After a five-year dream run by the Australian equity markets, superannuation funds are now in the red.
Following January's market correction, Australia's superannuation funds lost an average of 5 per cent off their investment returns.
As well as the painful negative returns, market volatility has also brought with it corporate failure. Local big names are struggling to pay off debt and offshore United States investment banks have been faced with massive write-downs.
While in good times people are happy to accept the status quo, in bad times it is harder to maintain that faith in the market. Indeed some look to re-examine the way things are done.
Lately the representative trustee model of superannuation funds has come under scrutiny, a topic addressed in this issue's cover story. With superannuation boards governed by an equal representation of employer and employee (union) groups, questions have emerged about whether such board expertise (or lack of) will be enough to navigate funds through tumultuous times.
Superannuation funds don't just rely on their boards for advice, with the larger funds adopting sophisticated in-house investment teams that make them almost financial houses in their own right.
And while their association with unions has given rise to the perception that industry superannuation funds remain captive to ideology, this month's feature on infrastructure dismisses such views.
Despite a push from the Labor government for industry funds to become more actively involved in investing in local infrastructure, all funds we spoke to held the fundamental view that any investment taken by the fund was based on meeting the long-term investment objectives of their members.
Thankfully to date, there have been no fund collapses as mirrored in the corporate sector. And if industry superannuation funds are to be judged on performance, the performance results from SuperRatings certainly prove they have largely succeeded. Of the top 10 performing superannuation funds, nine were industry based.
Superannuation funds have an enormous challenge in front of them.
Navigating through volatile times as well as keeping their members on board will be a tough task. But after 20 years of legislative change and market cycles, it's a challenge they are no doubt well prepared for.
The new team at Investor Weekly also looks forward to a challenging year. Victoria Young joins the magazine from sister publication IFA. Victoria will take on the role of deputy editor. We look forward to working with you in the year ahead. Keep the faith!
