WEBVTT - Big super cock-ups - Should you switch? 0:00:10.400 --> 0:00:13.920 Hello, and welcome to The Australian's Money Puzzle podcast. I'm 0:00:14.000 --> 0:00:17.720 James Kirby, the editor at the Australian. Welcome aboard everybody 0:00:18.239 --> 0:00:20.520 you know. For a long time on this show, we 0:00:20.600 --> 0:00:25.880 have supported big industry super funds and we have said 0:00:26.560 --> 0:00:30.040 regularly that they perform well, and they do over a 0:00:30.120 --> 0:00:33.159 ten year period, and that they are cheap. That is, 0:00:33.240 --> 0:00:37.559 the expenses that they have and what they charge you 0:00:37.680 --> 0:00:40.640 the investor is quite reasonable. Part of that is because 0:00:40.680 --> 0:00:43.120 they don't have to make a profit they are not 0:00:43.360 --> 0:00:46.440 for profit industry funds. But always added the caveat that 0:00:47.720 --> 0:00:50.519 they are alone to themselves. They're very big fish in 0:00:50.560 --> 0:00:54.720 a small pond. They're not particularly answerable to any regulator. 0:00:54.720 --> 0:00:59.640 In particular, they're not particularly answerable to their own investors. 0:00:59.680 --> 0:01:02.920 And sooner or later this was going to be trouble 0:01:03.760 --> 0:01:07.360 and Sebus, the big industry super fund, really has spoils 0:01:07.440 --> 0:01:10.480 party here. They have about nine hundred and thirty thousand members, 0:01:11.200 --> 0:01:16.759 about ninety four billion under assets, big operation and behave 0:01:16.880 --> 0:01:20.240 so badly basically behind the scenes in terms of not 0:01:20.440 --> 0:01:27.160 delivering due payments to death benefits and disability payments the 0:01:27.160 --> 0:01:30.600 most basically it's the most vulnerable people and investors in 0:01:30.640 --> 0:01:33.920 their group. That ACID had to go as far as 0:01:34.040 --> 0:01:37.679 taking them to court and suing them for allegations of 0:01:37.800 --> 0:01:40.800 problems in this area. So this sort of bursts the bubble, 0:01:40.840 --> 0:01:44.720 I think to would agree on big super and there 0:01:44.840 --> 0:01:47.560 has been in and around the same time a whole 0:01:47.720 --> 0:01:51.840 string of incidents. Cebus isn't the only one unisuper. Their 0:01:52.000 --> 0:01:54.840 site was out for days some months ago where people 0:01:54.880 --> 0:01:58.240 couldn't see their super couldn't see what they have. Art 0:01:58.800 --> 0:02:02.600 Australian Retirement which is the second largest super fund in 0:02:02.680 --> 0:02:07.040 the market, they had delays for days of pensioner payments 0:02:08.320 --> 0:02:11.960 and in common with these issues I just mentioned at 0:02:12.000 --> 0:02:16.680 the other funds, they don't advertise this, they don't tell 0:02:16.720 --> 0:02:20.560 you about this, they tell you if you're affected. But basically, 0:02:22.000 --> 0:02:24.560 onto the current system they're able to quietly try and 0:02:24.680 --> 0:02:28.800 put out these spotfires as they occur. The issue now, 0:02:28.840 --> 0:02:30.880 of course, is that ASEK has really put this on 0:02:31.040 --> 0:02:35.280 the table and the ACIC Deputy chair Sarah Court, is 0:02:35.320 --> 0:02:37.160 saying that there's going to be more action on this, 0:02:37.560 --> 0:02:39.840 and even as I speak to you today this morning, 0:02:39.960 --> 0:02:43.280 literally an hour or so before we started to sit 0:02:43.320 --> 0:02:47.200 down and record this show. Hesta big fund that's traditionally 0:02:47.240 --> 0:02:51.919 associated with hospital workers and nurses, is also in trouble, 0:02:51.960 --> 0:02:56.000 can you believe for an entirely different issue. But it's 0:02:56.040 --> 0:02:59.919 got to do with their unlisted assets and the greet 0:03:00.120 --> 0:03:02.560 which they mark them down and didn't mark them down 0:03:03.120 --> 0:03:05.959 in a coordinated fashion back at the time of the 0:03:06.040 --> 0:03:10.600 COVID crisis. So it's really all starting to turn and 0:03:10.680 --> 0:03:12.320 I want to look at this, and I want to 0:03:12.320 --> 0:03:15.840 also look at property unlisted assets on the investment side. 0:03:15.960 --> 0:03:20.400 Unlisted assets are the big mystery at industry funds. They 0:03:20.480 --> 0:03:22.920 have been useful to them, but they also are very 0:03:22.960 --> 0:03:26.240 opaque and it's very hard to get steer on how 0:03:26.320 --> 0:03:29.160 much they have, how much they're worth, except to say 0:03:29.200 --> 0:03:32.400 that in commercial property, certainly there's a lot of problems 0:03:32.400 --> 0:03:34.840 starting to form and SeaBus has had big losses there 0:03:35.280 --> 0:03:37.840 and so have other funds. We'll put it all together, 0:03:38.080 --> 0:03:41.280 I guess today is James Girard of Financial Advisor dot 0:03:41.320 --> 0:03:43.800 com dot au. Hi, James, how are you hy? 0:03:43.880 --> 0:03:45.080 James good? Thanks for having me on. 0:03:45.960 --> 0:03:48.360 Good to have you on. I can't recall if we 0:03:48.600 --> 0:03:52.120 spoke on air about industry funds before, but one of 0:03:52.200 --> 0:03:54.600 the things we've talked about them, but we haven't talked 0:03:54.600 --> 0:03:57.480 about what could go wrong. One of the things I 0:03:57.640 --> 0:04:02.320 noticed that it's very clear in these scandals that are 0:04:02.440 --> 0:04:06.120 breaking almost weekly on the big super funds is that 0:04:06.400 --> 0:04:11.119 they used outsourced services. In the case of Cebus, they've 0:04:11.160 --> 0:04:14.360 tried to turn the blowhort should you like, on link 0:04:14.800 --> 0:04:18.040 market services which they had used. And I think in 0:04:18.160 --> 0:04:20.720 some of the more recent scandals there's been other service 0:04:20.800 --> 0:04:24.960 companies like Mercer has been mentioned in passing here. I 0:04:25.000 --> 0:04:28.400 don't know about you, but I never take I have 0:04:28.600 --> 0:04:31.640 no time for a company who blames the outsourced service 0:04:33.160 --> 0:04:36.280 because they outsourced, right. I don't want to know. I 0:04:36.360 --> 0:04:38.520 don't care. I don't even want to hear that they 0:04:38.640 --> 0:04:41.080 outsourced it. It's their problem. I don't know if that's 0:04:41.120 --> 0:04:45.280 a reasonable response. Do I sound reasonable? It is? 0:04:45.880 --> 0:04:48.000 I agree with you. I don't think it really matters 0:04:48.760 --> 0:04:50.640 how you get to the outcome. That's not that the 0:04:50.680 --> 0:04:54.479 super members concern, whether it's done in house or it's outsourced. 0:04:54.720 --> 0:04:57.520 It should be the timeframe and what happens at the 0:04:57.640 --> 0:05:00.280 end of it, and there should be management there sort 0:05:00.279 --> 0:05:04.200 of ensuring these timeframesmit whether they're in house or they're outsourced, 0:05:04.200 --> 0:05:06.479 and it's funny that link has popped up and said, hey, 0:05:06.600 --> 0:05:08.880 you know we outsource. Well, we do the outsourcing for 0:05:09.000 --> 0:05:11.680 quite a few super funds on the insurance side, and 0:05:11.760 --> 0:05:13.800 there's plenty of other customers that we have. They're all 0:05:13.920 --> 0:05:18.120 meeting their KPIs with regards to processing times. We're just 0:05:18.200 --> 0:05:20.960 following the instructions that you gave us, and so don't 0:05:20.960 --> 0:05:22.240 blame us, go blame yourself. 0:05:23.279 --> 0:05:25.480 Yes, yeah, that's right. So one of the things that 0:05:25.560 --> 0:05:29.000 for listeners, I'm sure many of our listeners have their savings. 0:05:29.800 --> 0:05:33.479 Probably the most important financial dimension of their lives beyond 0:05:33.520 --> 0:05:37.200 their homes if they own their homes, is their super 0:05:37.839 --> 0:05:41.600 and we're seeing in each of these cases that there 0:05:41.640 --> 0:05:44.920 are weaknesses being revealed as super funds, serious weaknesses. Now 0:05:44.960 --> 0:05:47.119 in the case to see Bus in case you've missed it, folks, 0:05:47.160 --> 0:05:50.080 it's worth actually just going through what on earth's going 0:05:50.080 --> 0:05:55.920 on there. They are facing regulatory inquiry by both OPRA, 0:05:56.200 --> 0:06:02.159 the prudential regulator unquestionable expense, questionable expenses. They're also basing 0:06:02.200 --> 0:06:06.440 an acquiry from APRAA on the links and suitability of 0:06:06.600 --> 0:06:10.840 personnel related to their union appointments through CFMU and then 0:06:10.880 --> 0:06:17.839 they're facing a core case from ACIC about delays to payments, 0:06:19.279 --> 0:06:23.440 And as a sort of rational financial person, I will say, okay, 0:06:24.040 --> 0:06:26.760 I don't like any of that, but I look at 0:06:26.800 --> 0:06:29.640 the ten year returns for c BUS and they're fine. 0:06:29.920 --> 0:06:33.320 They're absolutely passable. They're about eight percent, and that's about 0:06:33.360 --> 0:06:36.000 what you'd expect at most of those big funds. So 0:06:36.160 --> 0:06:41.600 the investment formats to date, James hasn't been hit. But 0:06:42.760 --> 0:06:48.760 as an advisor, like, do you are you concerned if 0:06:48.800 --> 0:06:53.120 there's an organization and there's all sorts of problems at 0:06:53.200 --> 0:06:57.560 the back office, are you concerned that could in some 0:06:57.800 --> 0:07:00.960 way or could it interfere with their performance at the 0:07:01.000 --> 0:07:03.160 front office where they're investing? You know, otherwords, could one 0:07:03.200 --> 0:07:04.960 spoil the other? Could one poison the other? 0:07:06.600 --> 0:07:10.720 Look, it's a flag or an indicator. You would suspect 0:07:10.800 --> 0:07:13.120 that the teams are very separate in terms of the 0:07:13.280 --> 0:07:16.920 investment committee and the investment team versus the back office function. 0:07:17.160 --> 0:07:21.080 But they're all governed by the same upper management. And 0:07:21.200 --> 0:07:23.760 so it's a logical conclusion to go, all right, well, 0:07:23.800 --> 0:07:26.760 if this part's not working, is that a systemic issue 0:07:26.800 --> 0:07:29.280 with the superfund overall? Do they not have the right 0:07:29.400 --> 0:07:32.560 management in the board to be able to make these 0:07:32.600 --> 0:07:35.720 decisions across all different departments. And I think it's a 0:07:35.760 --> 0:07:39.560 shame overall, because I like the competition that the industry 0:07:39.560 --> 0:07:42.640 super funds bring, that they hold the retail accounts super 0:07:42.680 --> 0:07:46.760 funds accountable and drive competition in the market, and it's 0:07:46.800 --> 0:07:48.920 a shame to see that these things have come out 0:07:49.000 --> 0:07:51.520 and that their conduct has been that that way, because 0:07:51.600 --> 0:07:53.960 if anything, we want more super funds out there, driving 0:07:54.040 --> 0:07:57.480 down costs and more competition for investors, rather than less 0:07:57.680 --> 0:08:00.720 super funds. But one point I'd make is that industry 0:08:00.800 --> 0:08:02.960 super funds are still a little bit in the bed 0:08:03.080 --> 0:08:05.120 with the union. So when you look at the investment 0:08:05.160 --> 0:08:08.280 committee and the board composition, I'm sort of painting a 0:08:08.320 --> 0:08:10.840 broad brush here, but for several of the major industry 0:08:10.920 --> 0:08:15.640 super funds, their management end directors are comprised of something 0:08:15.720 --> 0:08:19.760 like half of independent directors and half linked to unions, 0:08:20.160 --> 0:08:23.560 and so I sometimes question the I guess the governance 0:08:23.600 --> 0:08:26.640 and the investment expertise that these super funds have given 0:08:26.720 --> 0:08:28.680 that And probably this is too strong to say, but 0:08:28.720 --> 0:08:31.320 it's not like a union junket, but there's definitely union 0:08:31.400 --> 0:08:33.640 influence there and a lot of the major industry super funds, 0:08:33.679 --> 0:08:34.719 which I don't particularly like. 0:08:36.400 --> 0:08:40.800 So what you're bringing up is the credentials, if you like, 0:08:41.720 --> 0:08:45.920 of these people at the top of the funds. And 0:08:46.280 --> 0:08:48.000 I seel what you're saying, because once upon a time 0:08:48.000 --> 0:08:49.679 when there were small funds, when there was a few 0:08:49.720 --> 0:08:53.360 million in them, then maybe perhaps that was to be expected. 0:08:53.440 --> 0:08:57.000 But now we're talking about gigantic organizations like Cebus as 0:08:57.080 --> 0:09:01.360 ninety two billion dollars. Is everyone on the board across 0:09:01.559 --> 0:09:04.800 all aspects of that money? Are they capable of sitting 0:09:04.840 --> 0:09:06.720 on a board? Would they be put on another board 0:09:06.760 --> 0:09:09.000 of another company that was valued at ninety two billion? 0:09:09.040 --> 0:09:11.800 There's a question. I think it does. Puts it on 0:09:11.920 --> 0:09:13.679 the line or right now, I want to What I 0:09:13.720 --> 0:09:15.200 want to do is take short break and we're going 0:09:15.240 --> 0:09:16.880 to come back and we're going to look at what 0:09:18.200 --> 0:09:20.559 if you are facing this situation, if you are in 0:09:20.640 --> 0:09:31.440 these funds, what you should be doing. Hello and welcome 0:09:31.480 --> 0:09:34.319 back to The Australian's Money Puzzled podcast. I'm James Kirby 0:09:34.400 --> 0:09:37.400 talking to James Gerard. Look, I suppose for most people, James, 0:09:37.440 --> 0:09:40.880 they see these stories and they say, gosh, I don't 0:09:40.960 --> 0:09:44.360 like that I see Unisuper. There was a problem with Unisuper. 0:09:44.440 --> 0:09:46.480 If I was in Unisuper, I couldn't actually see my 0:09:46.559 --> 0:09:49.800 super for a while, or at art my payments were 0:09:49.840 --> 0:09:53.440 delayed for one reason or another. At Cebus, I can 0:09:53.600 --> 0:09:56.320 hardly keep up with the number of investigations that's going 0:09:56.360 --> 0:10:00.920 on in this fund. So what does someone do if 0:10:00.920 --> 0:10:02.319 they're in one of those funds? And is it a 0:10:02.400 --> 0:10:04.600 big trouble? Should they switch? And is it a big 0:10:04.640 --> 0:10:05.439 trouble to switch? 0:10:07.200 --> 0:10:10.400 I think it's a case of not overreacting in the 0:10:10.440 --> 0:10:13.360 first instance, and not throwing out the baby with the 0:10:13.440 --> 0:10:16.880 bath water. I think understanding what the issue is with 0:10:17.080 --> 0:10:21.200 your particular super fun So I'd encourage people to read 0:10:21.520 --> 0:10:24.120 James Kirby's articles in the WORL section of The Australian, 0:10:24.160 --> 0:10:26.720 which covers all of these industry super fund issues. 0:10:27.240 --> 0:10:28.880 I wanted to just jump in there about one think, 0:10:28.920 --> 0:10:31.320 which is which I should mention, just to finish off 0:10:31.360 --> 0:10:34.839 on SeaBus, because I didn't quite I didn't quite finish 0:10:34.920 --> 0:10:36.800 off there. One of the things I didn't make that 0:10:36.920 --> 0:10:39.680 point in the weekend was that morning Star, the International 0:10:39.800 --> 0:10:45.679 Rating Agency, was not able to separate the cultural weaknesses. 0:10:45.720 --> 0:10:49.880 If you like in their assessment of SeaBus, and specifically 0:10:50.320 --> 0:10:54.599 when they were moving to downgrade their parent view of 0:10:54.760 --> 0:10:58.319 SeaBus from average to below average, met the point that 0:10:58.440 --> 0:11:02.439 they were uncomfortable with the personnel on the board, specifically 0:11:02.520 --> 0:11:05.959 with the political links. So to that extent, that's a 0:11:06.080 --> 0:11:11.280 financial agency not remotely interested in politics, which found that 0:11:11.360 --> 0:11:15.280 they couldn't separate the two. So, coming full circle back 0:11:15.320 --> 0:11:16.559 to that, I think we have to take it that 0:11:17.120 --> 0:11:18.760 there is a point at which they crossed, and there's 0:11:18.800 --> 0:11:21.400 a point in which one cuts into the other, and 0:11:21.720 --> 0:11:25.520 they're not actually entirely autonomous. So develop what you're saying 0:11:25.520 --> 0:11:29.400 there about how people should assess this. Not will react 0:11:29.480 --> 0:11:32.080 fair enough, but at what point do you act? 0:11:32.360 --> 0:11:35.640 So just finish plugging news I read James in The Australian, 0:11:35.720 --> 0:11:38.559 and then it's about putting it into context, understanding what's 0:11:38.640 --> 0:11:42.160 important for you in your super account and if you 0:11:42.679 --> 0:11:45.880 have had delayed pension payments once in a ten year period, 0:11:45.960 --> 0:11:49.400 you think okay, that's okay. But if there seems to 0:11:49.440 --> 0:11:52.199 be more systemic problems and you have the government regulator 0:11:52.360 --> 0:11:55.040 coming in, you have third party independent research houses coming 0:11:55.080 --> 0:11:57.800 in putting out views, then you start to build a 0:11:57.840 --> 0:12:00.480 bit of a case for well, is it that are 0:12:00.520 --> 0:12:04.960 there alternatives that don't have the same scrutiny in issues 0:12:05.000 --> 0:12:07.280 that are with my current fund, and would my retirement 0:12:07.320 --> 0:12:09.920 savings be better being put elsewhere? And then if you 0:12:10.040 --> 0:12:11.959 make that decision that yes, okay, I prefer to go 0:12:12.040 --> 0:12:15.320 to another fund, then the next step is to understand 0:12:15.800 --> 0:12:18.200 what will that cost you financially to move from one 0:12:18.240 --> 0:12:21.360 super fund to another super fund, And in answering that, 0:12:21.480 --> 0:12:23.679 it really depends on what stage you're in. If you're 0:12:23.720 --> 0:12:26.920 in the accumulation stage, there's potentially a capital gains tax 0:12:26.960 --> 0:12:29.679 will be triggered when you sell down all of the investments. 0:12:29.760 --> 0:12:31.679 But then on the other hand, it may not be 0:12:31.760 --> 0:12:35.959 triggered because most industry super funds are unitized, which continuously 0:12:36.120 --> 0:12:39.439 calculate capital gains tax. So whatever you have as a 0:12:39.520 --> 0:12:43.000 balot showing today, that's inclusive of any capital gains tax 0:12:43.040 --> 0:12:46.240 that's continuously counted. And then it depends also if you 0:12:46.320 --> 0:12:48.520 maybe you're in the pension phase where there's definitely no 0:12:48.720 --> 0:12:52.600 tax implications. The next thing to consider is time out 0:12:52.640 --> 0:12:54.880 of the market. It usually takes one to two weeks 0:12:55.080 --> 0:12:57.480 for the current super fund to sell down your investment 0:12:57.920 --> 0:13:00.160 you're in cash, there's a rollover request with the new 0:13:00.200 --> 0:13:02.640 super account. It will usually take three to five days 0:13:02.679 --> 0:13:05.720 to set up your new super account, so under normal 0:13:05.760 --> 0:13:08.400 commercial timeframes, you might be out of the market from 0:13:08.559 --> 0:13:11.440 one to three weeks, and if that the markets move 0:13:11.559 --> 0:13:14.280 upwards over that period, you've lost out because you're sitting 0:13:14.360 --> 0:13:16.600 in cash. But conversely, it can work out in your 0:13:16.640 --> 0:13:18.679 favor if there's a downturn in the market. So that's 0:13:18.840 --> 0:13:21.280 just a risk which could go for you or against you. 0:13:22.520 --> 0:13:25.679 And there is one other issue, which is you're probably 0:13:25.800 --> 0:13:31.120 insured by your super fund and if you switch, what happens? 0:13:31.360 --> 0:13:31.640 Do you know? 0:13:32.520 --> 0:13:36.040 Yeah, now that it's a great question. And some people 0:13:36.200 --> 0:13:39.920 are unable to get new insurances, so it's of critical 0:13:39.960 --> 0:13:43.520 importance that we keep their current insurances in play. So 0:13:44.120 --> 0:13:47.280 some super funds will have takeover clauses where you can 0:13:48.080 --> 0:13:50.520 port your current insurances over to the new one. But 0:13:51.000 --> 0:13:53.920 if that doesn't work, it's not offered too difficult. You've 0:13:53.920 --> 0:13:56.319 got options. You either look to take out insurance with 0:13:56.559 --> 0:13:59.840 the new super fund. You can take out independent insurance 0:14:00.200 --> 0:14:02.920 where with a retail standalone company and they'll link it 0:14:03.240 --> 0:14:05.959 to super fun then request a payment once a year. 0:14:06.360 --> 0:14:09.520 Or alternatively, you can keep a small residual balance in 0:14:09.640 --> 0:14:12.000 your old super account and you need to contact the 0:14:12.040 --> 0:14:14.360 super fund because every superfund is different, but it's usually 0:14:14.440 --> 0:14:16.959 between five to ten thousand dollars that you need to 0:14:17.040 --> 0:14:19.440 keep as a minimum balance, and you need to keep 0:14:19.480 --> 0:14:22.360 the account active by either signing the form every year 0:14:22.400 --> 0:14:24.520 and a half or putting a contribution in to keep 0:14:24.600 --> 0:14:27.080 the insurance cover active in the old superfund. 0:14:27.800 --> 0:14:30.200 Well, that's interesting. So if you keep the minimum a mountain, 0:14:31.040 --> 0:14:33.360 so you could let's say a person has one hundred thousand, 0:14:34.680 --> 0:14:38.200 they could take out eighty five and leave ten or 0:14:38.240 --> 0:14:42.360 fifteen in there and then that could just tick along, 0:14:42.440 --> 0:14:45.320 but in doing so, the insurance arranginess would tick along. 0:14:45.920 --> 0:14:47.920 And if they switch funds, and can they choose not 0:14:48.040 --> 0:14:49.240 to have insurance with the new. 0:14:49.200 --> 0:14:52.080 Fund again, Yeah, it's part of the application form whether 0:14:52.080 --> 0:14:55.160 you want to opt in or out of the automatic insurances. 0:14:55.880 --> 0:14:59.600 Right. Okay, that's really interesting, so folks, that's really what 0:14:59.720 --> 0:15:02.920 thinking about that issue, and very interesting what James said 0:15:03.080 --> 0:15:05.360 that you can switch. Okay, if you're an accumulation that's 0:15:05.440 --> 0:15:08.440 pre retirement, right, you can switch and most of the 0:15:08.520 --> 0:15:12.120 funds unitize as they go, so actually, for once, capital 0:15:12.200 --> 0:15:14.800 gains isn't an issue. You just slide across from fund 0:15:14.880 --> 0:15:18.080 number one to fund number two. So the issue might 0:15:18.200 --> 0:15:20.720 be the older you are, particularly the more the issue 0:15:20.760 --> 0:15:22.720 of insurance will come up, because as you know, as 0:15:22.760 --> 0:15:25.560 you get older, it costs more to be insured. And 0:15:25.640 --> 0:15:27.960 if you walk in cold off the street, you're going 0:15:28.000 --> 0:15:29.720 to pay a lot more than someone who was in 0:15:29.800 --> 0:15:33.240 an arrangement and industrial relate arrangement if you like, for 0:15:33.400 --> 0:15:35.720 a decade or two decades. So keep that in mind, 0:15:36.240 --> 0:15:37.680 and it's it for everyone. We are not going to 0:15:37.840 --> 0:15:39.880 we are not going to stand here actually and say 0:15:40.000 --> 0:15:42.600 roll over from one fund to another. That's not how 0:15:42.640 --> 0:15:45.320 we operate. But we would ask everyone to consider their 0:15:45.360 --> 0:15:47.480 own situation and whether they think the fund that they're 0:15:47.560 --> 0:15:49.960 in is good enough and it's the same fund that 0:15:50.040 --> 0:15:53.400 they that they considered when they joined. And there are 0:15:53.480 --> 0:15:56.920 people out there already suggesting that people roll over. I 0:15:56.960 --> 0:15:59.240 would always say there's two sides to that. You know, 0:15:59.720 --> 0:16:02.480 there's leaving and then that's where do you go. And 0:16:02.640 --> 0:16:05.920 one of the things that's occurring with these incidents with 0:16:06.000 --> 0:16:09.840 the super funds is that it's like any of these 0:16:09.880 --> 0:16:13.240 stories when the damn bursts, they all come flying through. 0:16:13.360 --> 0:16:15.480 So if you ask me who's in trouble last week, 0:16:15.520 --> 0:16:18.120 I would have said art, Uni, Super and SEEBUS. This 0:16:18.280 --> 0:16:21.320 week I have to add hest to that gang. So 0:16:21.440 --> 0:16:24.720 it's not over yet. We are not quite clear as 0:16:24.760 --> 0:16:26.240 to who the good guys are and who the bad 0:16:26.280 --> 0:16:29.600 guys are. And that's only in terms of their management ability. 0:16:29.640 --> 0:16:32.680 I would call it their non investment management ability. This 0:16:32.880 --> 0:16:35.880 is where the issues are. The performance of the funds 0:16:36.760 --> 0:16:41.240 have run broadly as you would expect them to so far. 0:16:41.840 --> 0:16:44.720 So we haven't seen any fund infectedly beliked by these 0:16:44.840 --> 0:16:48.680 incompetence in other parts of the organization. But there's time 0:16:48.760 --> 0:17:01.480 for that. Okay, we'll take short break back in a minute. Hello, 0:17:01.560 --> 0:17:04.800 welcome back to the Australian's Money Puzzle. I'm James Kirby 0:17:04.840 --> 0:17:07.920 talking to James Gerard. We're talking to our surprise really 0:17:08.119 --> 0:17:11.119 about a lot of the issues that have emerged in 0:17:11.200 --> 0:17:13.560 recent days on the big super funds, and I thought, 0:17:13.640 --> 0:17:16.200 folks that we really should cover that. It would be 0:17:16.280 --> 0:17:19.800 remiss of us not to do so. Part of the 0:17:19.880 --> 0:17:22.760 trouble at the funds, I said that their performance to 0:17:22.920 --> 0:17:25.800 a large degree is are acting as one by that 0:17:25.920 --> 0:17:27.840 I mean, there isn't an awful lot of difference in 0:17:28.000 --> 0:17:30.760 the ten year timeframe if you look at how the 0:17:30.840 --> 0:17:33.320 different big funds are performing. And I'm talking here all 0:17:33.359 --> 0:17:36.720 the time about the industry funds, and they dominate Australian Super, 0:17:36.840 --> 0:17:40.160 c Bus Host Plus, Unisuper. You know that you know them. 0:17:40.359 --> 0:17:42.800 They never stop advertising. I'm sure you're familiar with them. 0:17:43.520 --> 0:17:46.520 One of the things that has occurred though, is that 0:17:47.480 --> 0:17:51.480 on the investment side, the big funds, also the industry funds. 0:17:52.359 --> 0:17:55.000 One of their merits, or certainly one of their advantages, 0:17:55.760 --> 0:17:59.000 had been that they have unlisted assets. That is, they 0:17:59.080 --> 0:18:02.399 have a large way on listed assets, very simply their 0:18:02.480 --> 0:18:04.960 assets that aren't on the share market that you can't 0:18:05.000 --> 0:18:08.000 go and look up and find out about. And part 0:18:08.119 --> 0:18:11.720 of that had been in commercial property. The property that 0:18:12.160 --> 0:18:16.480 operator for the big funds is called ISPT and it 0:18:16.800 --> 0:18:19.800 acts for It acts as an umbrella group for them. 0:18:20.400 --> 0:18:22.920 It acts for Australian Super and SeaBus and UNI Super, 0:18:23.240 --> 0:18:26.119 all those names I've just mentioned. They pooh their money 0:18:26.520 --> 0:18:31.479 and ISPT is their operator in commercial property and they 0:18:31.960 --> 0:18:34.479 released they had a two hundred million dollar loss last year. 0:18:34.520 --> 0:18:37.480 They had a one point five billion dollar loss this year, 0:18:38.480 --> 0:18:42.040 which tells you that the big super funds are exposed 0:18:42.119 --> 0:18:47.159 quite heavily to commercial property and separately SeaBus, who are 0:18:47.640 --> 0:18:50.760 so far the worst of the funds in relation to 0:18:50.960 --> 0:18:56.720 their management issues just now. They have also had a 0:18:56.800 --> 0:19:00.720 negative return in the last financial year. They did twelve 0:19:00.840 --> 0:19:04.640 percent over a decade. That's really dropped and it's top 0:19:04.720 --> 0:19:07.240 twenty two percent you see in the last three years, 0:19:08.040 --> 0:19:10.399 so you can see that they're starting. The unlisted asset 0:19:10.520 --> 0:19:12.639 side of the business for the big super funds are 0:19:12.680 --> 0:19:15.680 starting to become a problem at the worst possible time, 0:19:15.720 --> 0:19:18.320 you might say, James, What. 0:19:18.480 --> 0:19:22.480 I observe over time with these unlisted assets is that 0:19:23.080 --> 0:19:26.760 they're good for a smoothing effect because share markets can. 0:19:27.040 --> 0:19:30.120 Listed share markets sometimes very volatile. They go up a lot, 0:19:30.200 --> 0:19:33.280 they fall a lot, where these unlisted assets just tend 0:19:33.359 --> 0:19:36.600 to chug along. And also the funds who own them 0:19:36.640 --> 0:19:38.920 have the advantage of I guess a bit of valuation 0:19:39.880 --> 0:19:43.159 bias or treatment that it's a little bit difficult to 0:19:43.680 --> 0:19:46.199 value these investments on a daily basis, so sometimes they 0:19:46.240 --> 0:19:49.800 might only be valued half yearly or yearly, which means 0:19:49.840 --> 0:19:53.080 that if you have a short shock to share markets 0:19:53.200 --> 0:19:55.960 like what we saw when COVID hit, and that recovers 0:19:55.960 --> 0:19:59.359 a few months later that whole market downturn has been 0:19:59.400 --> 0:20:03.000 in between saluation cycle of the unlisted asset, and so 0:20:03.240 --> 0:20:05.719 its value has been flat throughout that whole period. 0:20:06.080 --> 0:20:08.720 What stabilizes the ship because it doesn't look as bad 0:20:08.920 --> 0:20:11.720 because they don't have shares that are falling through the floor. 0:20:11.960 --> 0:20:13.879 That's part of what happened that HESTER, really, isn't it. 0:20:13.960 --> 0:20:16.760 That's part of the issue that they had to sooner 0:20:16.840 --> 0:20:20.960 or later sort of adjust their evaluations. But their problem 0:20:21.200 --> 0:20:25.359 was that they did it in stages. This hasn't been 0:20:25.400 --> 0:20:27.520 good enough, and this is the problem they've been hit with. 0:20:29.200 --> 0:20:32.480 That's right. Yeah, it's unfortunate for those HESTER members because 0:20:32.520 --> 0:20:35.280 my understanding from what I saw today was that they 0:20:35.680 --> 0:20:40.119 HESTER had to revalue down and unlisted investment, and they 0:20:40.200 --> 0:20:42.760 did so for part of the investment options that they had, 0:20:42.840 --> 0:20:44.480 and then I think some members saw it and go, oh, 0:20:44.560 --> 0:20:45.840 that went down a lot. I'm going to move over 0:20:45.880 --> 0:20:48.680 to a different investment option, maybe one that hasn't fallen 0:20:48.720 --> 0:20:50.480 by as much. So they switched out of the one 0:20:50.520 --> 0:20:53.520 that had been readjusted to another one which they thought 0:20:53.720 --> 0:20:55.639 was more stable. But it was just turned out that 0:20:55.680 --> 0:20:57.560 one hadn't been adjusted yet, so then that one got 0:20:57.600 --> 0:20:59.959 readjusted a week later, so they've got a double kit. 0:21:01.720 --> 0:21:05.360 Gosh. Yeah, and there is always that thing of arbitrage. 0:21:05.600 --> 0:21:10.240 But that's the problem, isn't it. Because they're unlisted, the customer, 0:21:10.359 --> 0:21:15.119 the investor can't possibly know how much their own portfolio 0:21:15.320 --> 0:21:18.639 is worth. Yeah, and there's a point which they'll never 0:21:18.800 --> 0:21:21.560 know because they're unlisted and they won't know to the 0:21:21.640 --> 0:21:23.480 day they put them for sale. Really, isn't that the 0:21:23.600 --> 0:21:24.280 ultimate test? 0:21:25.400 --> 0:21:27.680 That's the thing. Like these some of these assets are 0:21:27.840 --> 0:21:31.800 very expensive for talking hundreds of millions of dollars type assets. 0:21:31.840 --> 0:21:34.320 There could be toll roads, there could be airports, and yeah, 0:21:34.359 --> 0:21:36.359 these type of assets they don't sell every day, so 0:21:36.440 --> 0:21:40.240 you can have investment specialists and value as give opinions 0:21:40.280 --> 0:21:41.840 as to what they're worth. But as you say, you 0:21:41.880 --> 0:21:44.480 don't really know until you actually sell the assets. So 0:21:44.640 --> 0:21:47.040 you might be creating this false sense of security by 0:21:47.440 --> 0:21:49.280 thinking you have these assets, but when you go to 0:21:49.359 --> 0:21:51.680 liquidate it, there's no one around wanting to pay the 0:21:51.720 --> 0:21:52.800 price that you thought it was worth. 0:21:53.520 --> 0:21:56.639 Yes, So I think maybe to be fair to the funds, 0:21:56.720 --> 0:21:58.879 the big funds and to listeners. The thing about the 0:21:59.000 --> 0:22:02.600 industry funds is they are more dependent on on listed assets. 0:22:03.000 --> 0:22:05.840 I know unlisted assets have their advantages in many ways, 0:22:06.359 --> 0:22:09.600 but beyond a doubt, part of the problem is that 0:22:09.840 --> 0:22:14.560 you can't fully or as easily understand exactly how much 0:22:14.600 --> 0:22:17.440 your portfolio in that fund is worth because they can't 0:22:17.600 --> 0:22:20.880