Australia’s $466 billion industry superannuation fund movement is under threat from a cultural change that risks eroding the very foundations of its success, says Garry Weaven, one of the scheme’s architects.
The movement, which has consistently outperformed its private sector counterparts, faces “a clear threat to the culture that has been associated with the success of the industry funds to date”, Mr Weaven, who is chair of IFM Investors, told the audience at Melbourne University’s Foenander Lecture on Wednesday.
At the heart of this success is “the motivation of the trustees and pioneering executives to put the fund members first; the ‘union spirit’ that was behind its genesis”, Mr Weaven said.
However, with the growth of industry super funds come challenges.
“As the industry has grown, then of course so has the need to attract more resources and more diverse skills,” Mr Weaven said.
“Increasingly, management has passed into the hands of executives sourced from the financial services industry itself.”
As a result, the movement faces the challenge of ensuring “the original motivation and differentiation is maintained and built upon”.
“If not, the form will disappear along with the substance,” Mr Weaven warned, saying industry funds “will also have to build upon their economic relevance by continuing to advance more effective ways to develop and manage the nation’s infrastructure”.
The sector must also “play a responsible leading role on social and environmental aspects of investment, as well as effectively carrying their story to the public and opinion leaders in an often challenging media environment”, he said.
The continuation of union representation on industry fund trustee boards will ensure “a significant portion of the political class will continue to see them as a threat”, Mr Weaven argued.
“So mediocre long-term performance is not a viable option for this new mutual movement.”
The mantra of “all profits to members” will not of itself assure outperformance, Mr Weaven said.
He called on the sector to embrace an ongoing willingness to innovate, to open up more private equity markets, to globalise investment outlooks and to be prepared to take an appropriate degree of short-term risk in pursuit of long-term objectives.
The importance of the industry sector in building Australia’s super system is recognised internationally and has helped grow the system from $40 billion in 1983 to $2.1 trillion now, Mr Weaven said.
It has eclipsed listed equities and gross domestic profit (GDP) in magnitude and not-for-profit funds make up 40 per cent of total super savings.
Read Mr Weaven’s speech in full here:
*Garry Weaven is Chairman of The New Daily, which is owned by industry super funds.