Search results

The purpose of this paper is to measure efficiency of superannuation funds using data envelopment analysis (DEA), using data related to financial performance of superannuation funds. The sample comprises 183 superannuation funds covering approximately 79 per cent of the 231 largest Australian Prudential Regulation Authority (APRA)-regulated funds in 2012. The research covers a period of seven years from 2005 to 2012. The results indicate that most Australian superannuation funds are inefficient relative to the benchmark efficiency frontier based on efficient funds. The findings emphasise the importance of improving the efficiency of Australian superannuation funds by reducing overall fund expenses to narrow the gap in performance between efficient and inefficient funds.

This study aims to contribute to policy, theory and practice in several dimensions. Member protection and the efficiency of the superannuation system are topical issues (Donald, 2009). Despite its importance from a regulatory point of view, efficiency has only been discussed in relation to operational issues such as managing agency relationships, fees and charges, investment return or economies of scale. The relative efficiency of the Australian superannuation system from an economic productivity perspective has rarely been examined, except for a study by Njie (2006), where the Malmquist productivity DEA technique was used to measure the efficiency of Australia’s retirement income system.

Most inefficient funds had very low efficiency scores and were fell into the lower quintiles such as Quintiles 4 (scored 0.200-0.399) and 5 (scored 0.001-0.199). Consequently, input reduction targets were significantly higher for these two quintiles. Similarly, input reduction targets were high under the period DEA estimates. In order to be comparatively efficient, Quintile 4 funds were required to reduce total expenses by 75 per cent (−0.754) and volatility of return by 80 per cent (−0.801). Similarly, Quintile 5 funds needed to reduce total expenses by, on average, 83 per cent (−0.824) and volatility of return by 89 per cent (−0.894).

As in other empirical research, this study also depended heavily on the data collected from the secondary sources such as APRA database and other financial reports. The issues of measurement errors in data sources such as APRA database are well documented (see, e.g. Cummins, 2012). This issue needs the attention of future research on the efficiency of superannuation funds.

The findings on individual year DEA estimates indicate that most funds were inefficient due to high expenses. Therefore, mandatory disclosure of fees and charges in a comparable manner may be necessary to justify fee payments and to address transparency and accountability issues, which are critical issues identified by the Cooper Review and the academic literature (Australian Government, 2014; Cooper et al., 2010; Gallery and Gallery, 2006).

The issue of Australian superannuation funds concentrating the majority of fund assets in highly volatile investment vehicles such as the share markets has been in the spotlight in the aftermath of the global financial crisis. There have been proposals to better diversify superannuation assets in other asset classes (Cooper et al., 2010).

This study contributes to the current literature on superannuation funds by investigating efficiency. As efficiency studies using DEA have not been conducted on the Australian superannuation industry, this study also contributes to the academic literature on DEA and its extensive applications to various economic sectors. Efficiency scores using DEA, ranking, trends and shifts in the efficiency frontiers could be obtained for Australian superannuation funds on an on-going or annual basis.

Property is a key investment asset class that offers considerable benefits in a mixed-asset portfolio. Previous studies have concluded that property allocation should be within the 10-30 per cent range. However, there seems to be wide variation in theory and practice. Historical Australian superannuation data shows that the level of allocation to property asset class in institutional portfolios has remained constant in recent decades, restricted at 10 per cent or lower. This is seen by many in the property profession as a subjective measure and needs further investigation. The purpose of this paper is to compare the performance of the AU$431 billion industry superannuation funds’ strategic balanced portfolio against ten different passive and active investment strategies.

The analysis used 20 years (1995-2015) of quarterly data covering seven benchmark asset classes, namely: Australian equities, international equities, Australian fixed income, international fixed income, property, cash and alternatives. The 11 different asset allocation models are constructed within the modern portfolio theory framework utilising Australian ten-year bonds as the risk free rate. The Sharpe ratio is used as the key risk-adjusted return performance measure.

The ten different asset allocation models perform as well as the industry fund strategic approach. The empirical results show that there is scope to increase the property allocation level from its current 10-23 per cent. Upon excluding unconstrained strategies, the recommended allocation to property for industry funds is 19 per cent (12 per cent direct and 7 per cent listed). This high allocation is backed by improved risk-adjusted return performance.

The constrained optimal, tactical and dynamic models are limited to asset weight, no short selling and turnover parameters. Other institutional constraints that can be added to the portfolio optimisation problem include transaction costs, taxation, liquidity and tracking error constraints.

The 11 different asset allocation models developed to evaluate the property allocation component in industry superannuation funds portfolio will attract fund managers to explore alternative strategies (passive and active) where risk-adjusted returns can be improved, compared to the common strategic approach with increased allocation to property assets.

The research presents a unique perspective of investigating the optimal allocation to property assets within the context of active investment strategies, such as tactical and dynamic models, whereas previous studies have focused mainly on passive investment strategies. The investigation of these models effectively contributes to the transfer of broader finance and investment market theories and practice to the property discipline.

The purpose of this paper is to showcase empirical findings in the literature relating to Australian superannuation fund performance in the pre-reform period, from 2000 to 2014.

The authors synthesize Australian superannuation performance studies in an attempt to identify empirical approaches employed in the academic literature, showcase findings and uncover themes for future research.

The review highlights the following findings in the literature: actively managed “retail” superannuation funds appear to underperform passive index and/or portfolio approaches; high management fees and preference for liquid, less growth-orientated assets may be further undermining performance. It also reveals the need for future research to assess whether the recent government inquiries and the related reformative measures have achieved the desired effect of improving the Australian superannuation system. The authors therefore identify three areas of investigation that will cater for this research need: the fund performance of not-for-profit fund and self-managed super fund; the efficiency of super funds; and the appropriateness of wholesale fund benchmarks.

It is expected that superannuation fund performance will be subject to heightened scrutiny to assess the effectiveness of recent legislative changes resulting from the Stronger Super reform and other public inquiries. This study provides a timely, substantive and informative review of empirical findings pertaining to Australian superannuation performance in the pre-reform period to assist researchers looking to conduct further empirical research on this topic.

To achieve long‐term performance, superannuation balanced funds typically invest in a range of defined asset classes based on a strategic asset allocation approach. In an Australian context, the purpose of this paper is to examine the performance of the balanced investment option against eight different investment strategies and how the property allocation changes with different asset allocation models.

The analysis is based on ex post data covering 17 years (1995 to 2011). The selected passive and active allocation models are set within the modern portfolio theory framework utilising Australian ten year bonds as the risk free rate. The Sharpe ratio is used as the key risk‐adjusted return performance measure.

Property provided the second highest risk adjusted return profile behind the alternative asset class. The different asset allocation models perform as well as the conventional strategic approach and in many instances property allocation is found to be under‐allocated on a return optimisation basis. Depending on the asset allocation model, property when included within a multi‐asset portfolio improves the portfolio risk‐adjusted return profile by 2 per cent to 28 per cent.

For an Australian superannuation balanced fund, the empirical results show that there is scope to increase the property allocation level from current 10 per cent to 23 per cent. This knowledge will be beneficial for funds currently re‐profiling investment portfolios to achieve stable risk‐adjusted returns.

The research contributes to both practical and academic fields, as it offers a methodological approach on how allocation to property assets can be improved using a series of passive and active asset allocation strategies.

In Australia, the A$2.2 trillion managed funds industry including the large pension funds (known locally as superannuation funds) are the dominant institutional property investors. While statistical information on the level of Australian managed fund investments in property assets is widely available, comprehensive practical evidence on property asset allocation decision-making process is underdeveloped. The purpose of this research is to identify Australian fund manager's property asset allocation strategies and decision-making frameworks at strategic level.

The research was undertaken in May-August 2011 using an in-depth semi-structured questionnaire administered by mail. The survey was targeted at 130 leading managed funds and asset consultants within Australia.

The evaluation of the 79 survey respondents indicated that Australian fund manager's property allocation decision-making process is an interactive, sequential and continuous process involving multiple decision-makers (internal and external) complete with feedback loops. It involves a combination of quantitative analysis (mainly mean-variance analysis) and qualitative overlay (mainly judgement, or “gut-feeling”, and experience). In addition, the research provided evidence that the property allocation decision-making process varies depending on the size and type of managed fund.

This research makes important contributions to both practical and academic fields. Information on strategic property allocation models and variables is not widely available, and there is little guiding theory related to the subject. Therefore, the conceptual frameworks developed from the research will help enhance academic theory and understanding in the area of property allocation decision making. Furthermore, the research provides small fund managers and industry practitioners with a platform from which to improve their own property allocation processes.

In contrast to previous property decision-making research in Australia which has mainly focused on strategies at the property fund investment level, this research investigates the institutional property allocation decision-making process from a strategic position involving all major groups in the Australian managed funds industry.

The purpose of this paper is to examine the various segments of the managed funds market to establish if there is any significant difference in the way the assets are allocated into various asset categories and if investors base their investment decisions based on the past performance of the fund.

An average investor who does not possess superior investment knowledge may base their investment decision on the past performance of funds resulting in flow based on past performance. This study uses a panel regression model to test the relationship between net flows and past excess returns.

Significant differences are found in asset allocation between the retail and wholesale segments. Retail investors prefer less risky investments compared to wholesale investors and have lower preference for overseas investments. The results indicate that investors base their investment decisions on the past performance of funds, with the retail segment showing a higher level of influence of past performance, as compared to the wholesale segment. The results further show less evidence of a reaction to risk among the managed investment categories.

Fund managers use fund performance for marketing purposes and results of the study may be of importance to the managers and investors in understanding this objective. The findings are also of significance for policy makers in terms of understanding investor behaviour.

This is the first study of the Australian managed funds industry (including wholesale and retail funds) that tests the link between past performance and fund flows. The study includes data until June 2008, which includes a period when a number of policy changes occurred in Australian superannuation industry.

Environmental, social and governance (ESG) risks have the potential to negatively impact financial returns, yet few superannuation funds integrate these considerations into their investment selection. The Cooper Review (2010) identified a lack of member demand as a key impediment to ESG investing by superannuation funds. Given this problem, the aim of this study is to explore superannuation fund members’ perceptions of ESG investing by their funds in order to identify reasons for the lack of demand.

An on-line survey was developed and distributed to assess possible reasons why members do not select ESG investment options. In total, 549 Australian superannuation fund members responded to the survey.

Results indicate that the majority of superannuation fund members are interested in ESG investing. Members lack awareness of their fund’s approach to ESG investing, and they do not perceive there to be a financial penalty from ESG investing. Finally, members show a preference for consideration of governance issues over both social and environmental issues.

Respondents are well educated and the majority did not choose their superannuation fund. There was no measure of financial literacy included in the research instrument. There is also a general limitation in surveying superannuation fund members when they lack knowledge about superannuation.

The results indicate that superannuation members are interested in both superannuation and ESG investing. Given the low take-up of ESG investment options, this finding raises the question of how effectively funds are engaging their members.

The results should be of interest to superannuation funds and may lead to renewed interest in promoting ESG products.

This is the first study to examine superannuation members’ attitudes and behaviours towards ESG investing in the context of superannuation. The study also adds to our understanding of member decision-making in the $1.8 trillion superannuation industry.

The purpose of this paper is to determine whether self‐managed superannuation fund (SMSF) trustees earn: the equity risk premium or any premium to the riskless rate of interest.

Using a sample of 100 SMSFs, the average annual returns since inception of the funds in the sample are compared with: the average annual equity risk premium since that time and the average yield of Commonwealth Government Securities since that time.

The investigation reveals: the SMSFs in the sample do not earn the equity risk premium and the SMSFs in the sample did not earn a premium to riskless rate of interest. This leads to the conclusion that the SMSFs have borne risk without commensurate reward. Research limitations/implications – The trustees' rationale for making particular investment decisions and the consistency of the portfolio structures with the risk profiles of the trustees are two areas that may be fruitfully explored in future research.

For SMSF trustees, a simple portfolio that divides assets between (unmanaged) index funds and risk‐free securities on the basis of trustees' risk aversion may generate better results than the existing portfolios. For policy makers, the relatively poor performance of SMSFs implies that the superannuation system as currently structured may not be generating returns that will maximize retirement incomes.

The paper provides the first comparison of SMSF returns with the equity risk premium and the riskless rate of interest measured at appropriate horizons.

As the prolonged effect of the COVID-19 pandemic has materially impacted investment returns significantly, it is more crucial than ever for institutional investors to redefine their property portfolios using assets with better investment management potential and meaningful diversification benefits. The “alternative asset revolution” is gaining traction in the property investment space internationally among institutional investors due to the shifting investment attitudes towards the alternative property sectors. Australia's $205bn healthcare property sector is at the forefront of this revolution due to its societal significance, as well as its attractive investment qualities. This paper investigates the institutional investor management of the Australian healthcare property sector via both the direct and listed channels and empirically analyses its investment attributes.

Using the unique Morgan Stanley Capital International/Property Council of Australia quarterly data set for Australian direct healthcare property over 2006–2020, the risk-adjusted performance and portfolio diversification potential direct healthcare property and listed healthcare were assessed. A constrained mean-variance portfolio optimisation framework was used to develop a six-asset portfolio scenario to analyse the portfolio added-value benefits of both direct healthcare property and listed healthcare in a mixed-asset investment strategy. A similar set of analysis was performed using the post-global financial crisis (GFC) quarterly time series of 2009–2020 to investigate the healthcare asset class' performance dynamics in the post-GFC investment timeframe.

The results indicate that direct healthcare property and listed healthcare offer two key advantages for institutional investors in managing their property portfolios: (1) a stable yet superior risk-adjusted performance and (2) significant portfolio diversification potential in managing their property portfolios. Importantly, both direct healthcare property and listed healthcare provided valuable contributions in strengthening an investment portfolio's performance. The post-GFC sub-period analysis revealed a consistent conclusion regarding the healthcare asset class's performance attributes.

This is the first research that provides an independent empirical examination of the strategic importance of Australian healthcare property as a maturing alternative property sector that can serve both investment and environmental, social and governance goals of investors. This research presents a positive investment prognosis for the Australian healthcare property sector to achieve its institutionalised status as a mainstream asset class of the future.

The purpose of this paper is to investigate the property investment decision-making process of Australian unlisted property funds.

Drawing on previous research into property investment decision making by Australian REITs, a normative model of the unlisted property fund investment decision-making process is proposed. Based on exploratory investigation through semi-structured interviews with senior Australian unlisted property fund decision makers, a descriptive model of the property investment decision-making process by Australian unlisted property funds is developed. The normative model and descriptive model are compared and a prescriptive model of the Australian unlisted property fund investment decision-making process proposed.

A four-stage, 20-step process proposed in the normative model was found to be generally supported by the descriptive model developed, potentially comprising a possible prescriptive model for the Australian unlisted property fund investment decision-making process.

Further research is required to investigate risk-return issues, whether the prescriptive model is generalisable across other property investment decision-making groups or over time and whether it may lead to “good” decisions.

The prescriptive model proposed may contribute consistency and transparency to the decision-making process, if adopted by Australian unlisted property funds, potentially leading to better decisions.

Greater consistency and transparency in property investment decision making by Australian unlisted property funds may lead to the optimal allocation of capital and greater investor confidence in the sector.

The findings comprise the first possible prescriptive model of the Australian unlisted property fund investment decision-making process, forming a basis for comparative investigation of that process adopted by other property investment decision-making groups such as Australian REITs and Australian retail property funds.