10 Million+ Australians Have More Than 30% of the Superannuation Invested In Alternatives – June 2018

Can the superior returns of Industry Funds be explained by low fees, superior asset allocation (including large weightings to alternatives), access to the illiquidity premium, taking on more risk or all of the above? Whatever the reasons, we think their large allocation to alternatives is a key point of difference and we have put together a guide to help advisers make sense of alternatives.

Over the past month, we have reviewed the holdings of some of Australia’s largest Industry Super funds using their June 2017 accounts, to understand more about their approach to investing in alternatives, including hedge funds, private equity etc.  The reason we did this analysis, is because we often hear from advisers that only sophisticated investors should hold alternatives, and yet, a typical Hostplus member with an average account balance of ~$24k will hold ~$9k in Alternatives e.g. 37%.  These findings are consistent across all Industry Funds, whose asset allocation is fundamentally different to the standard retail advised portfolios that we review, whilst also being different from most research advised model portfolios.  Some of the reasons for not allocating may be valid (e.g. illiquid assets can’t be held, insurance limitations), but many are not (e.g. cash is my alternative, they are too complicated).

And following on from the Productivity Commissions review into Superannuation, there have been numerous articles in the mainstream press about why Industry Super Funds have continued to outperform retail funds over long periods of time.  Some of the reasons for the outperformance cited in the articles include,

  1. Superior asset allocation, here,
  2. Lower fees, here,
  3. More risk, here (shorter time horizon focus), and
  4. Access to the ‘Illiquidity Premium’ here, and here.
  5. (links to AFR articles require a subscription)

In truth, it is never one attribute that can explain the sustained outperformance, as it is more than likely a combination of factors. But to help advisers start to have conversations about Alternatives with their clients, we have put together a simple infographic to help make them more normal.

To access the guide, click on this link.

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