Super funds report high take-up of derivatives

By Tim Stewart
 — 1 minute read

A new survey by Milliman has revealed that 79 per cent of superannuation funds are frequently using financial derivatives in their portfolios.

The 2017 Australian Derivative Survey, conducted by risk consultant Milliman, found that 79 per cent of of super funds 'always' or 'often' use derivatives for risk management and hedging purposes.

Over half of super funds (51 per cent) use derivatives for fund manager transitions, and 42 per cent of respondents said they use derivatives for rebalancing portfolios.


Milliman head of fund advisory services Michael Armitage said the survey demonstrated that Australian super funds have a "mature and healthy approach to derivative useage".

Most importantly, Mr Armitage said, the survey uncovered "no signs" that derivatives are being used to take on excessive risk – with 85 per cent of funds stating they 'never' used derivatives to leverage their exposure to assets.

However, the survey also found that many super funds were failing to take advantage of the downside protection offered by derivatives.

"Surprisingly, 69 per cent of MySuper funds and 63 per cent of choice/pension products still don’t use any explicit downside protection strategies despite the global financial crisis exposing the limitations of diversification as a risk management strategy," said Milliman.

"The comprehensive income for retirement products (CIPR) discussions can be expected to bring into focus the need to address the dynamics of pension phase for members."

Mr Armitage added, "Funds utilising downside protection in the pension phase are expressing growing concern with fixed income’s ability to provide diversification benefits given a potentially rising rate environment.

"Others are focused upon managing investor behaviour and smoothing portfolio performance to help members achieve their retirement goals."

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Super funds report high take-up of derivatives
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