Professor Deborah Ralston

The pre-eminent retirement incomes research organisation, the CSIRO-Monash University Superannuation Cluster, has secured another significant private sector backer with the decision by ANZ Wealth to join its ranks.

ANZ Wealth will join five other organisations as the key supporters of the $9 million research project that brings together academics from four universities, Monash, Warwick, Griffith and Western Australia, as well as the CSIRO, to examine the challenges facing the Australia’s retirement system.

The other five organisations are BT, Cbus, Mercer, Vanguard and Challenger, which, together Treasury, the ATO, the ABS, ASFA, National Seniors and AIST, form the Cluster’s Steering Committee with eminent researcher, Professor Hazel Bateman from the University of NSW. The Australian Centre for Financial Studies (ACFS), which promotes thought leadership in the financial services sector, leads the project for Monash University.

Patrick Clarke, Head of Direct Super and Investments at ANZ Wealth, said it was a privilege to be involved with the CSIRO-Monash University Superannuation Cluster.

“Over the past 18 months the work done by CSIRO and Monash in examining the dynamics and inter-relationships between superannuation and the wider economy, as well as the transition and retirement phase of Australians over 60, has been first class.

“We believe it’s critical that this research continues so that both the public and private sectors can base their decision–making on hard data in the vital area of superannuation.”

Dr Sarah Dods, CSIRO’s Research Director, Digital Economy, Digital Productivity and Services Flagship, said it was a tribute to the research done by the Cluster that such a significant player in the wealth management sector had decided to come on-board.

“We believe the research we have been conducting in areas such as ways to improve the participation of older workers is critical if we are to get the superannuation policy settings right, and for an organisation of the reputation of ANZ Wealth to give its support further endorses the value of our work.”

ACFS Executive Director, Professor Deborah Ralston, said the sheer size of the superannuation pool, at $1.8 trillion, posed important policy issues that the Cluster had been addressing.

“In the past, much of the research focus has been on asset allocation and the accumulation phase. But much less focus has been given to the post retirement phase and Australians over 60; a better retirement system is broader than superannuation, including pensions and private savings.

“What is critically needed for better policy and product development in post-retirement is a research evidence base.

“Funding for better health and welfare, accommodation and transport, they all have a bearing on the quality of the life enjoyed by older Australians and are important issues that demand a policy response, so the fact ANZ Wealth is giving its support to the Cluster is testimony we have the right focus and are adding to the pool of knowledge around retirement incomes policy.”

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Hein Vogel

Fund managers are looking at alternative options to achieve scale in what is becoming an increasingly competitive market.

The merging of fund managers to boost funds under management, such as the recent Access Capital and Challenger deal to form boutique infrastructure manager Whitehelm Capital, is likely to be an increasing industry trend according to Investec Bank (Australia) Limited (Investec).

Whilst international companies continue to look for opportunities to enter the Australian market, domestic players are starting to pro-actively seek out scale opportunities – either by partnering with an “aggregator” or an industry peer.  In addition to advising on the Access Capital transaction, Investec has also been working with an Australian hedge fund to review its strategic options.

Hein Vogel, Executive Director, Corporate Advisory at Investec said following a spate of transactions in the wealth management space, fund managers are now feeling the margin pressure as part of the wealth management value chain and are actively looking at their options.

“The funds management space is moving at a rapid rate and continues to grow off the back of the legislated superannuation system. However, as the industry matures, managers are under increasing pressure to reduce fees to win large mandates, which requires a greater level of funds under management to make sure that the business is sustainable,” Mr Vogel said.

There has also been interest from overseas players looking for opportunities to buy firms as a means of expanding into this market.

“The proliferation of multi-boutique models also means a steady stream of buyers are looking for the right businesses to provide seed capital and support services to.  In the short term, alternative asset classes like infrastructure and fixed income area receiving the most attention.

“Financial services including wealth and asset management is a core area of focus for Investec and we are excited to see activity in the sector including the completion of the merger which has resulted in Whitehelm Capital,” he said.

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Guaranteed Income Fund
The GIF pays a regular income amount during the term and aims to return a $1.00 unit price at maturity. The manager sets the income rate at the issue date of each unit class, and it is fixed for the term. Investors have the choice of several term options, ranging from one to six years. At December 2011, the annual income rates ranged from 4.98% (one year) to 5.89% (five years). GIF is offered by Challenger Managed Investments Ltd., while the fulfillment of financial obligations to investors is subject to the counterparty risk of Challenger Life Company Ltd. 

S&P Fund Services analyst Rodney Lay stated “the value proposition of GIF is ultimately a risk/return equation and, on a relative basis, that profile should be compared with more competitive term deposit rates. In relation to return, we note that on a relative basis GIF income rates have declined materially over the last 18 months or so, to a level we regard as mediocre. GIF income rates are currently as much as 40 basis points below the most competitive term deposit rates. Furthermore, pricing levels set by the issuer over the past 12 months do not provide us with confidence that the one- to five-year options will be priced at a rate above more competitive term deposit rates in the foreseeable future.”

Challenger Guaranteed Annuity 
GA is an annuity that provides a guaranteed regular income for a selected term (1–50 years). The manager sets the income rate at the issue date, and it remains fixed for the term. GA is issued by Challenger Life Company (CLC or the manager) and is offered by Challenger Managed Investments Ltd. (CMIL). 

S&P Fund Services analyst Rodney Lay stated “the value proposition of GA is essentially twofold in our view. Firstly, in its risk/return equation relative to term deposits and, secondly for the terms beyond five years, the ability to mitigate the interest rate roll risk that exists when rolling over a term deposit”. 

However, what dampens our view on GA is the rate of return. While GA compares favourably to other annuities, both over shorter and longer terms, the earnings applicable to the one- to five-year term options are lower than the higher term deposits currently available. Furthermore, term deposits equal to or less than A$250,000 are covered by the Federal Government’s Deposit Guarantee Scheme.

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