- Australian super funds delivered the best financial returns in 34 years
- The biggest driver of the high returns was listed property (33%)
- Meanwhile, ESG superannuation indexes are underperforming
According to research from superannuation consultant Rainmaker Information, Australia’s superannuation funds have delivered their best financial returns in 34 years – with listed property being the biggest driver of the returns.
The Rainmaker Default MySuper Index is set to post 2020-21 Financial Year returns of 18%, after all fees and taxes.
Default and MySuper Returns (past 34 years)
Listed property was the biggest driver of the returns, delivering 33% of the financial year return.
This was followed by Australian and international shares (28%), global infrastructure (20%), unlisted direct property (3.6%), international bonds (0.2%), cash (0%) and Australian bonds (-0.8%).
“These returns mean Australia’s 13.5 million super fund members earned $520 billion in investment earnings in the past 12 months, or almost $39,000 each,” said Alex Dunnin, executive director of research and compliance at Rainmaker Information.
To get a sense of how large these investment earnings are, Dunnin said “this is three times the amount of all the money everyone contributed into their superannuation accounts through the year, six-times the amount of all the compulsory Superannuation Guarantee contributions or 17-times what was paid in fees.”
Despite record super fund returns, ESG performance fell short of previous years.
“Up until February this year, Rainmaker’s ESG superannuation indexes were regularly outperforming the standard indexes by at least 1% p.a. But now the situation has reversed. By 31 May 2021, the Rainmaker Diversified ESG Superannuation Index was tracking 1.6 percentage points behind the standard index over the 12 month period,” said Mr Dunnin.
“As important as ESG is, the primary job of super funds will always be delivering the maximum investment returns they can.”
This statement seemingly echoes the famous Friedman Doctrine.
For those involved in finance or economics, you will likely already know this famous assertion of Nobel Prize-winning economist, Milton Friedman, in his highly influential but controversial article, “The Social Responsibility of Business Is to Increase Its Profits.”
His central point was simple. Corporate executives are employees of the owners of the company. Therefore, those executives should manage a company according to the goals of their owners – which is typically to make as much profit as possible.
However, maximising profit is far from the only goal of shareholders today. So long go the days where the only responsibility of the corporation was to maximise profit (or in this case, for superannuation funds to maximise returns from investments).
So if owners (or in this case, superannuation funds) want to reduce carbon emissions or engage in socially beneficial activities while also balancing these goals with profit (even if these goals sacrifice the maximum profit that can be made), Friedman argued that executive managers should do both and owners should be willing to make that trade.