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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.

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.

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 analyse the emergence of organizational isomorphism in the industry superannuation sector in Australia. The largest not-for-profit private businesses in the country, the industry funds were created in the 1980s in light of a broader union campaign to extend occupational retirement savings provision to all employees in Australia.

The emergence of organizational isomorphism among the industry funds is assessed from the perspective of institutional theory. The study is based on interviews with key players in the establishment of the industry superannuation sector, original archival research as well as contemporary public commentaries and more recent historical assessments.

The tripartite framework of institutional isomorphism established by DiMaggio and Powell is unable to explain the emergence of the widespread organizational isomorphism found in industry superannuation. Using the more recent notion of institutional logics allows a more satisfactory explanation for the convergence in models of retirement-savings provision in the industry superannuation sector.

Organizational isomorphism cannot be described simply in terms of a tripartite framework of professional normativity, state coercion and market-based mimesis. Alternatively governed organizations such as those created by trade unions may develop in a different manner than social enterprises founded by less powerful social actors.

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.

Purpose – The purpose of this chapter is to explore the role and influence of Australian institutional investors in Australian company decision-making and performance; and in particular their role in monitoring companies’ ESG performance.

Approach – The research uses interviews of a range of key executives in Australian companies and other bodies. Interviews were conducted in 2007–2008, 2009, and 2010 totaling 18 in number.

Findings – The data finds that institutional investors priortise engagement rather than exiting the market and this engagement tends to occur through discussion, behind-the-scenes, and covertly. This engagement is primarily focused on governance issues such as succession planning and remuneration, secondly on environmental considerations and thirdly on occupational, health, and safety (O, H, & S). There is evidence of engagement with supply chain issues which signals the importance of social risks becoming more important.

Research implications – From this work further research is highlighted, namely to conduct through qualitative methods a broader survey of the range of Australian institutional investors and companies to investigate the range of factors that investors take into account, their methods of engagement and the effect on company decision-making and ESG performance.

Value – The chapter concludes that the power of institutional investors is recognized and the evidence presented here points to scope for investors through their fund managers and their own actions to be more active and in the future to use their power in a more transparent manner.

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.

The purpose of this paper is to propose an approach to design a national default option to maximize retirement savings in defined contribution superannuation, using a proportionate shareholding approach (PSA) which minimizes total cost of investing for all investors.

Through analytic modelling, the author shows how transaction costs in combination with size effects and agency incentives have limited the ability of professional managers to use arbitrage and active investment to create a price‐efficient market. Statistical models show how investors would experience difficulties in understanding fund performances due to inherent noise in the data. The models suggest financial intermediation has created an information asymmetry which reduces the effectiveness of market competition to lower costs in superannuation.

The authors find that the PSA is a collective optimal strategy and it is also an individual optimal strategy, because of the presence of informational inefficiency. Passive investing does not need commercial indices. PSA is more passive and flexible than standard indexing, and is fully‐scalable and available to all investors.

Professional investment managers have not beaten the market, not because the market is efficient, but because it is inefficient due to a market failure to recognise and resolve principal‐agent conflicts of interest.

The proposed national default option has the potential to substantially increase national savings through low‐cost superannuation.

The paper provides a new rationale for passive investing based on the hypothesis of market inefficiency. It also provides the first formal proof of the “Cost matters theorem.” The proposed idea of a national default option will create a simple, understandable and cost‐effective alternative for all workers and will also provide a performance benchmark to encourage the development of a more competitive and efficient superannuation market.

The recent decline in funding levels of defined benefit pension plans (DBPs) has attracted the attention of regulators in Australia and other jurisdictions. In light of such scrutiny, this study provides timely empirical evidence of the economic and regulatory implications of the recent change in the financial position of DBPs sponsored by Australian listed companies. We identify that over the four‐year period from 2000 to 2003 the frequencies of both accrued benefits deficits and vested benefits deficits increased sharply after 2001. Coinciding with the increased incidence of deficits, the time lag in measuring accrued and vested benefits declined significantly. Controlling for firms taking contribution holidays, we find that the market prices vested benefits surpluses and deficits, and accrued benefits deficits, but not accrued benefits surpluses. This asymmetric treatment of firms’ superannuation funding positions is consistent with accounting conservatism theories and, as a consequence, has implications for recent adoption of IFRS accounting standards requiring Australian companies to recognise both accrued benefits surpluses and deficits.