cannot answer now, an answer will be provided in the Minutes to the Meeting which will be available on the AustralianSuper website from 29 December. Without further ado, let's go to your questions. We've already had some coming through so I'll go to the first one now.

We've had a few members ask about the Fund's approach to supporting the transition to a low carbon economy and, in particular, how do we hold companies to account for their climate action plans. I'm going to invite Andrew Gray, AustralianSuper's Head of ESG & Stewardship, to give us an overview of what we're doing, and then Philippa to provide a perspective from the Investment Committee.

ANDREW GRAY: Thanks, Rose, and thanks very much to the members that have asked the question. It really is an important question because the way we approach the low carbon transition is really important as to how we'll manage investment risk for members. And clearly certain companies are obviously exposed, such as fossil fuel companies and potential stranded asset risks, but there is also investment risk and opportunities throughout the economy through most companies as they develop business strategies for a low carbon world.

So I'm going to talk about three key actions that we take to hold companies to account in terms of their climate transition plans. So the three key actions that we undertake are: we measure, we engage and we vote. So just talking through each of those in turn, in terms of measurement, so Mark mentioned earlier the quite deep carbon footprinting we're doing on the portfolio. And, as an example, if we look at our internal Australian Equities portfolio, we know that the current carbon footprint of that portfolio is 83 tonnes of CO2 per million dollars invested. We also know, though, that if we take into account the promises that companies are making in terms of their own net zero commitments, that number comes down to 12.4 tonnes of CO2 per million dollars invested at 2050. So we can see a clear pathway in the portfolio towards net zero if the companies that make those promises deliver on those promises. So the first point here is we need to measure that so we know the potential sources of where that reduction in the carbon is going to come from.

Then the second step that we undertake is, given that, given the identification of we know which companies are going to deliver to get the portfolio to net zero, we need to engage with the companies on those deliveries. So the last few years have very much been about seeking that companies make those net zero commitments. As companies have increasingly done that, our future focus is making sure we've got delivery of those promises. So it's things such as making sure companies have milestones. It's things such as making sure companies are looking at what their blockages are, if they're hard to abate sectors, and working collaboratively around the economy in terms of solving those blockages.

In terms of our engagement program, in financial year 2022, we had 75 engagement meetings with 41 ASX 300 companies. Obviously not all those were climate change related engagements but where companies are heavily exposed or have made net zero commitments, that would be a key part of the engagement with those companies. Globally, we're a founding investor of what's called Climate Action 100, which is the way we can engage globally with companies on their climate transition plans.

Then, finally, I mentioned the third key activity that we undertake in holding companies to account is to vote. So voting is a really important mechanism for us where we can have our say formally in terms of how we think companies are responding to climate change management and whether they're delivering on their climate transition plans.

So there's a couple of key types of votes that we undertake. The first one is on what we call 'Say on Climate'. So companies globally and many companies in Australia have undertaken to develop climate transition plans and put those to shareholder votes. So we actively consider those and vote in favour or against, depending on whether we think the plan adequately enunciates the transition to net zero and how the company is going to deliver value as the economy transitions to net zero. So we have, in fact, voted against a climate transition plan where we thought the company hadn't put forward a sufficient plan.

Then the final or the second type of vote in terms of holding companies to account on climate transition is shareholder resolutions. So in the last few years we've increasingly seen shareholder resolutions where various shareholders are putting forward resolutions, asking companies to take certain actions on climate change. So again we assess those very actively and look through the lens of: does the resolution help to enhance the long term value of the company and, therefore, whether we should support the resolution. So, again, there have been a number of resolutions that we've supported over the years where we thought that, in fact, has been achieved and we thought it was good to support the resolution from a climate transition perspective.

So they're the key actions that we undertake, and what I'll hand over now to is to Philippa, who is going to talk a bit more about the international context.

PHILIPPA KELLY: Thank you, Andrew. I would like to add a comment about the international perspective and how the Fund is involved. The Fund was a founder member of the group, an investor led group, Climate Action 100, some five years ago and, pleasingly, we can see that Andrew is actually the current Chair of that group for the next little while.

Since founding Climate Action 100, the investor participants have grown to now more than 700 investors and they work with companies globally to lower emissions and strengthen climate related financial disclosures. So we see this as a very active and another meaningful way for the Fund to drive change in achieving the pathway to net zero emissions by 2050. Thank you, Rose.

ROSE KERLIN: Thanks, Philippa. AustralianSuper has recently upgraded its member portal and App and we've had a few questions from members about some issues that have been experienced. Shawn Blackmore, AustralianSuper's Group Executive, Member Experience, will now provide some information on what we changed and why, as well as how we've been managing the issues that have come up since the upgrade. Thanks, Shawn.

SHAWN BLACKMORE: Hello, everyone. A couple of years ago we embarked on a project to rebuild the Fund's digital assets. That was the portal - the member portal and the mobile App. And this build was across both the frontend, so the interfaces you interact with; the middle layer, the systems and data that integrates to display and allows you to use the App and member portal; and also the backend, the environments which host and house the software and hardware that we have. And one of the parts of this project was to move that over to the cloud.

We did this for a few reasons: one, modernisation. The appearance was dated. It was starting to get clunky and a bit too much information available and we were getting a lot of feedback from members about the usability, but also the accessibility. The App wasn't good for visually impaired members or for a lot of members on different sized devices.

We did it also for scalability. When we first launched the member portal 10 years ago, we had a couple of million transactions on it. The last year we've had over 35 million transactions, and we need to make sure that we are ready for the future, where that 35 should double in the next two to three years. We did it for availability, making sure that the Apps were available for members to use, and we were starting to see a degradation in services, where more and more time the Apps and the portal weren't available for members to use and it was taking us longer to get it back up. And, finally, we did it for security. It allowed us to incorporate heightened security measures for today's world.

So the App and portal were launched just over two weeks ago, and for the most part, members have been able to transact and use them. But whilst we had the best of plans and thorough testing, a few issues emerged since launch. Firstly, login. There was a group of members who experienced login issues of being able to access accounts, and I acknowledge the frustration that would cause. Whilst that's resolved now, that has caused members who experienced that to call the call centre just to make sure everything was alright.

Availability: there's been four or five unplanned outages, and that's where the App and the portal hadn't been able to display the information that you wanted it to when you went to use them. Now, that generally occurred between 7 and 8 in the morning, and whilst that has been resolved, that has been an inconvenience for any members who were trying to use those assets during that time.

Then we've got some features. When we launched the features, they were available but, unfortunately, we've had to take them off to do some fixes for them. Those features included to make a withdrawal online. We've had to put a PDF form in there, which isn't a great user experience. That feature will be put on shortly. But, in the interim, members haven't been able to do that how they previously would have. Adjusting pension payments was also another feature that didn't quite work as expected, and we've had to replace that with a pension PDF form. Now, that will be available in the next week, but again we apologise for the inconvenience.

Downloading a pension schedule or a Centrelink schedule was off for about a week and required us to fix it, and also from Member Direct members, there were a couple of issues in accessing that through both the portal and the App for about a week. Now we've addressed the portal, and a fix for the App should be coming in the foreseeable future.

Now, what I'd like to do is, on behalf of the Fund, apologise to any members that were inconvenienced by this. We didn't set out to have these issues but we've had a good team available 24/7, that when they've been identified, to be able to work and respond, to monitor and address the fixes where required, and we will continue to do that throughout the foreseeable future.

It is really important that this major upgrade is going to assist members for many years to come and allow us to deliver a series of features and functions that wouldn't have been able to be delivered on the old technology. Thank you, Rose.

ROSE KERLIN: Thanks, Shawn. We've had a few questions coming through now about the economic outlook, for Mark Delaney. Rajalingam asked: "What is the long term forecast of the Australian and world economy?" and a related question from Maxwell is: "Do you think the poor economic conditions will quickly recover when the war in Ukraine ends?". Over to you, Mark.

MARK DELANEY: Yes, thank you very much for your questions and it's a great opportunity to answer them. The global economy had a very deep recession during the financial crisis. It's a long time to think back to that, but it was a terrifying time really. And since 2009 right up until 2022, the global economy performed, and the Australian economy performed very strongly. COVID was an interruption but really the long-term trend was a pick up in economic activity and big declines in the unemployment rate. We're now at the point whereby inflation is rising, unemployment is very low and wages are rising, and we're getting toward the end of that economic cycle. It's inevitable we're going to have some sort of downturn globally and Australia may be also affected but not as severely.

Looking beyond that, you can see a recovery taking place, and we're starting to think about that for the portfolio. How would we set a portfolio for an eventual recovery? And so we don't think the underlying picture for the world has changed that much over this whole period. You have recessions every decade pretty much on the clockwork of 10 years or so and we're also having periods whereby the economy has performed quite strongly. So I think it's going to be fine in the longer term, albeit with growth maybe being slightly lower than what we've seen historically.

Oh, the Ukraine question. Sorry about that. I don't think Ukraine is going to have a big impact upon the economic outlook. It's had an impact on commodity prices but, outside of that, it's been quite localised, and so unless the conflict globalises, I don't think it's going to have a big impact upon markets.

ROSE KERLIN: Thanks, Mark. Related to the economic outlook, our member William has asked: "What is management's strategies to deal with global economic uncertainties and minimise investment risks? What are you going to do to protect us with a looming recession?". I might ask Philippa to provide her view and then Mark for additional comments.

PHILIPPA KELLY: Thank you, Rose. And this goes to the heart of what I was talking about earlier. Critically, it's having the right strategy to provide the optimal long-term returns, as well as the resilience to withstand market cycles, so for us, the key elements of internally managing the portfolio, operating as a global fund and increasing our investments in private markets. The way we've responded to the current volatility we're seeing in the economy and investment markets has been to position the portfolio more defensively, altering asset allocation and principally reducing our listed equity exposure. But I'll turn to Mark for some more detail on the specifics.

MARK DELANEY: Yes, thanks, Philippa. I think there's been two phases to how the markets have performed. The first phase has been the market being affected by the rise in interest rates, and you saw that affect bond markets in particular where fixed interest had a negative year last year, quite unusual, and you also see it in highly expensive equity stocks, which have come down a fair bit in value. So higher interest rates is the first phase of this bear market and that's flowed through to those style investments. What we've sought to do is to have a small exposure to fixed income and to de weight our exposure to those growth style stocks.

Looking out a little bit further, as the economy slows, there's a fair chance that the market is going to become concerned about declines in earnings, as companies find it harder to make profits. We think that is going to affect other stocks in the market and probably cause a little bit more weakness. And, as I said earlier, looking beyond that, there's a fair chance that, as the markets stabilise, we'll be able to buy stocks at pretty attractive valuations with really good medium-term prospects. So, in some ways, falling share prices provides an opportunity for us to refresh the portfolio, buy better companies with better long-term prospects.

ROSE KERLIN: Thanks, Mark. We have a question now from Geoffrey, which I'll give to Mike Backeberg, our Chief Technology Officer: "Mike, can you tell us what is being done to ensure the cybersecurity of AustralianSuper accounts, including our personal information?".

MIKE BACKEBERG: Thank you, Rose. If I could just take a moment to just reflect on what has happened recently in the market and going on with the incidents that have been widely reported in the media, it obviously raises a concern for members, as it does for the Fund. If I go back to 2018, the improvement in cybersecurity was a decision made by the Board, supported by the Executive, and this is very important because improving cybersecurity and the safety of data is a long-term program. So we have been actively working on it for many years, but increased our internal capability with a dedicated Information Security team who are focused on ensuring that we operate an environment that is safe and secure for members and colleagues to actually work on a day to day basis.

Included in that is looking at our core suppliers who bring services to the Fund, and we do regular assessment of what those cybersecurity controls are and how they operate. More specifically, in relation to what's happened recently, we've increased the number of controls to ensure that we validate any behaviour on a member's account where we have concerns that something may be happening, and that gives us an opportunity to retest and validate that the transaction is, in fact, valid.

I would also like to touch on the fact that cybersecurity remains a focus for every colleague in the Fund, not only our technology colleagues but every single person who works across the Fund. With that, we have regular cybersecurity awareness sessions. Most recently, we had an awareness day with 260 colleagues across the Fund participating, understanding what we can do to improve awareness and really bring better outcomes to every member.

For you, participating in this session, we have detailed information on our public website. If you feel that there is something malicious or fraudulent happening, I encourage you to look at our website. Go to the links that are available. There is support that you can access. Reach out to our contact centre and take steps to really protect your information. We will obviously continue to monitor this and really look to bring the best controls and environment that we have available to you.

And the last point I just want to touch on is that this question is crucially important to what we need to do as an industry, what we need to do as a community, recognising that cyber criminals are not working in our best interests. Being aware and raising these questions really helps us go forward and take positive, proactive steps to ensure that all member data is secure and that we can look after what we need to do to bring you the best services that we possibly can in achieving members' best financial outcomes.

Thank you, Rose.

ROSE KERLIN: Great, Mike. Really important information there for all of us. This next question I'll give to Paul Schroder and it comes from Hao. Hao has asked: "How does the admin cost charged to members compare with other funds?".

PAUL SCHRODER: Thanks, Hao. Look, just before I answer that question, could I just say on behalf of all of us here what a privilege it is to be here today. It's a really important evening for us to be able to answer your questions and can I thank each of you for being here tonight.

To Hao's specific question, admin fees are really important to keep down, and that's one of the reasons we try to build the Fund so you've got more members having to pay less. But admin fees are only part of the story, and I'll come to that in a moment.

The most important thing is net benefit: how much money do you have at the end from your earnings, less your investment fees, less your admin fees. But to answer the specific question, AustralianSuper's admin fees, according to the Chant West survey, are: for somebody with a $50,000 balance, we're sixth cheapest out of 60; for somebody with a $500,000 balance, we're the seventh cheapest out of 60; and for somebody with a Choice Income account with $250,000 in it, we're the fifth cheapest out of 82. So, in all of those cases, we're right up the cheapest end. But, of course, we want to do the very best for you, so we need to be able to provide the services, including the cybersecurity and the protections that you need from us. So, yes, we are using size and scale to keep admin fees low, and hopefully that's been indicated by me explaining where we are in the rankings. But I'd just urge members who are online just to think about the main thing is net benefit, so admin fees, plus investment fees, in the context of your overall earnings and over time. That's all we focus on, which is how to make sure you have more money in your account.

ROSE KERLIN: Thanks, Paul. Stephen has asked a question about the Board, so I'll give this to our Chair, Dr Don Russell: "Don, can you tell us what is the Board doing to embed governance standards that reflect those of other larger organisations in Australia?".

DR DON RUSSELL: Well, thanks, Rose and Stephen. Important question. It is a topic that the Board is always very conscious of because we have to be certain that we have the best arrangements on the Board and that the Directors have the right skills and backgrounds to do justice to our responsibilities, and that is very much around the strategic direction of the Fund, the broad policy outline, for a whole range of areas.

We've also got to have the capability in the background to be able to ask the right questions of management, to hold management to account, but we are also very conscious that one of our really important responsibilities is to safeguard the Member First culture, to make sure that the members are centre stage of everything we do, and that the Fund doesn't over time allow the Member First culture to erode into something more akin to fund first. And so we've put in recent years a lot of attention on identifying the skills that the Board needs, that Directors need, the skills that we need to make sure that we have the right people capable of doing justice to all our working committees. So we have developed Skills Matrix, which is publicly available. We've invested in Board reviews and we have an independent Chair of the Board itself and we have an independent Chair of the Investment Committee.

And we're also very conscious that, as we engage, as AustralianSuper engages, with corporates, Australian corporates and corporates around the world, we ourselves have to have cutting edge, best in class governance for our own arrangements if we expect to engage with other companies and expect them to take us seriously when we talk to them about their governance. So thanks, Stephen, and it's something that we constantly keep an eye on.

ROSE KERLIN: This next question has come in from Patrick and I'm going to allocate it to Alistair Barker. Alistair is our Head of Total Portfolio Management in the Investment team. Patrick asks: "Why is the Conservative Balanced option producing a worse result in these unstable times than the Balanced option? It is supposed to be less exposed to stock market fluctuations than the Balanced option and yet it has been consistently poorer, despite savings interest rates rising."

ALISTAIR BARKER: Thanks, Patrick. Great question and I suspect that you're not alone. A number of questions have come through from members asking a similar question about our diversified fixed interest option, as well as a number of other options. So I'll offer two responses. The first is why is this occurring and the second is what do we think might happen in the future.

So on the first, why is this happening, well, it is irregular. As Philippa and Mark mentioned earlier, it's because the issue that's been ailing share markets is also ailing fixed interest markets. So because the Conservative Balanced option, as well as options like diversified fixed interest, are in fixed income markets, rising interest rates have impacted both. That's quite irregular. It doesn't happen all the time but it does happen every now and then. And that's happening because of high inflation. We've got the Reserve Bank, the US Central Bank and other central banks around the world trying to raise rates to address high inflation. So that's what's causing it.

What do we think might happen going forward and will this occur again? Well, we would say it's less likely to occur going forward, and the main reason for that is that the rise in interest rates is largely in the price of financial markets as we speak. So if you were to go and fix your mortgage rate or if you were to go and get a term deposit, if you were to do that for, say, the next two to four years, you'd be looking at an interest rate of around 4%, something like that. So the rise in interest rates is largely in the price of financial markets and you will see that come through in fixed interest and cash investments over the coming years. So one of the reasons why returns on our cash option are lower than what you can get a term deposit is because that term deposit reflects the future investment return you could get from interest rates over the next few years, versus our cash option is what you would have earned in cash over the previous few years, which have been very, very low, as interest rates have been low. So we don't expect it to occur as often but it does happen from time to time and it's typically an environment like the one we're seeing where you have high inflation. But thank you for your question.

ROSE KERLIN: Thanks, Alistair. Paul, I'll ask you to take this next question. It's from Jatinder, and Jatinder asks: "I have invested 90% of my super in international shares. May I know in which shares you have invested my super in?".

PAUL SCHRODER: Great. Thanks, Jatinder. Yes, there's a really great way for you to know precisely where you're invested and all members involved in this meeting tonight. Because it's your money, you should know everything about it. It's AustralianSuper and it's yours. It's your money.

So if you go to the website, there's a little spot there about Investments and then How We Invest. So if you get on there and get to How We Invest, Investments and then How We Invest, and you'll be able to see precisely what the Fund is invested in on your behalf, by assets, by volume, by proportion, and in the case of property, usually there's a Google map there so you can see the location of the properties that you own as well. We update that in December and in June.

All funds have to do something like that now but we've been doing it since 2016, primarily because it's your money; you're investing it; you should know exactly where it is. And on the website, Investments and then How we invest, you can see it in all manner of cuts and different angles and you'll be able to see exactly what you own there, Jatinder. Thanks.

ROSE KERLIN: Great, Paul. The next question is from Tonny and it's for Mark Delaney: "Mark, what do you see performance will look like in the next 10 years?".

MARK DELANEY: Thanks, Tonny. That's a pretty good question. I'll give you my best guess as an answer. In the last 10 years, the Balanced plan earnt over 9% per annum, which is a really big return for us. In the long run, we set out to earn inflation, which is, say, 2%, 2.5%, plus an extra 4%. So 6.5% is our long run number. Now, if we can do better than that, we're adding value to members, and the last period has been very good for members and we made 9%.

I don't think the next 10 years is going to be as good as the last 10 years, and that's because interest rates aren't going to be as low and as favourable as what we saw during that period after the financial crisis. So I'm inclined to think that returns will come back more toward the long run average of 6.5% to 7.5%, those style numbers, rather than the very big returns of 9% we saw in the past 10 years.

ROSE KERLIN: Thanks, Mark. A couple of questions have come in from members about risks investing in China, so I'm going to allocate these to Philippa. John has asked if there are risks investing in China and Ian has asked if we should have an office in Beijing, given the current political climate with China. Philippa?

PHILIPPA KELLY: Thank you, Rose, and Ian and John for your questions. Interestingly, our Beijing office is slightly different from New York and London, where they are completely focused on the investment activities of the regions in which they're located. Our Beijing office really recognises the importance of China as a global economy and also a driver of future growth but we have very limited investment exposure through that office, and really the focus is on more macroeconomic conditions. And we have a very small team but they're well supported.

ROSE KERLIN: Thanks. Our next question is from Kevin and I'll give this to Paul: "Did AustralianSuper make any payments or donations to any political party or union during the year ended June 30, 2022? If so, to which party and/or union and how much?".

PAUL SCHRODER: Thanks, Kevin. First of all, let me say very clearly that we don't make any donations or any political donations or anything of the sort. Super is a multi-generational thing and it's really important for AustralianSuper to be non-party political and to not get involved in one or other point of politics because, if you think about the members of the Fund, across this whole night, many of you will hold a range of political views, and those political views could change over time. So we're very, very committed to being multi partisan and all of Parliament because if you're a 25 year old in this Fund, you will probably have 10 or 15 different Federal Treasurers in your life and we need to work closely and well connected with them. So we don't make political contributions. We don't get involved in party politics and we certainly don't make donations.

There are a couple of things where we do make payments, though, because, of course, we need to pay Directors and they come from organisations and also we have a range of commercial commitments that we have through contractual arrangements at commercial rates with unions and employer associations who help us in encouraging members to join the Fund or to stay with the Fund or indeed to provide guidance and help and advice to members about what they should do with their accounts to build their balances.

So, no, we don't make political or charitable contributions. We don't get involved in party politics. But we do make payments to unions and to employer associations for the purposes of encouraging members to join, staying in the Fund or helping them make good decisions about their balances. And those related party payments are in the financial accounts. Of course, everything we spend needs to be shared with APRA and the regulator, but you can find most of that material at the specific level in the financial accounts. Thanks.

ROSE KERLIN: Thanks, Paul. We've got another question for Mark, and this one is from John. John asks: "Unlisted assets are, I understand, valued internally. Is this correct and, if so, how do you ensure the correct value?".

MARK DELANEY: Thanks, John. The unlisted valuation question gets a lot of publicity, particularly around this time when there's been a downturn to share market. So it's worthwhile just giving you a bit of background on how unlisted assets are valued and the whole context of that.

Unlisted assets are different from listed assets. They're not valued by the share market day to day. They're valued at a whole enterprise value with, in valuation terms, a willing buyer and a willing seller. So just as you get your house valued by a professional valuer, we get our unlisted assets also valued by professional valuers. That's done either through the managers instructing the valuers to undertake that themselves, and in some circumstances, AustralianSuper will instruct the valuers to get independent valuations done. So good valuation practice is one which is timely, is independent and uses all the information available. These core principles - timely, independent and using all the information available are what we use when we do our valuations. So, no, we don't do our own valuations, we don't think that's appropriate and they are independently determined.

ROSE KERLIN: Thanks, Mark. Our next question is from Oscar and I'm going to give this to Anthony Smolic, our Education Manager. Oscar would like to know: "Do we have a financial adviser we can talk to about super changes?".

ANTHONY SMOLIC: Thank you, Rose. There are a couple of ways you can get advice through AustralianSuper. If you're looking for simple super advice, you can get some over the phone advice with our qualified financial advisers around things like contributions, investments, insurance. If you're looking at things like transition to retirement and retirement income products, then there may be a small cost involved but, otherwise, usually there is no additional cost for simple super advice.

If you're looking for more comprehensive financial advice, then again through the helpline or through the website, you can ask to either meet in person with one of our financial planners at AustralianSuper or via an internet link up and go through a more detailed and robust financial strategy.

If you find yourself unable to come into one of our head offices or unwilling to do a Zoom meeting or an MS Teams meeting, then you can use the Find Adviser tool on our website and find a financial planner in your local area that is on our list of registered financial planners across Australia, and you may be more comfortable that way. But thank you for your question.

ROSE KERLIN: Thanks, Anthony. The next question is for Mark. This comes from Ioakim, who would like to know: "The investment fees increased substantially last year. Do you forecast similar increases this year? It seems the growing size of the Fund is not producing economies of scale. Is it a fair assessment?".

MARK DELANEY: That's a great question. It's something we're really sensitive to economies of scale. What we're trying to do at AustralianSuper is, through our scale, deliver better member outcomes, and part of that is through lower fees, and Paul talked about where our fees were.

So last year, our investment fees went up by about 10 basis points because we paid a lot more stamp duty on a number of unlisted assets, which were land in New South Wales in particular. Now, when we buy a large property asset or a large infrastructure asset, we invariably have to pay stamp duty, and that gets incorporated into the investment fees. This year we don't think we're going to be buying as many assets as last year so I don't think those fees are going to be repeated, but in the longer term, if we're acquiring high quality assets which have a large land component, we'll have to pay the stamp duty, and that's just part and parcel of investing your money well.

ROSE KERLIN: Thanks, Mark. We're going to stay with you. We've got another question for you, this one from Meghana. She'd like to know: "How does the long-term investment mindset help those who are close to retirement?".

MARK DELANEY: Yes, investing is a long-term game. You're exactly right. The more you look at the longer run, the less you worry about the short run, and if you worry less about the short run, you don't worry about market volatility and make mistakes when markets have fallen. So when you're close to retirement, it is a stressful period because you're not sure how you're going to go in retirement, how your savings are going to hold up. The key thing to note is that market volatility will occur during your accumulation phase and in your retirement phase, but those periods of market volatility pass and in the long run your assets continue to grow. So during retirement, you still have the chance to grow your assets quite substantially, and that will be the best strategy, if you can possibly afford it. So I wouldn't worry about it too much. I just think that's part and parcel of what things are going to happen. But, in the long run, if you focus on how things are going to be in five or 10 years time, these shorter term events just generally tend to work themselves out.

ROSE KERLIN: Thanks, Mark. This next question has come in from Giuseppe, and I'll give this one to Alistair. Giuseppe asks: "The current Fund policy puts all new members in the Balanced option regardless of their personal circumstances. Should this be reconsidered? Other funds act differently."

ALISTAIR BARKER: Great question, Giuseppe. In terms of how we think about it, we do have regard to different cohorts of members, and specifically in retirement, the Government has recently released some legislation called the retirement income covenant, and this refers to the requirement for all funds to have regards to specific cohorts of their members in terms of what products they go into.

So I think one really important point about this is that particularly for people coming into retirement and Mark mentioned this earlier, we have to look at things holistically. And what do I mean by that? Well, in the case of people coming into retirement, the majority of our members have a government age pension, and for many of our members, it's actually the largest part of their investment income. So you might draw some income from your AustralianSuper pension account but the biggest part of your income is often from the pension. So, in thinking about your overall risk, quite a lot of your risk is actually in a government guaranteed, inflation protected annuity. So quite a secure income. So when we think about people's overall risk, we consider not just their AustralianSuper pension but how it interacts with the Government pension. So thank you for your question.

ROSE KERLIN: Thanks, Alistair. This next question is from Michelle and I'll give this to Don: "Are future mergers with other funds planned and what advantages are there for members?".

DR DON RUSSELL: Thanks, Rose, and thanks for the question, Michelle. Mergers have been an important part of the AustralianSuper growth story and it's probably fair to say that over the years, we've developed quite a capability to bring new members into the Fund, and we're particularly pleased that over the last year we've been able to successfully welcome LUCRF members and Club Plus members. We are conscious that in this time of consolidation, when a lot of funds are actually looking for other partners, that we do have responsibilities to look at mergers on their merits.

The Board has thought about this at some length and the Board is very clear that we are not interested in growth for growth's sake, that we do have the scale, that we don't have to chase scale as an objective in its own right, and that we can view possible mergers on their merits, and to be sure that when we do them, they are really in the best interests of our members, and that will be how we continue to approach this issue as we go forward.

ROSE KERLIN: Thanks, Don. The next question is from Warren and I'll give this one to Paul: "Is AustralianSuper intending to invest members' money in the Federal Government's proposed public housing scheme? If so, how will members' investments be protected? Is there a guaranteed return and, if not, will members be able to opt out of having their money invested in this scheme?".

PAUL SCHRODER: Thanks, Warren. There's quite a few parts to that question. I'll try to address all of them. The first part is: are we intending to invest members' money? Well, the answer is we don't know yet because it will always be, always be, a matter of risk and return and will we be getting a good enough return for the risks that we're taking.

So what we have said is we're really absolutely committed to engaging in a discussion with the construction industry and with local government and with State Governments and with Federal Governments to see if we can be an active and positive force in the discussion about housing affordability because a lot of people are having a lot of trouble finding safe and secure housing, especially younger people. But our only lens is: will we make enough money for you out of it? And some of you might have seen that I made some public comments saying that the kind of return we need is somewhere between 6% and 11%, depending on how much risk we're taking or the risks that we're sharing with others.

So the answer is we haven't had to consider whether we are going to invest or not because there's nothing in front of us to make a judgment about. If you ask are we interested in engaging properly about this, of course we are because AustralianSuper members are members of the Australian community and they want to be able to live well in retirement and as they're building their balances. So the answer is no, we haven't decided to do anything about that yet and we're working constructively, but we'll only do it if it makes you enough money for the risk that we're taking on your behalf.

The second part of that is how will members' interests be protected. Well, you'll be protected in exactly the same way as we apply the investment thesis to any other thing as part of a diversified portfolio. So don't be under any illusion: we'll only ever see this through an investing lens. But we do think that if the Federal Government released more land and if it was easier to get approvals and if construction could become cheaper because it could be done at scale, and then if we and banks were involved in that, we do think that there's an investable proposition there but it's a long, long way before we'll need to make a judgment about whether we're investing or not. So thanks for the question.

ROSE KERLIN: Great, Paul. We've only got time for one more question so we'll stay with you. We've had one come through from Yasuyuki and she's asked: "It seems that the size impacts are positive in terms of its services levels by a reduction of fees through economies of scale. What are the drawbacks from a growing size of fund? If there are, how does AustralianSuper assess and manage drawbacks from increasing size of the fund, particularly investments?".

PAUL SCHRODER: Thanks, Yasuyuki. That's a fantastic… and that's a question that's on the mind of the Executive and on the Board and all the way through the organisation. So, yes, there are definitely advantages of size and scale and bringing together skill, and being bigger does allow you to have lower fixed costs per member and it allows you to do more things and it allows you to speak with a stronger voice and it allows you to attract more talented people to do the job of helping you have a bigger balance for your retirement.

As you get bigger, though, you have to do things differently, and you might recall that over the years, we've internalised investments, done more and more of that inside the Fund, and that's saved about $1 billion over the last seven years in investment costs. But you need to keep evolving the model, and for all the members involved tonight, we're going more global; we're internalising more; and we're looking more at private assets. They're great opportunities for us to make money for you and to make more money for you than you would be able to make for yourself or be able to make in another fund.

We're very conscious, though, that you couldn't be the same and be successful at bigger scale. As we grow, we need to evolve the model. We've had Bain & Company in helping us with that, and thinking about our target operating model, because we will all - all of you online tonight - we'll all be part of a $1 trillion dollar fund in the foreseeable future and we need to make the steps and take the actions now to make sure we've got the culture and the talent and the people and the systems and the processes and the methods that are commensurate with a large global fund.

So the answer to your question is we're thinking very carefully about that. We know that scale will be to your benefit because size and scale and skill will deliver you benefits, but no benefit comes without cost. And we have to think very carefully about how we'll change and how we'll evolve the model over time.

As I say, we've had Bain in. We're thinking about this and we're thinking about it through a 2030 lens and beyond so that when we have this meeting next year and the year after and in 10 years time, you can be really confident about your super and your balance and the people who are serving you to try and put you in the position where you can have the best retirement possible.

ROSE KERLIN: Thank you, Paul. Now, that brings us to the end of our time for our Question and Answer session. I apologise to anyone whose question wasn't answered but, as I mentioned earlier, we will be putting responses and the Minutes of this Meeting onto the AustralianSuper website within one month of the Meeting. These Minutes will be available at australiansuper.com/AMM. I also wanted to remind our members that all of today's SuperTalks were recorded and will also be available for replay on our website.

I hope you have found this event informative and that you've got some of your questions answered or that you were able to attend one of the SuperTalks and find out more about your Fund. I hope that's made you feel more confident about your superannuation and your life in retirement. Thank you so much for joining us. I look forward to welcoming you back to our next Annual Member Meeting. Thank you.