All AustralianSuper members were invited to the 2021 Annual Member Meeting (AMM). The livestream event provided the opportunity to hear from the Chair, Chief Executive and senior executives on the performance of the Fund and provide the outlook for the year ahead.
Members in attendance were then provided with an opportunity to ask questions of the Board and Executives, in real time.
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ROSE KERLIN: Good evening and welcome to the AustralianSuper 2021 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, present and emerging. I extend that respect to Aboriginal and Torres Strait Islander people 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.
This is our 16th year of holding Annual Member Meetings, just one of the ways in which we work to be transparent and accountable to members. Adapting to the pandemic has meant that our Member Meetings need to be held online, but we look forward to returning to meeting face to face again when the opportunity allows. Before this meeting, we also held seven SuperTalks and ran four virtual Information Booths where members have been asking questions of over 70 colleagues who have been on hand to provide live answers. I hope those of you who participated found these sessions informative and valuable and you got some of your questions answered.
This meeting is important to the Fund for three key reasons: first, we want to share what's been happening at AustralianSuper, particularly over the full year of adapting to the pandemic, along with providing an update on the Fund's investment performance and some of the future plans and initiatives we have in place to help you achieve your best financial position in retirement. Secondly, we want to hear directly from you. We encourage you to use this opportunity to ask questions and to 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 your Fund's performance and future plans will leave you feeling more confident and secure about your superannuation and your life in retirement.
We have recorded the formal presentations. However, this will be followed by a live Questions & Answers session with the panel at 7pm. The Directors of AustralianSuper are present this evening, along with our Actuary and our Auditor, PwC, represented by Craig Cummins and Nicole Oborne. 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 chosen by 2.5 million Australians. AustralianSuper is run only to benefit members, and the best financial interests of members drive our decisions.
To begin, I'd like to introduce Dr Don Russell to provide a welcome 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 I would especially like to greet all the AustralianSuper members who are in attendance. I would also like to acknowledge my fellow Directors, who are joining us this evening. Jim Craig is the Chair of the Fund's Investment Committee and I would like to acknowledge Jim's contribution in helping secure another successful year of investment return for members. Jim will provide an Investment Overview shortly.
Because of the global pandemic, the last 18 months have been a wild ride. The Board and all colleagues at AustralianSuper have worked hard to navigate the turbulence and uncertainty that has buffeted global markets while ensuring that the Fund is well placed to continue delivering for members, whatever the future brings. In all of this, we have been very conscious that members need support and guidance to help them plan for the future and make sense of current uncertainties.
The Fund continues to grow rapidly, with over 1,000 Australians joining the Fund every day, and AustralianSuper now has over $230 billion in members' assets under management. As we have gone about securing great investment returns for members, we take satisfaction in the fact that your Fund is now of a size that our investment decisions make a material difference to the growth of the Australian economy. For too long, Australia has suffered from a dearth of patient capital. AustralianSuper, as a long-term investor with a large and growing pool of members' assets, is keen to support Australian businesses with good long-term prospects. Australian companies with an attractive outlook appreciate an investor such as your Fund that can look through short-term challenges in the name of big success in the future. This has been particularly important for those companies seeking extra capital to help them navigate the setbacks associated with the pandemic.
As a long-term investor, we pay close attention to the long-term risks that companies carry, particularly the risks associated with climate change, and we carry this attention into how we engage with companies. We are finding that engagement with companies on climate change risk and other ESG matters is beneficial not only to the investment returns for members but also for the companies involved. Looking ahead, the Board has endorsed a new 2030 Strategy for the Fund based on ensuring we are Australia's leading superannuation fund for members.
As we continue to grow domestically and internationally, we will maintain our Members First culture while building a fund where AustralianSuper colleagues can thrive. As we do, it will be with the Fund's new Chief Executive, Paul Schroder, at the helm. The Board appointed Paul to the role, commencing 1 October, following the decision by Ian Silk to step down after leading AustralianSuper throughout its 15 years. On behalf of the Board, I would like to thank Ian for his extraordinary leadership, integrity and commitment to members. Ian's enduring legacies are the exceptional team that he built at AustralianSuper and the culture within the Fund which continues to place the long-term financial interests of members at the forefront of everything we do.
I am pleased that the Fund was in the position to appoint our new Chief Executive from within the Fund as a result of strong succession planning by Ian and the Board. Paul has been a member of the AustralianSuper Executive for 14 years, holding Executive roles across Growth, Brand, Product and Strategy. As such, he is well placed to lead the Fund through our next phase of growth and evolution, delivering top long-term performance and world-class products and services to members. I very much look forward to working closely with Paul.
I would like to conclude by giving my thanks to you, AustralianSuper members, for your ongoing trust and confidence. Trust grows from results, and I and the Board will be working hard to ensure that AustralianSuper continues to deliver for members.
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 this year following 14 years with the Fund in multiple executive roles, including most recently as Chief Risk Officer. To provide an overview of what the Fund has been delivering for you over the past 12 months and the focus for the future, welcome Paul Schroder.
PAUL SCHRODER: Hello, everyone. My name is Paul Schroder and it is truly an honour to be the Chief Executive of your Fund, AustralianSuper. As Don mentioned, I've been with the Fund for 14 years, most recently as the Chief Risk Officer. I'm proud of what we've all achieved together and very confident about the future that lies ahead of us.
Thank you for attending the 2021 Annual Member Meeting. During the meeting I will talk with you about the Fund's continued response to the pandemic, member services we've been providing throughout this period and, importantly, the investment return of the Balanced option. I'll talk a little about our approach to investments and, in particular, responsible investing. I'll reference some of the policy changes that have occurred over the year in the superannuation system and how that might impact on you and, importantly, I'll look to the future and to think about our 2030 Strategy and how we're preparing the Fund for the future so we can continue to deliver for you.
First I recognise that many of you will have been dealing with major changes because of COVID. Changes to your jobs, changes to your living and financial circumstances, home schooling. It really has been disruptive and that COVID pandemic has impacted everyone differently and in a myriad of ways. Almost 300,000 AustralianSuper members withdrew more than $2.3 billion of their savings in the first half of the financial year; that is, from July to December 2020. They were accessing the Government's early release scheme to help them deal with immediate financial needs arising from the pandemic. I'm really pleased that we were able to make 97% of those payments within five days to help get money to members when they need it most. The downside is, of course, that people took their money out when markets had corrected, and so if you put together the impact of taking money out and markets correcting, plus missing out on returns, that's going to have a big impact on people's balances and we're going to have to help them so they can continue to compound their earnings and have a better balance when it comes to retire.
Of course, superannuation is a long-term investment. Investment markets will have fluctuations, so over time it's really important to ride those fluctuations to get the maximum benefit of compound interest. During the disruption caused by the pandemic, the Fund, of course, was committed to continuing to operate well for you. In order to support you, of course we need to support our colleagues, and you may not know that we now have 1,000 talented colleagues across four continents in all of the Australian offices, in London, Beijing and now in New York, our third international AustralianSuper office. Colleagues have had to continue to work remotely and they've done so really efficiently throughout the whole year.
We've maintained our focus on everybody's individual mental health to make sure they can do their very best job for you. That's included having to think about safe working environments, making sure they're fit for purpose, worrying about dogs and cats and homeschooling, but also people's wellbeing, all the while trying to make sure that all of our services to you are not interrupted. I want to thank each of those colleagues for their hard and continued work on your behalf throughout the entire year. Maintaining that high level of service has been a key focus for the Fund and you just think about all the moving parts that are involved in putting together your superannuation balance and to make sure they can happen safely and securely and accurately to ensure that you can continue to have confidence that your superannuation is in good hands.
During that year, and despite the complications of COVID, we've been able to deliver more education seminars, most of them online. We've increased the number of on-demand videos, produced more articles, fact sheets and newsletters to help keep you informed and updated about your super. Many members have told us that the more they know, the better they feel, and we're committed to sharing with you in all the ways that we can. Your contact centre received 1.3 million calls and, of course, we're always looking for ways to improve that service to deliver high-quality information and advice to you and to ensure that costs continue to stay low. So good advice helps you take good actions, costs down, performance up, your superannuation balance improves as a result.
The website received 21 million visits and, at the same time, about 200,000 members have downloaded the AustralianSuper App, taking it up to a million people using the app. So if you haven't got your super in your hand, do it. Download the app. It's a terrific app and, as I say, more than a million people have already. With the app, you can look at your balance, you can make transactions, you can access your statement, you can make a contribution and, terrifically, I think, you also get a prompt to say a contribution has gone in or a pension payment has been made to your bank.
One of the most pleasing things that's happened this year has been in relation to investment performance where we've been able to deliver you the best single-year return in the Fund's history. The Balanced option, which is where most members are invested, delivered a record return of 20.43% - 20.43% - in the financial year, which is just a staggeringly large number, especially when you think about where, for example, inflation is. To put that number into perspective - remembering that it's only a one-year return and we must think about the long term and the volatility in the fluctuations - but just to put that number into perspective, a member with a balance of $100,000 at the start of the financial year would have seen that increase to $119,700 at the end of the year, when you take into account returns and fees. At a time when members and households have faced so much uncertainty and difficulty with COVID and all the things that have come from that, it's particularly pleasing to provide this kind of increase through investment performance.
Importantly, at the end of the financial year, AustralianSuper is the top-performing fund in the country over 7, 10, 15 and 20 years. AustralianSuper has returned an average of 9.73% per annum over the last 10 years. Last year's result, of course, was considerably higher but we need to think about these things through the long run. Future returns are expected to normalise over coming years. AustralianSuper is a high-performing fund over the short, medium and long term.
I thought I'd share some figures for you, just looking at what does a poor-performing fund look like over 1, 3 and 10 years and then what does a median fund - that is, the median means 50% of funds did better than that and 50% of funds did worse than that - but if you just look at the large super funds. I've got some graphs here which will come up on the screen and the orange is AustralianSuper's performance over those same periods. So the idea here is we want to make you the most money so that your balance grows to the largest it can be so you've got the best life in retirement that you can fund at. So that's one thing. We want to make sure you have more money, risk-adjusted, post-tax and post-fees, but we also want to make sure that we're doing at least as good a job and a better job than other funds so that if you had your choice, you'd say, "I'll choose AustralianSuper".
So AustralianSuper's Balanced option outperformed the poorest-performing fund by over 7%, and over the 10-year period - remember I said it's really important to think about the long run; that's where we should be focussing - AustralianSuper outperformed the poorest-performing fund by an average of 3% every year. 3%. If you compared to the median fund - that is, the Fund 50% did better, 50% did worse - AustralianSuper outperformed by an average of almost one and a half per cent each year. These results are testament to AustralianSuper's model, to the skills of Jim and Mark and the whole team across the entire Fund.
Importantly, being able to deliver this outperformance year after year after year is having a material impact on your retirement savings, and that's the only reason we exist: to help you save more, to help you earn more, to help you protect those assets so you can spend more money in retirement. Now, as I said before, one and a half or three per cent outperformance might not sound that significant. Is it a small number? Is it a large number? But when you think about super as a multi-decade investment and over those long time frames with compound interest, those differences really add up and they're worth worrying about and they're worth talking to people about. This is a really stark example of the importance of choosing a good fund in building your retirement balance. There are, of course, a number of good funds in this country and I'm definitely not saying we're the only one but the difference between a good fund and a really high-performing fund is enormous to your balance.
I'll give you an example comparing AustralianSuper using the return figures in the previous slide. So imagine three people are starting out in a workplace. It could be your child. It could be your brother. It could be your friend. But three people in three different workplaces. They earn the same amount. They receive the same amount of super and, in all other respects, they are the same, except for the super fund they have their super with. If one of them is the poorest-performing fund and one of them is the median fund and one of them is AustralianSuper, what will the difference be? So, as I said, the assumptions are identical across the comparison. So let's assume a really good income. Let's assume $74,500 a year. Good, very good pay. You're in the work force for 40 years. We'll use the 10-year earning rate of the poorest-performing fund, the 10-year earning rate of the median fund and AustralianSuper's 10-year earning rate, and let's apply that - because I said super is a very long-term investment, let's apply that over a 40-year working life. So the poorest-performing fund, with its 10-year earning projected over 40 years, delivers about $540,000 in retirement savings. Now, just let me remind you we're using a really good salary here, so some people's numbers will be bigger; some will be smaller. I'm just talking about using this particular example but the same principle will be true using different examples and different end numbers. But if you think about that example, over 40 years, everything exactly the same, the median fund will deliver just under $750,000, a great deal more than the worst-performing fund. And AustralianSuper, with a number bigger than the worst fund and smaller but still bigger than the median fund, would end up earning nearly $1 million.
So those numbers, the one and a half and the three, they sound small but in dollars the difference can be huge. Those people did nothing different. They just ended up in a poor-performing fund or the median fund or a really high-performing fund, and the dollar difference, which means what you can do in retirement, is fundamentally different. The difference in outcome for those workers between AustralianSuper and the median fund is $316,000. Imagine what you could do with that in conjunction with the age pension. Imagine what you could do to your house. Imagine what you could do with that amount of money in the way you live in retirement.
And the difference between AustralianSuper and the very worst fund? Over half a million dollars. Nothing else different; just to choose the right fund. Now, of course, we're using the 10-year average returns here and the 10-year averages for all those other funds. Nobody knows precisely what's going to happen in the future and you will have heard many times in the disclaimer that past performance is not an indicator of future performance but it's a legitimate way to look at past returns to think about what happened in that period.
Over the Fund's history, we have delivered market-leading returns. We're able to deliver those returns and build your balance in part because of the model we have. All of the profits we make go to you. We are a for-members fund, a profit-for-members fund, which means we don't pay profits to shareholders and everything we earn is on your behalf, making money for members, not from members. We're also able to leverage our size, our scale, our skill to create efficiencies and to generate savings, and those efficiencies and those savings go straight into your balance. That's at the core of who we are. It's our purpose to deliver you, your best financial position in retirement with you - your actions and our actions.
Jim Craig, the Chair of the Investment Committee, and Mark Delaney, our Chief Investment Officer, will cover markets in more depth, investments and provide more detail on our investment approach later on in these presentations. But I would like to briefly touch on the Fund's approach as a responsible investor and how this also helps contribute to our performance and to build your balance for retirement. When you talk about responsible investing, what we mean is consideration of relevant environmental, social and governance factors, and that's increasingly known as ESG. AustralianSuper members don't need to choose between sound ESG - environmental, social and governance - issues and top performance. They are one and the same, hand in glove, because investing in well-run companies that manage their ESG challenges will deliver better long-term performance for you and help build your balance. The ESG team at AustralianSuper engages with companies in which we invest on your behalf to advocate to improve ESG outcomes and, in turn, that results in improved member returns as well as positive broader social or environmental outcomes.
AustralianSuper recognises that climate change is a material investment risk. That's why during the year the Fund committed to achieving net zero carbon emissions in the portfolio by 2050. Managing the portfolio to achieve net zero carbon emissions by 2050 is prudent and it's in your best financial interests. Considerable work has been done by the ESG, Investment and other teams across the Fund over many years to consider how we can ensure that we adopt a sensible members-first approach to managing climate risk and all of our risks. As a Fund, we support the goals of the Paris Agreement on climate change, which you might recall they aim to limit global warming to well below two degrees and preferably no more than 1.5 degrees by 2100. We also support a smooth and just transition to a low-carbon economy.
Change always comes with cost and it can disrupt people, so we've got to make sure that workers and communities are very much supported in their transition to new energy sources and to new industries. That has the dual advantage of minimising the economic cost but also providing the best investment outcomes for you as members. That's why we engage directly with companies on climate change and participate with other investors in groups like Climate Action 100+. Importantly, we also measure and report on the low carbon transition progress inside the portfolio. The carbon intensity of your equities portfolio has declined 41% since 2013. That makes it 13% lower than the index for Australian equities and 37% lower than the index for international equities. That means lower than what everyone else is doing when you say 'the index'.
AustralianSuper currently invests more than $1.2 billion in a range of renewable energy projects across markets in infrastructure and equities, and, of course, we expect this to increase over time as the opportunities to make money for you increase. We've identified the most emission-intensive companies in our portfolio and we've developed an engagement strategy, seeking that low-carbon transition to a cleaner, more sustainable economy.
As Chief Executive, I want to make sure that AustralianSuper is the leading Australian super fund in the world's best system for you. The Your Future, Your Super package of legislation included a number of changes that are relevant to the Fund and relevant to you. The changes include a new approach to reducing multiple accounts, which is a very good thing. Too many people have too many accounts and I imagine one or two of you will have an additional account somewhere in your back drawer. The system that's going to be introduced is called 'stapling', which I'm not quite sure how good that is as a name, but effectively what it means is if you join a fund, you will stay with that fund. You're stapled to the fund. So when you change jobs, unless you tell your employer you want to do something else, you'll stay in the Fund that you started with. Over time that should have a positive impact on the system. Less accounts is better, less fees, provided you're in a good fund, as I mentioned earlier because a high-performing fund makes a big difference to your end balance. AustralianSuper has long advocated both privately and publicly that poor-performing funds should be removed from Australia's superannuation system. We want to make sure that all members can rely on the performance of the funds in the system and we want to make sure that the system is workable for members, for employers.
A third element of the Your Future, Your Super package was the introduction of an annual performance test for superannuation funds, and that's conducted by APRA. Poor-performing funds that don't meet the test are required to write to members, notifying them of the outcome of that test, and there's also restrictions on those funds accepting new members into the future. Pleasingly, and I think as you'd expect, AustralianSuper has already passed the first annual test.
Outside the Your Future, Your Super package, we very much welcomed the increase in the Superannuation Guarantee to 10% on the 1st of July 2021. It's great for your balance and it's going to be great for young people joining the work force that their balances will grow by 10% now and there's a pathway to 12% contributions. That will occur by 2025.
Two other important changes were made for thresholds for superannuation payments. First was the removal of minimum earnings thresholds for the payment of superannuation for those people earning less than $450 a month, and you can imagine that that had really hurt young workers, part-time workers and women. The second was the increase in the threshold for the concessional superannuation cap from $25,000 a year to $27,500. Now, of course, investing, like super, is always about the future. The Fund has put its mind to and finalised its 2030 Strategy. I said before, we've got to really think about that very long term. The 2030 Strategy is based on our collective vision of your Fund and ensuring that AustralianSuper can continue to be the nation's leading superannuation fund for you as members. We want to be able to always help you achieve your best financial position in retirement, and to do that, the Fund needs to be strong and healthy and have clear plans.
So my commitment to you as Chief Executive is that, just as it has always been, you will be front and centre of all of our decision making and that your outcome is the only thing we care about. I'll now hand over to Sarah Adams, who is AustralianSuper's Group Executive for Strategy, Reputation & Corporate Affairs to provide you a few more details about what that future looks like.
SARAH ADAMS: Thanks, Paul, and good evening, everyone. It's my pleasure to be here this evening to talk to you about the Fund's 2030 Strategy. AustralianSuper is the nation's top-performing superannuation fund. We are the most trusted superannuation fund and more Australians choose AustralianSuper to help them achieve their best financial position in retirement than any other. We have a strong history of delivering for members and today we are a fund with over 2.4 million members, investing more than $230 billion on your behalf. As we look to the future, the challenge for the Fund is how we can continue to deliver these outcomes for members amidst a changing industry, changing member preferences and expectations, changing regulatory settings and a changing competitive landscape.
Our 2030 Strategy is about the Fund successfully navigating this change on your behalf to give you confidence your retirement savings are with Australia's leading superannuation fund for members. I'll start by providing some context. Looking ahead to 2030, the pool of superannuation savings in Australia is expected to grow from $3.3 trillion today to over $5.5 trillion, with particularly strong growth in the retirement market. We expect changing regulatory settings and shifts in the competitive market to result in fewer, larger and better-performing superannuation funds. This should be a good outcome for Australians generally as the standards for all funds should rise. Many of these will be in the profit-to-member fund sector but we also expect a small number of retail funds to remain present and international entrants looking to tap Australia's significant pool of retirement savings.
We also expect that as the industry grows, higher standards of conduct and transparency will be expected by members and imposed by government. Recent trends in regulation designed to improve member outcomes should continue, including measures to expose under-performing funds, remove duplicate accounts and increase standards of conduct and transparency. We think this is absolutely right. Particularly where such changes are implemented across the sector, we believe it should lift both performance and accountability.
As a member-first fund, we're constantly looking to meet the needs of members. More members are making more choices about their investments and becoming more engaged with their super, which is fantastic. Digital and technological advances in financial services but across the board are also leading to changes in how you want to deal with us, including greater personalisation in that experience. We also expect a continuation of current trends where we see increasing engagement in financial matters, including superannuation, also leading to higher expectations from members across service, product and experience.
Responding to these changing member preferences, the industry will see increased competition. The trend away from default to direct joins will continue, meaning more Australians will actively choose where they invest their superannuation. New brands will launch, seeking to tap particular customer cohorts and interests, and we'll see new innovations in product and service, including an increasing price consciousness driven by a rise in index funds.
So the Fund's 2030 Strategy is our blueprint for responding to the changing external environment as well as the internal changes we face as we continue to grow and evolve. While change is inevitable, what won't change is the Fund's commitment to members.
As Paul Schroder said earlier, we want to be Australia's leading superannuation fund for members and deliver on our purpose of helping members achieve their best financial position in retirement. To do that, we've based our 2030 Strategy around five pillars. We are a growing fund and our strategy has been to seek growth so we can extract the benefits of scale for members. The strategic challenge for the Fund is making sure we grow sustainably in a way that allows us to continue to deliver for members over the long term. By 2030, our goal is to be a clear market share leader. To do this, we will need to continue and evolve and expand our distribution model - how we reach potential members - to make it scalable, efficient and successful in a consumer-led setting, as well as significantly improving our retention of members already within the Fund. Sustainable growth is also ensuring we make the right decisions to support our growth, including, for example, investing in new and improved core systems and platforms to ensure we can deliver enhanced levels of performance and service, make better decisions for members, drive efficiency within our organisation and protect our information and data properly.
The second pillar is market-leading performance. You trust us with your retirement savings and a key pillar of our strategy must be to continue to deliver great performance for you. Our goal is to maintain top decile investment performance, and while we have a strong and proven track record of delivering great returns, in a consolidating market with fewer larger and better-performing funds, maintaining that top decile performance will be a challenge. In response, we'll bring our investment model to full maturity and continue to expand our investment management capability across different asset classes and geographies. Market-leading performance is also about talent. We can't expect to deliver on our strategy without continuing to attract, develop and retain a high-performing global work force, thinking about the skills we need now but also the skills we'll need into the future, as well as making sure the AustralianSuper member-first culture is not lost through our growth and expansion.
To respond to the changing market and your changing needs and preferences, we'll need to deliver a distinct member proposition. The Fund's member proposition includes the products we offer, the services and advice we provide and the information, help and guidance we make available to members. We want our proposition to be simple, targeted and compelling to meet the needs of members across all segments, driven by strong value-for-money positioning, aligned with ensuring everything we do is in your best financial interests. We'll also uplift our service offering to make dealing with us easier, using automation and digitisation to help ensure every interaction is simple and helpful. While the external environment is changing, we're changing as a fund too.
The scale benefits pillar represents how we, as a fund, will use our size and scale to continue to drive simplicity and efficiency into our operations and reduce operating costs so we can deliver savings back to members through lower fees and investing in better products and services. Our recent and projected future growth also means we need to evolve our operating model. As we look to the future, we are no longer a small domestic superannuation fund but a large international investment fund operating on behalf of 2.4 million Australians.
Lastly, we will continue to work hard to earn the trust you place in us, to not just say we are Australia's leading superannuation fund for members, but through good governance, clear accountability and fully integrated risk management clearly demonstrate that we are. For the Fund, leadership also means being a leader of our industry through setting and meeting high standards and advocating for a system that operates in the best interests of AustralianSuper members and all Australians.
The execution of our 2030 Strategy will be supported by our business planning, budget, data and program delivery frameworks. It will be reviewed regularly and measured by a fund score card reported to the Board and in the outcomes we deliver for you. I look forward to keeping you updated on our progress over the years ahead. Thank you.
ROSE KERLIN: Thanks to our presenters for that great overview of what the Fund has been delivering for members and how we will be using our scale and skill to outperform and to help members achieve their best financial position in retirement. I'll now introduce the Chair of the Investment Committee, Jim Craig, to provide an investment overview. Jim has had a successful career in investment banking and funds management across Australia and Europe for over 25 years. We are fortunate to have his perspective, knowledge and global experience on the Board and the Investment Committee.
Following Jim's address, Mark Delaney, AustralianSuper's Chief Investment Officer and Deputy Chief Executive, will provide a detailed look at last year's performance as well as the investment outlook and the strategy going forward. Welcome, Jim Craig.
JIM CRAIG: Thanks, Rose. As has been mentioned by Don and Paul, AustralianSuper produced record returns for members in financial year 2021. While the one-year result is exceptionally strong, we are particularly proud of our returns of 9.6% over the three-year period. The team's ability to perform well in both challenging and comparatively more stable conditions is proven. My congratulations go to Mark and the Investments team for their work in delivering great outcomes for members consistently over many years. I am conscious, as with the other presenters, that superannuation is a long-term investment.
Superannuation returns will vary year by year and, as it is an investment over a lifetime, returns over the long term are our focus. The share market volatility over the pandemic period highlights the importance of remaining invested. Some members changed investment options in response to market volatility. Those who switched to cash during the downturn may not have been in a position to benefit from the rebound, while those who remained invested were more likely to end up in a better position. Even for experienced investment professionals, it is extremely difficult to time the market; that is, to know precisely when the bottom or the top has been reached.
The AustralianSuper Investments team has built a portfolio that is diversified and balances the need for liquidity, which served invested members well during this period. A key element of the Fund's strategy has been the internalisation of our investment program. This continued in the period and now 44% of members' assets, your assets, are managed internally. We expect this to grow to 60% under internal management over the medium term. This benefits you in multiple ways. It lowers investment costs. It enables greater alignment to our long-term investment horizon. It enhances our portfolio oversight and it gives better access to investment opportunities. And I'm pleased to say that the internal team continue to deliver strong long-term returns in line with their targets. Our globalisation strategy further improves access to the best international investment opportunities by having an on-the-ground presence in key global markets such as London, Beijing and most recently in New York, with the opening of our US office. Being active in these locations enables better business relationships, access to new investment opportunities and improved ability to oversight your investments.
Following almost six years with AustralianSuper, I will be leaving the Board this month. I'd like to take this opportunity to thank the Directors of the AustralianSuper Board for their steadfast approach to creating one of the best-performing super funds in the country for members. I thank members of the Investment Committee, Mark Delaney and the entire Investments team for their hard work, commitment to member outcomes and insights, which have resulted in AustralianSuper being the number one rated performer over 7, 10, 15 and 20 years.
Finally, I'd like to thank you, AustralianSuper members. It has been a privilege and a pleasure to be a Director and Chair of the Investment Committee for your Fund. I'll now pass to the Chief Investment Officer, Mark Delaney.
MARK DELANEY: Hi, everybody. It's great to see so many of our members listening in. What I'm here to talk about is investment returns, so let's get down to it. The opening slide refers to the word 'open', which is really about economies opening up after COVID. With higher vaccine rates and lifting of restrictions, it's likely to see many economies opening up in the second half of 2021 and into 2022. Australia will follow as well. But the path of COVID has been very uncertain, so there's no guarantee it's going to be all that smooth going forward, so we're going to plan for the best but keep an eye out for the worst.
This graph here talks about investment returns in the last year, and weren't they fantastic? The Balanced plan earned over 20%, which is our highest return. If you look at the graph here, you can see the Balanced plan returns have been pretty strong since the financial crisis of 2008/2009 but nowhere near as strong as the 20% return we earned last year. In many ways, that 20% return is a payback for the small return we earned last year as COVID really affected investment markets.
Let's unpick this 20% return a little bit. On the graph here, we can see the two orange bars on the left-hand side show 30% returns for international and Australian equities. Very strong equity market returns. They were the big engine room of returns of the overall Balanced plan and the other PreMixed options. Very strong equities returns. Look across the graph a little bit and you see very low returns for cash and for fixed interest. That really is the price we pay for the central banks providing so much stimulus and lowering interest rates as far as they did. So if you had a portfolio biased toward equities, you did very well, and if your portfolio was biased towards fixed interest, you earnt very modest returns. The other thing which stands out from the graph is incredible returns from private equity. Private equity in the long run is the highest-returning asset class, and this year was no exception, with returns over 40%.
Let's have a look at how all our investment options went over the last year. This graph here shows the returns for the Super Options, which is what you do before you retire, and the Choice Income, which is the post-retirement investment options. The orange bars are for the Super Options and the grey bars are for the Choice Income options. The first thing that stands out to me when I look at this is that the grey bars are all higher. Why is that? And that is that you pay no tax on investment earnings in the retirement phase. The benefit of paying no tax has been worth roughly 2% over the last year for the Balanced plan, for example. That extra kicker is always very helpful.
The second thing that stands out is those options which carry higher equity allocations and, therefore, more risk have earned more than those who carry less equity weight and, therefore, less risk. So high growth has done a lot better than stable. That's to be expected in the long run, and this year was a clear example of that. Great one-year returns are good but super is a 40- or 50-year endeavour, so one year doesn't really make that much difference.
Let's have a look at long-run returns. That's what really matters to members, making good long-term returns which build up their balance over time. Here we have the returns of the Super Options, which is the pre-retirement options, for the last 10 and 15 years. Interestingly, the 10-year returns are higher than the 15-year returns and that's because the 10-year returns picks up the period after the Financial Crisis, while the 15-year returns picks up the negative years of the Financial Crisis. So over the last 10 years, it's been a fantastic period to be an investor, with the Balanced plan earning almost 10% per annum over that period. Phenomenal result. Look back a little further and you find that a 10% per annum return falls to about seven and a half per cent for the Balanced plan when you look over 15 years because the negative years of the Financial Crisis are included. Again, the higher equity weighted options do better than the lower equity weighted options but all have done very solidly over both 10 and 15 years.
Let's now turn to the pension option returns. Here we have them for 10 years because not all those products have been running for 15 years. In this case, those in the pension phase don't have the 40- or 50-year investment horizon and have something a lot shorter. Let's hope it's about half of that for all those people involved. Here you see the Balanced plan has earned more than 10% - 10.77% - over the 10 years and that extra kicker is also due to the fact of paying no tax. Again, the same profile of returns exists. High growth does better than stable and the returns decline as you move down to lower risk investment options.
I prepared this little table to try and unpick why investment returns have been so strong over the last 10 years. Let's have a look at 30 June 2011. Here you see the Reserve Bank cash rate was 4.75%. It's now almost zero. So interest rates have declined by almost 5%, four and a half per cent, over that 10-year period in Australia. Do the same thing in the US but here I focus on the borrowing rate for the US government over 10 years. 10 years ago, they were paying around 3.2%. Now they're paying one and a half per cent, so their borrowing rate has halved. Why that matters is lower interest rates have fed a strong recovery over the 10-year period and also reduced the discount rate applying to many investments. The wash-up of that is strong recovery and falling interest rates have really kicked the equity markets along. And the last row talks about the US equity market, which has gone up over three times in that 10-year period. Hard to imagine it was $1,321 on the 30th of June 2011 and by 30 September it's $4,308. An incredible performance. It's fair to say that the next 10 years won't be as good as the last 10 years. It's hard to see interest rates in Australia going negative, minus 5%, or US interest rates falling to zero, so the pre-conditions aren't the same as what occurred at the 30th of June 2011 whereby share markets were still fairly low after the Financial Crisis, interest rates had a long way to fall and the recovery had a long way to run. So it's been a great 10 years but, unfortunately, I don't think the next 10 are going to be as good.
Three factors were really important in last year's returns. The biggest one of those was the authorities saying they'll do whatever it takes to keep the economy going. They cut interest rates, increased the money supply and provided large payments to individuals and companies to keep going during the difficult COVID times. The second thing which mattered was a rapid rollout of the vaccines. That allowed life to return to some semblance of normal and for people to be slightly less concerned about COVID. And the third thing was things opening up: shops opening up - and we're all desperate to start shopping again, services, travel and all those related factors. People have accumulated lots of savings during COVID because they haven't been able to spend and, as things open up, they've got the opportunity to spend those savings and kick the economy along.
We've talked a lot about the past but investing is all about the future: what's going to happen in the future and what investment returns are we going to make in the future. So there's five things which are really having a big impact upon the future: geopolitics, budgets and monetary policy, digitalisation, regulation and climate change. Geopolitics, the first one. We've now moved - it has now moved to the centre stage with the US-China conflict. No-one knows how this uncertainty is going to resolve but it will be a big factor, I think, in returns in future years. The governments and the central banks are going to have to normalise policy after the large stimulus payments during COVID. This withdrawal of fiscal and monetary stimulus will have an impact upon how economies go over the next few years. Digitisation is affecting everything we do. We've seen it in online shopping, in manufacturing and it's also coming to services. It's going to transform how we operate and impact many businesses and companies. Regulation is becoming much more important, but one of the key lessons about COVID was the governments were prepared to do whatever it took, including passing legislation saying how things should operate. It's probably unrealistic to expect that governments won't be prepared to continue to give more directions to how the economy works in the future. Being on the right side of this will be important for our portfolio.
Finally, climate change. It's everywhere. Everybody talks about it. But it will be a really big factor in how energy works over the next 10 to 20 to 30 years, and I'll talk a bit more about that later. As important and topical as those five factors are, they're not as important as the basics of investing; that is, valuations, the economic cycle and what's happening to interest rates. Let's have a look at each of those three factors. Valuations are now fairly expensive, given the sharp run-up in shares in the past 10 years. Not as good a take-off point as a decade earlier. The economic cycle has had some big swings in the last three or four years with the COVID bust and now the recovery. We think this recovery's got further to go and will go for a few more years yet, so there's no reason to be concerned on the cycle front.
On interest rates, they're likely to rise as the recovery broadens out, so we're likely to have a period where rates are a bit of a headwind to markets, whereas they were tailwinds in the previous three or four years. All in all, we've got a fairly steady investment environment, high valuations, a reasonable cycle but with rising rates, so returns are likely to be smaller than what they were in the previous period. Investing toward a net zero world: Paul talked a little earlier about how we're managing climate risk in the portfolio and how that's changed over time. The key thing which stands out to me about the move to a net zero world is that the markets are moving very rapidly to price out carbon, with carbon investments having a significant discount in their pricing. So the markets have moved quickly, anticipating a fairly rapid adjustment path. The companies are responding to the markets. You've seen a big company like BHP look to divest its carbon investments as it's looking toward the future.
Finally, the policy makers are coming to some broad consensus around how this adjustment process will take place. So what we've seen is the markets move first, the companies follow the markets and then the policy environment gradually becomes clearer. Portfolio transition around carbon has started and will have to continue over the next 10 years and, if anything, the carbon adjustment is happening more quickly than probably what people anticipated. Let's turn now to responsible investment more broadly. This is a very significant part of investing and affects all aspects of our portfolio. It's something we take extremely seriously because if we get these risks wrong, the financial implications can be very substantial. Environmental, social and governance factors are big factors in long-run returns for many companies. We and the companies need to be aware of how these factors are unfolding and be forward thinking in our adjustment and our plans to ensure that we're future-proofing the portfolio and making sure these businesses are viable in the long term. The best way to do this is to engage with the companies to ensure in their strategic planning they're taking account of these risks, they're adjusting their plans and looking forward. So our engagement with the companies, which we do a lot of, helps us and them better prepare the portfolio for these ESG risks. We also participate in a number of investor forums and related groups, trying to promote ESG throughout the global and Australian industry. This is particularly important as we need to build consensus to move quickly on these factors.
I'd like to spend a moment or two talking about what the Investment team is focused on. First and foremost, we're focused on generating the best possible investment returns we can for you, our members. We see that as our job, our mission, and we can make a big difference if we do a very good job. As a part of doing that, we're seeking to build out our global presence, having offices in both New York and London. The reason we're doing this is to get access to a greater supply of investment opportunities and better manage our overseas investments. It's a big advantage for us but it's a long-term project and it has been going very well.
The second thing we're doing is trying to reduce costs. Costs matter a lot in the long term because while it might be only a few basis points, you add that up over 20, 30, 40, 50 years and it ends up being a lot of your money being spent. So what we're trying to do is to reduce your costs by internalising activities. That means doing them ourselves rather than employing more expensive agents, as long as we can do them well. That process of internalisation has been going on now for almost a decade and has generated very strong benefits.
The third thing is digitalisation and technology change. It's been slow to come to investments but it's gradually creeping in and people are changing how they do things using new datasets and new techniques. I think it's going to gradually increase over time and will become more important as to how we do things.
This is my most favourite graph. We can talk about one-year returns, we can talk about 10-year returns, we can have percentages, but what does it really mean? Have a look at this. You put $100,000 into the Balanced plan 20 years ago. 2001. It's now worth $460,000. 100,000 to 460,000 over 20 years. Phenomenal. Just fantastic. So that says long-term savings works and it works really well.
The second thing I like about this is that when these events come along, and you could probably call them 'events' - and look at the Global Financial Crisis. It did cause balances to go down a little for a short period but it was preceded by a large rise and then followed by also a very large rise. So, in the end, it didn't have much impact at all. Imagine if you'd sold out of your super and went to cash at the bottom of the Financial Crisis. You would have 150,000 or something, and not 450,000. It's an incredible difference. Investing for the long term works. Staying the course and not being panicked out when markets fall is the key to it. Look at COVID-19 up there at the right-hand corner. It barely had an impact. So remember, stay the course, invest for the long term and don't react when the newspaper headlines start to scream. Thank you.
ROSE KERLIN: Thanks to Jim and Mark for the insights on our investment strategy and performance. That concludes the formal presentations. I hope you found them informative. We will now proceed to the Live Question & 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.
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 realtime 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 situations. Please contact us via the website, phone or the AustralianSuper App in these instances. We'll give you a moment now to enter your questions. Thank you.
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ROSE KERLIN: Welcome and thank you for joining us at the AustralianSuper 2021 Annual Member Meeting Question & Answer session. For those of us who are just joining us and weren't at the previous presentation, my name is Rose Kerlin. I'm the Group Executive, Membership & Brand at AustralianSuper and I'll be your MC this evening.
Let's get started. If you'd like to ask a question, you can simply type it into the question box on your screen and press Submit. If you can't see the question box, just go to the bottom of your screen and click on the icon with the two chat bubbles and the question box should appear. Just a reminder, please don't put any personal information into the question box. If you do have a question of a personal nature, you can contact us at the website or via the AustralianSuper App or you can ring the contact centre. We have a number of our colleagues here together in the COVIDSafe studio and we also have colleagues that we're going to be calling upon to help and assist in answering your questions via Zoom in Melbourne and Sydney.
All of our AustralianSuper Directors are here with us this evening, along with two you heard from earlier: our Chair, Dr Don Russell, and the Chair of our Investment Committee, Jim Craig. We also have our Chief Executive, Paul Schroder, our Deputy Chief Executive and Chief Investment Officer, Mark Delaney, the Fund actuary, our Fund auditors, PwC, represented this evening by Craig Cummins and Nicole Oborne, and a number of our subject matter experts who we have on hand to assist us in answering your questions. A number of you have already been submitting questions, so let's get started and we'll go to the first one now.
I'll turn first to Andrew Gray, who is our Director ESG & Stewardship in the Investment team. To get us started, Andrew, a number of our members have been asking about environmental, social and governance issues. So can you explain how does AustralianSuper balance between returning strong results for members and investing responsibly?
ANDREW GRAY: Well, that's quite an important question, Rose, so thank you, and it really gets to a fundamental belief in the way we approach investing at AustralianSuper. And the answer is we don't really see it as a balancing act. We don't see that there's a trade-off here. So, at the end of the day, companies that act responsibly and manage their environmental, social and governance issues well will make better investments.
So we'll just sort of drill down on that. When we think about the issues that we're covering with ESG, it's things such as board effectiveness, remuneration structures - are there the right remuneration structures in companies - climate change, work force and modern slavery issues, diversity, First Nations cultural heritage issues, data privacy and security, and plastics and the circular economy. So if we think about those issues, clearly it's important for companies to manage those issues well if they're going to make good, long-term investments and generate value for members.
So I thought I might just take a couple of minutes also just to explain how we go about doing this. So at AustralianSuper, we have currently a nine-person ESG team, which is actually growing very fast and internationalising as the Fund internationalises. The way we go about it is we work in a very integrated way with the investment teams, and we operate with investment teams at two levels: so, firstly, at the due diligence phase. So this is the phase at which the Fund may be considering an investment in a company and the ESG team gets called in as part of that due diligence to identify the ESG risks and opportunities at that asset. And again what we would focus on are those key issues that I mentioned earlier, plus any particular issues that may be particularly relevant to a company outside of those.
Once we become an owner, we then move to the next phase of our ESG program, which is where we aspire and, in fact, are very active as stewards. So this is where we actively engage with companies to basically advocate for improved ESG performance at those assets because we think doing so, as I mentioned earlier, will make them better long-term investments. And we'll do this individually. So obviously our size gives us great influence and credibility with companies, so we'll do this individually, but we'll also work collaboratively with other investors where we think that helps doing what we're trying to achieve and amplify our voice.
And the other aspect with the stewardship piece is we also try to connect with the real economy and work with the real economy. So an example of this, for example, is that we are a member of what's called the Energy Transitions Initiative, which is actually working directly with hard-to-abate industries on their low-carbon transition plan.
So the approach really is to say: we don't see a trade-off. Companies that manage their ESG issues well will be better investments and then we go about doing that by integrating with the investment teams to work integratively as part of the investment decision and the ongoing ownership process so that we can deliver the best investment returns for members. Thanks, Rose.
ROSE KERLIN: Great, Andrew. The next question goes to Paul Schroder, our Chief Executive, and this question's from Trevor: "How or where do we get to see the list of investments in each fund; for example, the International Share Fund, Australian Share Fund and Growth Fund?".
PAUL SCHRODER: Hi, Trevor, and thanks for the question. As I hope everybody understands, these assets are your assets. They're the members' assets, and so our view is that you should know exactly what you own and where you own it. So if you go to the website, since 2016 we've been providing our portfolio holdings disclosure. So go to the website, look for 'PHD' and you can see exactly what you own, how much of it you own, where you own it, right down to the addresses of the properties. All of the assets, the real assets, the shares, every other thing that you own is available there on the website. Thanks, Rose.
ROSE KERLIN: Next question to Alistair Barker, our Head of Total Portfolio Management in the Investments team. This question's from Chris: "Alistair, today the Commonwealth Bank launched a platform for crypto investors. Does AustralianSuper have any crypto investments and how risky is it?".
ALISTAIR BARKER: Thanks, Chris. Great question. It's important, I think, to draw a distinction between cryptocurrencies and the trading platforms that these currencies are traded on, so it's like the asset and the kind of infrastructure, you could say, upon which people trade. We're not really investing in the cryptocurrencies but we think the platform upon which people trade is a really interesting investment issue and I think it will change over time.
So to give you an example, the way people traded goods and services has really evolved quite a lot over the last 200 years. People exchanged physical money. Over the course of the last century, people have moved to an intermediated model where they work through a bank or a credit card company and there's a promise or a transfer of a promise. We think the blockchain technology underlying cryptocurrencies is an example of a new way of digitally transacting, potentially securely, potentially more quickly.
A number of people - and what you've alluded to with Commonwealth Bank is an example - are looking at those platforms. A company called Square, who bought Afterpay, is doing something very similar - big investment into the space of what the platforms are. However, when we look at cryptocurrencies, they're extremely volatile and have a lot of risk. We actually don't think they meet the risk return parameters for investment in, for example, the Balanced option that Mark spoke about earlier.
The big issues for us are around regulation. So China has said cryptocurrencies are illegal. The US Government is actually silent. They haven't really said whether they're permissible. They've allowed trading of what they call - and this is a bit technical - a stablecoin, which is actually just a digital form of a currency, like US dollars, and that's actually probably where the world is going to go, that all countries will have some kind of currency but in a digital form and you'll be able to trade on these new pieces of financial infrastructure. So cryptocurrencies, no, but a new way of transacting of any asset, be it a normal currency or potentially a property, it's likely to be the way of the future at some point in time. Thanks, Chris.
ROSE KERLIN: I'll give this next question to Peter Treseder, our Education Manager. It comes from Rodney and he says: "I'm 58, so am I entitled to access a portion of my super?".
PETER TRESEDER: That's probably one of the most common questions I see: "When can I get my super"? To get access to your super, you have to meet a condition of release. Now, one of those conditions of release is turning 65. The other is ceasing work and reaching your preservation age, and your preservation age depends on when you were born. Now, on our website, under our Tools and Advice, there's a fact sheet about when you can access your super. Rodney, I don't know whether you've already turned 58 because if you turned 58 before June this year, you've reached your preservation age. If you turn 58 from 1st of July this year, unfortunately you'll need to wait until the age of 59 because that's going to be your preservation age. Thanks, Rodney.
ROSE KERLIN: The next question goes to Mark Delaney and it's from Aturu: "Can you please give an update on the progress made on bringing investment management in-house and whether members can expect to receive a reduction in investment fees?".
MARK DELANEY: Aturu, thanks for asking the question. We've been doing internal management, as I said, for about a decade and about half the portfolio is now managed internally. How that's translated through to savings for members is that it used to cost us around 70 basis points or 75 basis points, which is 0.75 of a per cent, to run the investment portfolio and now it costs about 45 basis points, so it's a falling of the client of about 35% over the eight years or so we've been doing it. We think going forward there's scope for some further declines in fees, but not much because as we build out our international presence to build more private markets capacity, it's going to cost money and we're going to have to use the savings from internalisation to fund that expansion. So the bulk of the savings we think have pretty much been incorporated into earnings but we'll get those savings every year going forward as well as what we've achieved in the last eight years.
ROSE KERLIN: This next question comes from Ian and I'll give it to Paul Schroder: "can you comment on AustralianSuper executives moving their super investments out of unlisted options in the early part of the COVID-19 pandemic?".
PAUL SCHRODER: Yes, Rose, I can, and thanks, Ian. This is often referred to as switching, so I thought I might just take you back a fraction and explain what switching is. Switching is something that's available to all members, which is moving between investment options, whether that's high growth to balanced, balanced to, say, conservative balanced or stable. So what we're talking about here is if people switch between investment options, just as members can, but we previously heard from Mark that switching often costs you money in terms of your balance because timing the market is really hard, so we don't encourage people to switch just for that very reason. But what's been raised here is: what about if you made a switch at a time when markets were falling, when we made provisions for unlisted assets to reflect those markets falling? We have policies in place for that. We have rules in place for that to make sure that everybody's doing the right thing. And so, firstly, I can assure everybody watching that none of those rules were breached. Everybody did the right thing by the rules and those rules are there to protect you as members to make sure that nobody's got any extra information and nobody can act on that extra information to their advantage or your disadvantage. So we have a very strong regime of rules about switching, and nobody making a switch at that time breached any of those rules.
But I did want to say something from tonight, and that is that the Board has been putting its mind to this and really thinking about what would be best practice here, not just what rules are OK, not just what is enough protection to make sure that things are done the right way, but what would be the highest standard? And so the Board's been looking at that through that lens and spent quite a bit of time at its meeting on Friday about that. We'll just finalise some rules that - they're not required rules but they're going to be well ahead of expectation, just so - what I want to make sure is that everyone on this hook-up and every member can really have full trust in this process and complete trust in the Fund. So the Board has been putting its mind to that. There are already rules in place but we're going to progress some tighter, higher rules so that the bar is set very high so nobody can be in any doubt whatsoever that everybody's acting exactly as each of you on this hook-up would expect.
ROSE KERLIN: The next question goes to Mark Delaney. Scott has asked: "whilst I think it's important to strive for strong financial performance, I also think it's important to be part of a super fund that is a good corporate citizen. Does investing in key infrastructure projects that drive jobs and long-term benefits for Australia form part of your decision making?".
MARK DELANEY: Gee, Scott. Great question. Everybody who works at AustralianSuper and I think anybody who is a member of AustralianSuper wants to be part of an organisation which is a good corporate citizen, and that's doing good for others and doing good for the community, and that really sits very importantly with how we think about the portfolio and how we do things. And then when Andrew talked about ESG, that's a window into that responsibility.
In terms of infrastructure assets themselves, what's really interesting is that if an investment isn't good for the community, it's going to turn out to be a bad investment. So with these infrastructure assets, we think they're going to transform the way the community can operate; transform, for example, a toll road, how you can move around a city, make things substantially better, and that will improve the overall efficiency of the place, people's livelihoods and make a big difference. So I actually think that good investing and being good for the community are almost the same thing. An investment business which is unviable is one which really takes advantage of the community, and that's not something we want to be associated with.
ROSE KERLIN: Let's stay with you, Mark. Another question. This is from our member Andrew: "what impact will higher inflation have on super returns?".
MARK DELANEY: Oh, gosh, Andrew. Inflation's never been really good for returns. So if inflation comes along - and we don't know it's going to come along; it's certainly here now, as the supply chains have been stretched with COVID and people have basically bought more goods and less services, and those goods had to be shipped across the world in containers. We don't have enough containers, we don't have enough ships and so the price of goods is going up. You might have noticed in your Amazon deliveries that things are costing a bit more for transportation. So that's tweaking a bit of inflation. Whether it's temporary or permanent, we don't know, nor do the central banks, but it's well worthwhile watching pretty closely.
But to answer your question directly, inflation tends to lead to lower investment returns and that's because it causes higher interest rates and, as I talked about in my presentation, lower interest rates have been a factor behind the very strong returns. So if inflation comes, it will be difficult for the portfolio, but as long as it's modest, it won't be a disaster.
ROSE KERLIN: Back to you, Paul. Martin would like to know what benefit is there to members in all the advertising you do, considering you already have huge amounts of money under management?
PAUL SCHRODER: Thanks, Martin. The first thing I want to assure everybody of is that we're very thoughtful and careful about advertising spend so that we avoid expensive times to be advertising and we're very, very careful about the overall level of spend. Most importantly in my mind is that in trying to achieve the very best returns for you over the long term, it's really important to be able to move between asset classes, between equities, infrastructure, property and all of the other asset classes. That's really a key to delivering long-term performance, and one of the elements of that is strong net cashflow. So it's really important that there's enough money coming into the Fund to be able to allocate between those assets to make you the most money. So securing net cashflow is really important for returns.
When I think about the most recent advertising campaigns, though, they've mostly been designed to reassure current members that people are in a good fund, even in trying times. So those most recent ads showing faces, talking about the 10-year return and the most recent, they were mostly designed to reassure people that staying invested and staying in the Fund is in each of your best interests. So, Martin, I would say there's several other elements that we get the benefit from growth but the main one is they help drive returns.
ROSE KERLIN: The next question is from Susan and I'll give it to Dr Don Russell, our Chair. Don, could you tell us: "how will the Board support the executive team to ensure the members-first culture is retained?".
DON RUSSELL: Thanks, Susan. Your question actually goes to one of the priority areas of the Board. People are, I guess, conscious that the Board has a key role in determining the strategy of the Fund but we have an equally important role in ensuring that the Fund has the right culture to deliver our member-first philosophy. The Board is acutely aware that 'member-first' has to be more than just words. We have to be constantly vigilant that our actions remain consistent with our philosophy and we're all too aware that others have allowed a members-first philosophy to degrade over time to what is effectively 'fund-first', and the Board sees itself as an important driver to make sure that in our dealings with the Executive, in our dealings with ourselves, we don't allow this to slowly eke away and that member-first remains a key part of everything we do. So thank you, Susan, for the question.
ROSE KERLIN: Next we'll go to a question for Mark Delaney. It's from Simon, who says: "member contributions will soon rise as employers' contribution increases to 12% by 2024. Does this large increase in funds impact AustralianSuper's investment strategy as part of the overall 2030 Strategy?".
MARK DELANEY: Again, another great question, so thank you for asking. It's really good news that contribution rates are going up. That's going to give people a chance to build much bigger retirement balances. That's the most important thing. More contributions invested for the long term generate bigger balances. For us in the investment team, when we think about how we're going to manage the portfolio in the future, we're looking at how much money is likely to come in from contributions and how we're going to place that money. So as contributions continue to remain very strong - and they have been strong since we started - we will need to build more capacity to deploy that capital, and that's part of our international program of building offices in London and New York so we can deploy the capital in good deals and make good returns. So thank you for your question.
ROSE KERLIN: Next up we'll go to Shawn Blackmore, who is our Group Executive of Member Experience. Dilip would like to know: "why does AustralianSuper not support access to Choice Income and accumulation accounts with single login?".
SHAWN: Thank you for the question, Dilip. Currently members can have two accounts of AustralianSuper. You can have both an accumulation account and you can have a retirement account. In that situation you are correct. You currently can't see both accounts through one logon on the website. But we have started a project in which we're rebuilding both the website and the mobile app, so in the first six months of next year when we release that to members, we will solve that problem where you'll be able to have one logon to see both your accounts and there'll also be some enhanced features and functions for all members. Thank you, Rose.
ROSE KERLIN: Great. Back to you, Mark. A question has come in: "can you explain the New York office and how that sits with investment strategy?".
MARK DELANEY: Yes. I just talked a bit about that in the previous question. So why New York? When we looked to build our overseas office program, we looked at a number of locations in the US and some of us thought we might go to the west coast so we could go to the beach and enjoy the climate. That didn't really meet members' interests and so we picked New York for the reason that a lot of the private market deals get done through New York - private equity, private debt funding and a fair chunk of the infrastructure deals. So to be in the swim of how those deals are done, you have to be located where those people are and, therefore, we needed a New York office. We think having that office will give us an access, as I said, to better deals, better deal flow, and over time stronger investment performance. But it's a journey. You can't just rock up in New York, turn the key, walk into the office and think it's all going to happen. We have to hire staff, build relationships and prove to be a trusted partner. So it's going to take some years but it's a well worthwhile thing to do. Thank you.
ROSE KERLIN: For this next question from Bethany, I'll go to Katie Le Cras, the Head of Operations and Oversight. Bethany would like to know: "where can I find the procedures of how AustralianSuper disburses money to beneficiaries if the binding or non-binding nomination is invalid? Does AustralianSuper charge a fee for this?".
KATIE LE CRAS: Hi, Bethany. Thanks for your question. You can find all the information on the Fund's website. So if you just go to the Superannuation tab at the front page, you'll be able to find all the information on how the Fund manages both binding and non-binding nominations. Also, there is no fee charged to any form of nomination. Thank you, Rose.
ROSE KERLIN: OK. We've got another question for Shawn Blackmore and this comes from Fabienne. Fabienne would like to know: "will you offer annuities as a retirement option?".
SHAWN BLACKMORE: Thank you for the question, Fabienne. Great question. Annuity is also commonly referred to as fixed term pensions or lifetime pensions. We currently don't offer one to members but, in exciting news, we're currently reviewing that and designing one at the moment. So whether it's called an annuity or a guaranteed pension or a lifetime pension or a fixed term pension, we're yet to decide on that final name but we'd like to see that product in the market towards the end of next year. Thank you, Rose.
ROSE KERLIN: Next up we've got a question for Alistair Barker and that comes from our member Agnes, who has asked: "did the sale of ME Bank to Bank of Queensland have any impact on the AustralianSuper performance?".
ALISTAIR BARKER: Thanks for the question. In short, it had a small positive impact to performance this year. So when the asset was sold, the total proceeds to the consortium were just over $1.3 billion, of which AustralianSuper owned about 20% of ME Bank. We had the asset independently valued, as we do with all of our unlisted equity investments, and that sale was at a slight premium to the previous independent valuation. But thanks for your question.
ROSE KERLIN: The next question goes to Peter Treseder and it's a question from our member Nathan. Nathan would like to know: "can you use one account for partners rather than have two separate accounts?".
PETER TRESSIDER: Hi, Nathan. Another common question we get asked is: why can't we have one combined account for a partnership? Unfortunately, you can't. You have to be separate entities. So you have to keep on going with you having your account and your partner having their own account. Thanks, Nathan.
ROSE KERLIN: The next question is going to Andrew Gray and it's from our member Robert. It's: "does AustralianSuper sometimes vote against AGM resolutions of investments where the companies want to give share options and huge bonuses to senior management? The Directors make decisions affecting many years but the criteria is relatively short term."
ANDREW GRAY: Thanks, Robert. Great question. 'Yes, we do' is the short answer. So voting on remuneration is one of the two key votes that we have at AGM season, the other being to elect Directors, and so we're very active on both those votes. So with regards to remuneration, we've actually got a couple of principles that we look at to assess a remuneration scheme in a company. So the first thing we're looking for is that the remuneration has delivered appropriate pay-for-performance outcomes. So if executives at a company are getting paid well, we expect the company to be generating strong value for us and our members.
The second criteria, which is probably the heart of your question, is we also want pay quantum to be reasonable and not excessive. Then the third principle that we look at is to make sure that disclosures have been appropriate and clear enough so that we can make an adequate assessment of those first two principles. It does change a little bit year by year, but on average, we'll vote against about 8 to 10% of Remuneration Reports at ASX 200 companies, and that could be based on any of those principles but often it will be based on where we think remuneration structures are too short-term oriented or bonuses are too high, particularly given our perspective as a long-term investor.
So one of our key requirements is to make sure that remuneration schemes do have long-term performance assessment in there and that bonuses and short-term payments aren't excessive. So the short answer to the question is: yes, we will vote against and we'll certainly communicate that to the company so that we can advocate for improved structures going forward, and on average that vote against is about 8 or 10% each year. Thanks, Rose.
ROSE KERLIN: Great. We'll go now to Mark Delaney. There's a question from Jin Hui: "what is AustralianSuper's view on the relations between Australia and China and how does that inform the investing stance that AustralianSuper takes?".
MARK DELANEY: Jin Hui, thank you for the question. There's a lot happening both in China and outside of China and both of them are having significant impact upon the potential investment portfolio. So while the amount of China investments we have is relatively small, the impact is very large because China is the second biggest economy in the world and it's Australia's major trading partner. So within China, there's certainly a move to what we might call a more equal society, with less emphasis purely on economic growth and more on the environment, the conditions and what the Chairman calls shared prosperity. That's resulting in a lot of regulatory changes going through which has affected the value of lots of businesses, and if you're on the wrong side of those, it's been very penal.
The second thing is the emergence of China as a global superpower and how the world is responding to that. That's certainly been a challenge for Australia and the US and Australia's taken quite a strong position and has been effectively punished by China for doing so. We all aim to live in a peaceful and cooperative world and we hope we'll work toward that position, but in the near term, it does make investing in China a little bit more difficult while the circumstances we're experiencing continue.
ROSE KERLIN: Great. A question for Paul now and it's from Catherine: "how do you generally calculate staff salaries and are all executive staff invested in the Fund?".
PAUL SCHRODER: Thanks, Catherine, for the question. Your question I think is how do we generally calculate staff salaries, and it's always the same principle, which is: how do we make sure we can attract and retain the right quality talent and not spend one dollar more than we need to of members' money? So that's how we generally do it and always do it. We employ external remuneration consultants to find the market levels for those salaries and I just should flag that I think that's one of the things that we've got to think very carefully about as we go global because they are different markets and we need to make sure that we can attract and retain the talent that you need to keep making you money and helping you save for your retirement but not overspend.
The second part of the question is: are all Executive staff invested in the Fund? Yes, we do expect people to be members of the Fund, and we are - and I know you've seen at least Mark and I today, we're both members of the Fund, the only exception being the Independent Directors and Chair, who are not allowed to be members of the Fund. But if you're asking do we put our money where our mouth is, yes, we absolutely put our money where our mouths are.
ROSE KERLIN: And we'll stay with you, Paul, for a question from Andrew: "does AustralianSuper have plans to offer investment products outside of super?".
PAUL SCHRODER: No, not really, Andrew. One of the great beauties of super is that it's preserved and has a long-term horizon and we structure the portfolio to make sure that we can make you the most money, risk-adjusted, post-tax and post-fees, and that includes investing over the longer term horizon. You'll know especially for younger people there's an opportunity to save for a first home, which is a really great arrangement for people who are saving for a first home. It's got really good provisions and that's a good offering. But, generally speaking, no because it doesn't really suit the investment strategy and really it's hard enough to be a really good super fund, let alone introducing other and additional things to do.
ROSE KERLIN: While you're on a roll, Paul, there's a question here from Dietrich: "how does AustralianSuper gauge member views? Is there a system in place for regular member input?".
PAUL SCHRODER: Yes, thanks, Dietrich. We think we have the most comprehensive process of listening for members' voices, and all the customers as well, not just members by themselves but the businesses that they work for and those people who use advisers as well. So we have about 100,000 data points that we take every year from a strategic level and from an episodic level. Sessions like this give us plenty of good insight to questions and comments. But our Voice of the Customer program is very comprehensive. It's supported completely by the way we manage complaints, and I see many of those as well. So I hope that answers your question, Dietrich. We spend a lot of time with focus groups thinking about things. We do a lot of quant, a lot of qual and we also track at both the strategic and the episodic level.
ROSE KERLIN: Great. We'll now go to Peter Treseder. There's a question from Alexander: "what is the maximum super balance and what happens if we go over?".
PETER TRESSIDER: Hi, Alexander. If you think of superannuation, it has two phases. It has the build-up phase or accumulation phase and a drawdown phase or the pension phase. You can have as much as you like in the accumulation phase, but the current laws only allow you to move up to 1.7 million from that accumulation phase into that drawdown phase. So it was 1.6 prior to 1st of July this year. It increased to 1.7. That doesn't mean if you move 1.6, you can move another 100,000 across this financial year. There are some rules around how much you can move across and if there is any scope for you to take advantage of the increase from 1.6 to 1.7. It's a complicated matter. There's more information on the website about how you can work out what your cap is in that drawdown phase. Thanks.
ROSE KERLIN: Across now to Paul Schroder. We've got a question from Scott: "as the new CEO, what are your top three priorities for the Fund? What will stay the same and what will change?".
PAUL SCHRODER: Thanks, Scott. My number one priority, just as the priority for all 1,000 people who work at the Fund, is to help grow your balance, and to grow your balance, that includes helping you save more, helping you earn more, risk-adjusted, post-tax and post-fees, and protecting your assets properly through good risk management, good security, good cybersecurity and offering insurances. So that's my number one priority but it's a priority shared by everyone around the Board, everyone around the Executive and all people who work in the Fund.
My second is to make sure that we continue the culture and conduct and thinking always about members in the same way that Don explained. And I think the third is to aspire to achieve the benefits of scale, lower fees, higher returns, but to do that in a personalised way and to use data, to use digital capability, to bring the best of size with the personalisation of the individual perspective. So I think they're the three most important things for me: building your balance, making sure the culture and conduct is right, and making sure that we get the benefits of scale but we can do that in an individualised way that makes sure that every member feels, and is, well served along their journey.
ROSE KERLIN: OK. A question for Peter Treseder from Susanna: "can you explain what the contribution cap is for me as a 70-year-old?".
PETER TRESSIDER: Hi, Susanna. Contributions go into super in two ways, either before tax or after tax, and each of those contributions has a contribution cap. Before-tax contributions - contributions made by your employer, salary-sacrificed contributions - they have a contribution cap of $27,500 this financial year. The contribution cap for after-tax contribution, its cap is $110,000. As a 70-year-old, you may not be able to contribute unless you meet a work test, and the work test is you need to work 40 hours over a 30-consecutive-day period. So that applies to anyone over the age of 67. So being 70 - you're over 67 - you need to meet that work test. There is legislation pending - it was put into Parliament in the last week or so - to remove the work test but that's not going to come into play until 1st of July 2022 and it has to be voted through Parliament. Again, more information on our website around the contribution levels. Thanks, Susanna.
ROSE KERLIN: A question now for Mark Delaney from Mario: "as interest rates begin to rise and thus have a negative impact on returns of, say, the Balanced Fund, what will AustralianSuper do to minimise the impact?".
MARK DELANEY: Yes, that's what we have to do. So what we're going to do is avoid those investments which are most affected by rising interest rates, and that's clearly fixed income. And so bonds will be the most affected. Assets which have returns bond-like, which you might call some high-grade property or even some corporate loans in credit, will also be more affected. And shares will be less affected because the revenues can also go up with inflation so we'll probably be inclined to hold those.
The other thing we can do is invest more in assets which have CPI-linked revenue streams; for example, like infrastructure assets, which we are doing a fair bit of. But, as I said at the start, early on, if inflation is modest, it will be OK. If inflation rises a lot, which I don't think will happen, it will be more difficult. But thanks for your question.
ROSE KERLIN: Across to Alistair Barker now. A question from Warren: "are dividends from equity investments added when they are paid and, if so, would that add a large amount to the daily crediting rate when these come in or are they added progressively?
ALISTAIR BARKER: Thanks, Warren. Great question. They're added progressively, so for a number of you who are on the call, you will notice that every day we credit returns to your account. So whenever the market moves up or down, your balance automatically adjusts according to a crediting rate, and those rates include dividends. What happens with dividends is when a company says they're going to pay a dividend, that share price at some point goes what they call 'ex-dividend ', and so the share price drops the day they go ex-dividend and you lose that dividend entitlement. So when it goes ex, we make a provision for the receipt of that incoming dividend and the franking credits. So there's no real change around the dates that those dividends are declared because we make sure the prices reflect either - you know, are they in the share price or are they out of the share price? But really important because franking credits are a very large part of return from Australian equities. So thanks for the question.
ROSE KERLIN: Across now to Mark Delaney. A question from Victor: "internationalisation can involve new and unfamiliar risks; for example, AMP's disastrous investments in the UK. How does AustralianSuper mitigate those new risk exposures?".
MARK DELANEY: Yes. Another good question. Thank you very much for that. The experience of Australian companies going overseas is not fantastic. You look through the history of Australian companies expanding globally and many have failed. Not all of them. And particularly that was the case in the '90s to the 2000s. When you get to the last 10 years or so, the track record has improved.
So we've looked at a lot of other pension plans who have had expansion to overseas offices and tried to learn the lessons from them, and a few things really stood out. You have to have offices of significant critical mass. You have to have a clear mission as to what they're setting out to achieve. You have to have decision-making frameworks which operate across the whole portfolio and not generated by one office or another. And, most importantly, we have to maintain a member-first culture where people are investing for the benefit of others and not for their own pockets so that we can really generate strong outcomes for members.
So there's a fair bit to get across there. We think the best way to do all that is to have a combination of Australian ex-pats going there who could embed their culture and leadership and how we work as an organisation and then hire very high-quality and talented locals, which we can get access to now we have those offices, and they can build expertise and bring deals and generate investment returns. So thank you for your question.
ROSE KERLIN: OK. We'll go to Paul now for a question from Roni: "is there any reward for an AustralianSuper member referring a new member to join AustralianSuper? If not, why not?".
PAUL SCHRODER: Thanks, Roni. Well, absolutely the best thing in the world to happen is for AustralianSuper members to encourage other AustralianSuper members to join, and I know many of you have spoken to others about joining the Fund and we've been really overwhelmed by the number of people who've joined the Fund based on a recommendation from somebody else.
We don't have a formalised process in place at the moment and we've just got to make sure that we don't introduce any sales-based kind of incentives that lead people to make a recommendation that's not in their heart. It's got to be a true - there's got to be a real belief that that's a good thing to do. So we don't want to create any of those behaviours that have created trouble at other places in the past.
But the idea that a member recommends the Fund to a member is at the heart of this because this is all members bringing their money together to get size and scale and to be able to invest like a 250 billionaire. So that idea is a great idea. And so we are thinking about a member referral program and I expect that by the time we meet next year - and hopefully we'll be able to do that in person - we'll be able to talk about that member referral process. So we'll guard against the potential downsides but we love the idea of encouraging members to encourage other members to join, provided we keep doing a really good job and people feel that and they really believe that.
ROSE KERLIN: Unfortunately, that now brings us to the end of our time for our Question and Answer session. I wanted to thank all of those people who submitted questions and I do want to apologise to members who couldn't have their question answered in the time allocated. The good news is that the answers to all of the questions that have been submitted, along with the minutes of this meeting, will be available on the AustralianSuper website within one month of this meeting. You can go to australiansuper.com/amm and you will find all of those materials there in a month. We will also have the recordings from the earlier webinar sessions called SuperTalks. There were many topics that were covered there and I know a number of people attended but may not have been able to attend all of the sessions. So they'll also be available in time up on our website and you can access them at your own leisure.
So I hope you've found this evening's sessions, whether it was SuperTalks, the presentations or the Q&A session, really informative and valuable and that you now feel more confident and secure about your superannuation and your life in retirement. On behalf of the Board and all of the team here at AustralianSuper, I want to thank you for joining us and wish you a lovely evening. Goodnight.