Superannuation funds have become such an ingrained part of the financial system that the long-term sustainability of the economy should be their top priority, argues First State Super.
Speaking at the Responsible Investment Conference in Melbourne, First State Super chief investment officer Richard Brandweiner discussed the concept of 'universal ownership'.
'Universal owners' are large asset owners who understand that via their portfolios they own a slice of the economy, Mr Brandweiner said.
"A key principle of universal ownership is the recognition by the fiduciaries of the world’s largest institutional funds that they are actually part of the system in which they invest," he said.
"We are no longer in a bubble – there are second and third order ramifications of every investment decision that we make," Mr Brandweiner said.
Funds like First State Super – which has $47 billion in funds under management and 750,000 members – are an "endogenous part of the architecture of the global financial system", he said.
"As a large asset owner we are increasingly owning the whole market. We are pushed towards holding the beta," Mr Brandweiner said.
"The simple fact is that long-term sustainable growth in GDP is actually going to be a much more significant driver of investment returns than anything me or my team can do picking managers or picking stocks," he said.
Even asset allocation decisions are becoming less relevant when compared to the long-term GDP growth, Mr Brandweiner said.
The solution, he said, is to improve the beta by engaging in 'impact investing', that is, making investments that have social benefits as well as good returns.
Funds like First State Super must become more involved in policy decisions, social activism, corporate governance and member engagement, Mr Brandweiner said.
While First State Super has been working on impact investing proposals with the NSW government, there are two major barriers to a wider take-up by institutional investors, he said.
The first is the lack of liquidity that exists in impact investments to date – along with the "unsustainable" increase in the corresponding required rate of return, Mr Brandweiner said.
The second barrier is the "lack of intermediaries that are capable of actually researching, understanding and forming well-thought out, thorough assessments of likely risk-adjusted returns", he said.
However, there is a $54 billion gap between the demand for social services and what the Australian government will be able to deliver over the next 10 years, Mr Brandweiner said.
"Like [RBA governor] Glenn Stevens says, I think it’s time for finance to step up and start doing more good than ill. And I don’t think we have a choice," he said.
Mr Brandweiner sits on the Australian Advisory Board for the International Social Impact Investment Taskforce.