Industry super funds: watch out

Don’t you just love the employer associations?  … NOT.  They seem to be on board with the unions’ campaign of resistance to any change to the governance rules (50/50 split between member/union and employer representatives on the board of trustees) of industry superannuation funds.

David Whitely, head of the industry superannuation fund association, defends the current racket on the basis that industry superannuation funds have outperformed other funds.

Now truly financially literate Cats, doesn’t this result sound strange? Would we not expect the returns to be pretty much the same for an equivalent asset allocation in all types of funds?  After all, virtually all the funds use the same pool of funds managers.

Is there something going on?  For example, some of the industry superannuation funds are seriously overweight direct investments the valuations of which are both a bit shonky and seriously lagged.  Is the effect to create an illusion of high returns – eg. MTAA Super? And is the supposed gap between the returns of industry super funds and other funds weighted by the number of members?

I am also pleased to report that the government and APRA are looking into possibly inappropriate spending by industry superannuation funds; in particular, the use of the admin charge for sponsorships and marketing.

It could be pointed out that listed companies use shareholders’ money for similar purposes but note that shareholders have the scope to turf out the board if their decisions look unrelated to promoting the highest shareholder returns; this is not the case with the industry superannuation funds.  Members are unable to turf out the trustees.

Another difference is that companies will use sponsorship and marketing to secure more customers.  It is not clear that it is in the interests of an existing member of an industry superannuation fund to have their funds use to recruit new members.

The fact that the industry superannuation funds are on notice is a good thing.

The federal government is planning to keep a ‘close eye’ on the marketing budgets of Australian superannuation funds amid concerns some are using member funds improperly, according to The Australian Financial Review.

Assistant treasurer Arthur Sinodinos said the government was monitoring the situation with the Australian Prudential Regulation Authority to do the heavy lifting.

“We’re keeping a close eye on it but at this stage, it’s mainly through APRA,” he told the AFR.

“We’re making sure there’s transparency around how members’ funds are invested.”

One example highlighted by Mr Sinodinos of the need to be accountable to fund members was the $6 million investment in a new online newspaper – The New Daily – by Australian Super, Cbus and Industry Super Holdings last year.

Another point: Can anyone explain why industry superannuation fund, HOSTPLUS, is a Premium Partner of the Melbourne Storm Rugby League Club?  What benefit to the members secure from this spend of members’ funds?

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33 Responses to Industry super funds: watch out

  1. Andrew

    One example highlighted by Mr Sinodinos of the need to be accountable to fund members was the $6 million investment in a new online newspaper

    LOL busted! (I can confirm that VERY senior APRA officials are also aware and rolling their eyes, but $6m out of $1tr wasn’t Priority 1 at the time.)

  2. Andrew

    Speaking of things that rank #1…

  3. .

    Good.

    Smash the unions and their unfair, legislated entitlements to our money.

    My post on 25th May 2012 is getting noticed!

    Of course!

    https://twitter.com/CatallaxyFiles/statuses/202189708174966786

    Guest Post: Is Superannuation a socialist plot?

    Thankfully, Catallaxy is blog of record read by all members of the Coalition.

  4. Luke

    Super funds like the unions are run for the financial benefit of those running them. Any benefit to flow to members is purely coincidental.

  5. adrian

    Costello pointed the con out back in 2012

    The average return of industry super funds last year was 0.61 per cent, considerably less than you would have got by putting your money in the bank. Over the past five years the average return was minus-0.17 per cent, which is less than you would have got by putting your money under the mattress. On average, people who had money in these funds went backwards and paid fees for the privilege of losing their own money!

    http://www.smh.com.au/federal-politics/political-opinion/supersized-ripoff-for-average-workers-20121106-28w17.html#ixzz2qQFxAYzJ

  6. Petros

    Thank you once again, Judith, for drawing attention to this. The Libs just can’t resist being part of this racket. Newman appointed one of their own to the board in Qld. Why can’t people put their compulsory super that they earn in the public service into their own choice of fund? It’s a very easy thing to legislate for and would only win votes, not lose them.

  7. Milton Von Smith

    What I can’t work out is why we get endless reports of rankings of average returns, but nobody ever mentions the volatility or risk of the returns of different funds.

    Perhaps some funds do have better ex-ante returns than others – but then surely they must also have more risk.

    By only reporting average returns, investors are missing out on half of the story.

  8. Steve of Glasshouse

    Hesta sent my wife an email noting that the latest news etc can be directed to her courtesy of the online Daily..

  9. Token

    Perhaps some funds do have better ex-ante returns than others – but then surely they must also have more risk.

    By only reporting average returns, investors are missing out on half of the story.

    Refer to the discussions on the Computer-based statistical and econometric packages thread. It is very clear the metrics that underly the way funds are being measured and compared is crap.

  10. Rabz

    … defends the current racket on the basis that industry superannuation funds have outperformed other funds.

    Given the tendency of these union controlled funds to invest more heavily in ‘green’ and ‘ethical’ investments, I doubt this very much.

    Actually, allow me to be a bit more blunt – it’s a blatant lie.

    Hopefully, the truth will out.

  11. Jannie

    Every time you write an article on Super, I look at my voluntary AustralianSuper account and wonder. Their website boasts Heather Ridout and Paul Howes on the Board, it gives me the vapours, but returns have been OK last couple years.

    I have another employer contribution Super account. Its value today is 95% of the summmed dollar value of the contributions paid in the last five years.

  12. Petros

    Is Abbott pro-choice on super?

  13. Derp

    Some people here have attempted to defend that same racket, inferring that unspecified social goals somehow trump the primary purpose of super funds.

  14. Toiling Mass

    From little pings big stings grow…

  15. Toiling Mass

    Jannie,

    Having Heather and Howse there should fill you with confidence.

    You can be certain you are being ripped off.

    Heather Sellout and Piggy Howse! If I had two puncture marks from vampire’s teeth on my throat from which my blood had been sucked out, I would name the wounds after those two.

  16. Bruce J

    Industry Super funds – run by unions managers for the unions(?) . But nobody ever mentions the workers who have no choice as to where their super goes thanks to the EBAs negotiated by those same union managers.

  17. Goldstein

    I notice one of the industry super funds also sponsors the Gold Coast Suns. As with the Melbourne Storm sponsorship also, there are some boondoggling trustees who would no doubt be attending the games in the sponsors’ corporate boxes.

    I note the industry super fund ads also boast their costs are lower than retail funds.

  18. feelthebern

    Is there something going on? For example, some of the industry superannuation funds are seriously overweight direct investments the valuations of which are both a bit shonky and seriously lagged. Is the effect to create an illusion of high returns – eg. MTAA Super? And is the supposed gap between the returns of industry super funds and other funds weighted by the number of members?

    Speaking to this point specifically, during the GFC when the listed property trust sector (re-branded Real Estate Investment trust sector to bring it in line with global indices) was blowing up & needed to recapitalize (that is, get more money from unit holders to stop going bust), I asked the head strategist of my (former) employer about industry funds.
    Industry funds had been on the same property binge pre GFC & they typically also used a higher level of internal gearing. My question was were we going to see any of the industry funds need a capital injection due to their unlisted property exposure.
    His answer was no, but he had major concerns about some of the smaller industry funds at the time.
    I asked was he going to market that story like he’d marketed his views regarding the diversified financial sector (which were bang on & he was the first to call it).
    He said he wouldn’t be writing anything on it as Industry super funds were 10 of the firms top 20 clients.

  19. Leigh Lowe

    For example, some of the industry superannuation funds are seriously overweight direct investments the valuations of which are both a bit shonky and seriously lagged.

    It may be that the forward valuation of some of these direct investments is, in fact, based upon (ahem) ‘real’ numbers.
    For example, CBUS takes equity in an office block in the Sydney CBD. The relevant Union members get 2-3 years cushy work slowly erecting the building and pushing up the capital cost which, prima-facie, might make it marginal in the rental market. But, lo and behold, upon completion along comes a white knight in the form of an ALP State or Federal Government Department to sign a looooong term lease at exhorbitant rates.
    Voile! …. Income created, asset valuation validated.
    If you doubt this rort is standard ALP practice, I give you Exhibit A … Centenary House in Canberra which was built by a wholly owned subsidiary of the ALP. It was leased in 1991 to the National Audit Office under the Hawke/Keating government on a 15 year lease with massive escalation clauses resulting the the rentals being triple market value by the end of the lease.

  20. Token

    But, lo and behold, upon completion along comes a white knight in the form of an ALP State or Federal Government Department to sign a looooong term lease at exhorbitant rates.
    Voile! …. Income created, asset valuation validated

    Great summary Leigh.

  21. Docket62

    “But, lo and behold, upon completion along comes a white knight in the form of an ALP State or Federal Government Department to sign a looooong term lease at exhorbitant rates.
    Voile! …. Income created, asset valuation validated”

    And then along came Kevin and co. To resign the lease for the next 15 years. FMD

  22. papachango

    For example, CBUS takes equity in an office block in the Sydney CBD. The relevant Union members get 2-3 years cushy work slowly erecting the building and pushing up the capital cost which, prima-facie, might make it marginal in the rental market. But, lo and behold, upon completion along comes a white knight in the form of an ALP State or Federal Government Department to sign a looooong term lease at exhorbitant rates.
    Voile! …. Income created, asset valuation validated.

    I’m in two minds about this, having a bit of money in Aust Super, who probably do siumilar things. It’s a nice scam whereby union scumbags are ripping off the public purse. But by being in the fund I at least get some of my taxpayer money back off these pricks, though it’s also tacitly supporting them.

  23. Token

    But by being in the fund I at least get some of my taxpayer money back off these pricks, though it’s also tacitly supporting them

    I see what you mean, but like the solar panel scheme and so many other government created bubbles, they do pop eventually.

    When are you cashing out of your super?

  24. Baldrick

    Another point: Can anyone explain why industry superannuation fund, HOSTPLUS, is a Premium Partner of the Melbourne Storm Rugby League Club? What benefit to the members secure from this spend of members’ funds?

    According to the Hostplus website “As an Industry Super Fund we like to get behind the industries we represent – hospitality, tourism, recreation and sport. And by sponsoring sports teams, all our industries benefit. Take the Gold Coast SUNS for example. Whenever the SUNS play at home, thousands of fans travel to the Gold Coast to watch their team. They stay in hotels, eat at restaurants, go to bars, clubs, cafés and check out local attractions. All the time creating jobs in industries where our members work.”

    Who knew?

  25. Vicki

    It is interesting that Judith mentioned the “bit shonky & seriously lagged” investments of certain industry funds. At the peak of the GFC there was quite a problem with industry investment in unlisted assets which were only revalued every 6 months or so. She also mentions the MTAA. Mmmm. I am still waiting for an answer to a letter of complaint sent in that era to the Trustees of an industry fund.

    I was also disappointed that the Cooper Review into Superannuation did not address these issues, as many expected. On the contrary, there seems to be a widespread acceptance of the status quo – at least until the next GFC.

  26. Andrew

    I am still waiting for an answer to a letter of complaint sent in that era to the Trustees of an industry fund.

    Yes, I put in a complaint and got rather a douche baggish response. My account balance randomly dropped 10%, and they couldn’t explain to me why. In fact, they didn’t try. They said “Here’s out unit pricing process described.” WTF is that all about? So it’s SCT for them.

  27. ProEng

    Bank owned superfunds have a very poor record, look at First State Colonial since CBA took over. However, bank shares have been pretty good the last two and half years. Pays to have your own SSMF. At least then you can decide to get in when rip-offs start and get out before they crash. Nobody in their right mind should be investing in “green” energy (such as solar and wind) NOW. Look at some of the scarce food scams which the Chinese “might” buy but be sure to do your homework. Recall the Japanese concerns in the 1980′s and how they lost out and went back home with a loss (eg Bond University sold at a loss to the Japanese then went broke and was eventually sold for around $60M to Griffith Uni -much below the cost replacement of land and buildings)

  28. David

    But industry super funds must be O.K, mustn’t they? After all that nice actor Mr “Tubby” Woods keeps telling us that little things grow into big things – and so does that hypnotic Mr Bernie who used to work for the gummint somehow. He says “It’s the super of the future”. [sarc off] :-)

  29. .

    As an Industry Super Fund we like to get behind the industries we represent

    Ouroboros lives!

  30. Leigh Lowe

    I’m in two minds about this, having a bit of money in Aust Super, who probably do siumilar things. It’s a nice scam whereby union scumbags are ripping off the public purse. But by being in the fund I at least get some of my taxpayer money back off these pricks, though it’s also tacitly supporting them.

    That’s OK in the short term, papa, but the building has a life of 40-50 years (of itself, a triumph of engineering and concrete technology over CFMEU ineptitude).
    What happens to the inflated valuation and future income stream projections when the first ten year sweetheart lease runs out and there is no friendly ALP Government in office, or perhaps ICAC turns it’s attention to these sort of mates-rates deals?

  31. Empire Strikes Back

    For example, CBUS takes equity in an office block in the Sydney CBD. The relevant Union members get 2-3 years cushy work slowly erecting the building and pushing up the capital cost which, prima-facie, might make it marginal in the rental market. But, lo and behold, upon completion along comes a white knight in the form of an ALP State or Federal Government Department to sign a looooong term lease at exhorbitant rates.

    Spot on Leigh and no secret to those of us that have been following this rort since Placido instituted compulsory superannuation.

    Keating is an arsehole, but no fool. He understood that seizing the means of production was a Marxist fantasy. Better to buy the means of production on market, with other people’s money.

  32. Andrew

    However, bank shares have been pretty good the last two and half years. Pays to have your own SSMF.

    Sorry, but that’s the sort of crazy argument that has seen a wildly inappropriate number of SMSFs appear. Many platforms and industry funds let you trade ASX shares and unless you have a ridiculous balance to do so much cheaper than typical SMSF fees. I think 0.2% pa on Hostplus. None of the hassles of trusteeship.

    (I have an SMSF. I do it for fee and tax benefits, but mostly to access investments I could never get on a wrap.)

  33. Taylor

    Judith

    Now truly financially literate Cats, doesn’t this result sound strange? Would we not expect the returns to be pretty much the same for an equivalent asset allocation in all types of funds? After all, virtually all the funds use the same pool of funds managers.

    No, not if one group of funds charges much higher fees. The returns promoted by funds must now be those “after the deduction of fees, costs and taxes”:

    http://www.austlii.edu.au/au/legis/cth/consol_act/sia1993473/s29vn.html (s 29VN(1)(a))

    APRA publishes net returns for the top 200 funds here:

    http://www.apra.gov.au/Super/Publications/Documents/2013%20Superannuation%20Rates%20of%20return.pdf

    It is not clear that it is in the interests of an existing member of an industry superannuation fund to have their funds use to recruit new members.

    All trustees now have to determine whether members are disadvantaged by economies of scale: see s 29VN(1)(b) of the legislation above. In light of that it would be odd if they did not do marketing to achieve economies of scale.

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