The purpose of this policy is to document:
- the Board’s investment philosophy, objectives, strategies and policies
- details of operational matters relating to investments, such as delegations of authority and performance measuring and monitoring
ElectricSuper has a mix of defined benefit and accumulation liabilities. The sections of ElectricSuper providing defined benefits are closed to new members, and hence the timeframe over which these benefits will be paid is shortening. Cash flow from contributions are monitored to ensure sufficient funds are available to pay benefits and fund expenses.
It is ultimately the Board’s responsibility to make all decisions relating to the investments of the scheme.
However, for defined benefit liabilities, the investment risk is carried by the employers. Investment returns directly affect the cost of those liabilities to employers. The Board has sought the employers’ views on the investment risk profile for the assets backing the defined benefit liabilities and will seek reaffirmation of employer views every year.
For accumulation liabilities, the investment risk is carried by the member. Investment returns directly affect the value of accumulation benefits. ElectricSuper provides a mix of investment options to allow members to choose the risk profile that best suits their circumstances.
In light of its role as custodian for assets supporting benefits for members, the Board considers it appropriate to take an approach to investing the scheme’s assets aimed at lowering investment volatility while maintaining an exposure to growth assets.
The Board will diversify investments, both across asset classes and managers, within any constraints imposed by the asset size of ElectricSuper.
The Board has no deliberate bias towards any style of investment management but will select managers on their perceived ability to add investment value. Manager configuration is determined within, rather than across, asset classes having regard to:
Determining appropriate concentration limits involves balancing the risk mitigation benefits of limiting single manager exposure whilst still ensuring that positions are still able to have a meaningful impact on returns. The type of investment, asset class and liquidity profile have been considered when setting the single manager concentration limits.
|Listed investments – single product – single manager||15% of total Fund|
|Listed investments – single product – multi manager||40% of total Fund|
|Asset class greater than 20% of total fund assets:|
|– Single manager product||50% of asset class|
|– Multi manager product||100% of asset class|
|Fund of fund hedge funds||5% of total Fund|
|Single manager – multi strategy hedge fund||4% of total Fund|
|Single manager – single strategy hedge fund||2.5% of total Fund|
|Infrastructure fund||10% of total Fund|
|Single manager private equity fund||4% of total Fund|
|Fund of fund private equity fund||5% of total Fund|
|Core unlisted property product||10% of total Fund|
|Non-core unlisted property product||5% of total Fund|
The Board does not intend to invest directly in derivatives. Investment managers employed by ElectricSuper are permitted to use futures, options and other derivative instruments in accordance with their particular Risk Management Statements.
The Board expects that over the longer term the use of these instruments will enhance the returns and/or reduce the risk of ElectricSuper.
The ‘in-house asset’ rule from the SIS Act restricts ‘in-house assets’ (including investments in related parties such as employers) to 5% of scheme assets. ElectricSuper has adopted a limit of 2% of scheme assets for ‘in-house assets’. This rule will be reviewed in any new investments being considered by ElectricSuper.
The Board may invest in funds that use gearing and leverage, where appropriate.
Clause 3(3)(aa) of Division 1 of the Rules allows the Board of ElectricSuper to seek advice from any qualified advisers. The Board has used this power to appoint an asset consultant.
Clause 3(3)(a) of Division 1 of the Rules allows the Board to engage investment managers.
Claus 5 of Division 1 of the Rules allows the Board to delegate powers as it sees fit. The Board has used his power to set up an Investment Sub Committee. The investment committee is delegated to undertake investment matters as authorised in the Investment Committee Charter.
There are currently four investment options:
Each of the investment options will have its own risk and return objectives. The Board will endeavour to maximise returns within the risk profile on each strategy.
The assets backing defined benefit liabilities will be invested in the Balanced Growth option.
Highest volatility, expected higher long term returns. The chance of a negative return: 4-5 negative years in 20 and returns may show large swings in the short term
To achieve investment returns after tax and fees exceeding the increase in the Consumer Price Index (CPI) plus 4% per annum, over rolling 10 year periods.
10 years (or more).
High volatility, medium growth. The chance of a negative return: 3-4 negative years in 20 and may show large swings in the short term.
10 years minimum.
Low volatility, expected stable but low returns. The chance of a negative return: 1 negative year in 20 and returns are not expected to show large swings.
To achieve investment returns after tax fees exceeding the increase in the Consumer Price Index (CPI) plus 1.5% per annum, over rolling 10 year periods.
Very low volatility, lowest rate of growth in long term. Not likely to have a negative return.
Match the return of the Bloomberg AusBond Bank Bill Index before tax and fees over rolling one-year periods.
Specific asset allocations have been developed for each investment option. These have been formed having regard to the risk profile and performance objectives of each option.
|High Growth||Balanced Growth||Conservative Growth||Cash|
Performance of the indexed portfolio for each of the options will be measured using the strategic asset allocations and the following indices:
|Australian shares||S&P/ASX 300 Accumulation Index|
|Overseas shares||MSCI All Country World Index (ex Aust) (partially hedged)|
|Fixed interest||Bloomberg Ausbond Composite Index|
|Property||MSCI Mercer Australian Property Fund Index|
|Cash||Bloomberg AusBond Bank Bill Index|
The review of the investment performance of ElectricSuper is to be considered at three levels.
The performance of ElectricSuper’s active managers will be monitored against their own stated investment objectives.
The Board understands that a fund manager’s relative performance will vary from time to time, depending on how the manager’s style is favoured or disfavoured by the performance of the various investment markets. The Board will regard the investment objectives in this context.
The Board employs independent asset consultants to assist in the formulation of investment strategies, to monitor the investment managers and to keep the Investment Committee and Board appraised of industry developments.
Adopted by the Electricity Industry Superannuation Board on 13 December 2019.
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