The following is the output of transcribing from an audio recording. The transcript has been included to make the video accessible to people who are deaf or hard of hearing. Although all reasonable attempts have been made to ensure accuracy of the transcript, in some cases it may be incomplete or inaccurate due to inaudible passages or transcription errors.

Beth Mohle, Deputy Chair of Australian Retirement Trust - Good evening, and thanks for joining us for Australian Retirement Trust’s Annual Members’ Meeting for the year ended 30 June 2023.  

 

My name is Beth Mohle. I’m the Deputy Chair of Australian Retirement Trust and I’m delighted to be your master of ceremonies for tonight’s event.  

 

In the spirit of reconciliation, I’d like to begin tonight by acknowledging the Traditional Owners across the country.  

- At Australian Retirement Trust, we’re here for all Australians, today, and every day, throughout your working lives and retirement. We acknowledge that we work and live on the lands that have been cared for by Aboriginal and Torres Strait Islander people for over 65,000 years. At Australian Retirement Trust, our communities span far and wide. From Meanjin and Warrane in the East, to Boorloo in the West, to Naarm and Lutruwita in the South, and as far North as Zenadth Kes. 

As we gather today, we acknowledge the Traditional Custodians of these lands and waters and their continuing connection to country and community. We pay our respects to Elders past and present, and to all Aboriginal and Torres Strait Islander people. We recognise the diverse cultures, lores and Elders across Australia. We strive to listen and learn from this legacy to help create a better future for all generations no matter where you are or where you’re from. 

I also pay my respects to Traditional Owners of the lands across our country, in particular the Turrbal and Yuggera people as we meet in Brisbane, or Meanjin, to Elders past and present, and to all First Nations People with us tonight.  

 

For those of you who attended our Annual Members’ Meeting in February and provided feedback, thank you. We have used your responses to streamline and update the agenda for tonight.  

 

We will start with short updates from our Chair, Andrew Fraser, and our Chief Executive Officer, Bernard Reilly, followed by an investment performance and strategy update by our Chief Investment Officer, Ian Patrick.  

 

Then our speakers, along with Elizabeth Hallet, another of our Directors and Chair of the Board’s Audit and Risk Committee, will answer your questions.  

 

If you are joining us on the webcast, we will open the Q&A following the speakers’ updates. You’ll then be able to submit a question for the panel at the bottom of the webpage where you’re watching. If you’re here in the room, at the start of the Q&A, I’ll invite you to line up behind one of the microphone stations if you have a question for the panel. Or you can also submit your question online using the form at the URL on the screen. 

 

We will try to answer as many of your questions as we can tonight. We’ll publish on our website the answers to any submitted questions we haven’t had time to answer. Note that we won’t be able to answer any questions that relate to your personal financial situation or your super account. For those personal account questions, if you are here tonight, you can still speak with our team members in the foyer. You can also call us in the coming days on 13 11 84 if you have a Super Savings account or 1300 360 750 if you have a QSuper account. 

 

As well as our speakers and Liz, we also have our Company Secretary, Kristy Huxtable, on stage. Our other Board directors, members of our Executive Team and our fund actuaries and auditors are also here tonight and available to answer any specific questions during the Q&A. 
 

And finally, before we get underway, I need to let you know that the information we are providing you tonight, and any opinions given by our speakers, is general information. It’s about Australian Retirement Trust as a whole and doesn’t take into account your specific circumstances or financial situation.  

 

I’d now like to introduce Andrew Fraser, Chair of Australian Retirement Trust. 

 

Andrew has been ART’s Chair since October 2023 - 2022 I should say - and was previously Chair of Sunsuper, having originally joined Sunsuper as a Director in 2015. Andrew is also a director of ASFA, BESIX Watpac and Brisbane Broncos Ltd, and President of Motorsport Australia. He is the Chancellor of Griffith University and serves as Chair of Orange Sky Australia, and as a director of two other charities. 

 

Together with the other members of the ART Board, Andrew is responsible for ensuring ART acts to promote members’ best financial interests and is working to ensure that the merger to form ART results in long-term benefits for ART’s members.  

 

Please welcome Andrew. 

 

Andrew Fraser, Chair of Australian Retirement Trust - Good evening. I also begin by acknowledging the First Peoples of this land. I extend that respect to Elders past and present and acknowledge all First Peoples here tonight.  

 

This is our second Annual Members’ Meeting as Australian Retirement Trust.  

 

Our last meeting was about the initial period of time in which two funds joined as one. Now we focus on the next phase our merger - our integration - and what that’s delivering to you, our members.  

 

Taking as our starting point a crystal-clear obligation to benefit members, together we’ve continued to deliver the benefits of size and scale which underpinned the rationale to form Australian Retirement Trust. 

 

Our 2.3 million members trust us to look after their financial interests at all times, and that includes the challenging economic times we’ve experienced in the last financial year. 

 

I’m pleased this year to report a 10% one-year return for our Super Savings Balanced investment option, and 8.4% per annum over the past 10 years to June 2023.  

 

The QSuper Balanced option also achieved a positive return last year - 4% for the year and 7% per annum over the past 10 years to June 2023 - as it continues to meet its longer term targets. As many of you know, the QSuper portfolios were designed to deliver a smoother ride by meeting long-term objectives with considerably less risk than comparable funds. 

 

Now, because of these different approaches, different outcomes in any given year are almost always certain. What matters always is long-term performance; it’s true for investing generally and it’s especially true for superannuation. 

 

Your Chief Investment Officer, Ian Patrick, will share more detail on our performance and the work we’re undertaking to build resilient portfolios and to seek out new investments.   

 

I’ll flag tonight, as Ian will, that we’re working towards aligning portfolios, strategies and approaches. We’ll continue to have a range of different investment options, underpinned by different strategies aimed at suiting your needs, and to your preferences as members. 

 

As we continue to evolve as Australian Retirement Trust, there will be other changes and other enhancements. Your CEO, Bernard Reilly, will talk more about those shortly. This time next year I anticipate reporting to you on changes being made to bring together our investments and our fee structures to ensure that we’re extracting all the efficiencies we can to your direct benefit. 

 

Scale for ART is about achieving economies of scale.  Growth is integral to that commitment, and we’ll continue to focus on growing sustainably through attracting new members and partnering with more Australian employers who choose ART as their super fund.  

 

We’ve already welcomed household names like Woolworths and Endeavour Group, Australia Post, Incitec Pivot, Oracle, The Lottery Corporation and indeed Commonwealth Bank Group Super just recently. Alcoa Super and AvSuper will also join as Australian Retirement Trust members. 

 

As our membership grows, we also continue to use our position as one of Australia’s largest funds to represent and advocate on important policy and regulatory issues that impact superannuation, including how the future of advice - quality advice - can assist members to plan and then live in retirement. 

 

We remain confident in ART’s robust risk management systems and processes and in the overall governance of the Fund. In the past year we’ve made several changes to the Board with new director and advisor appointments. Former Trade and Investment Commissioner Linda Apelt and former Managing Director of the Future Fund Mark Burgess joined as Directors, while Dr Guy Debelle, a former Deputy Governor of the Reserve Bank of Australia, has joined as an advisor to the Australian Retirement Trust Investment Committee. 

 

You may also be aware that in February 2024 your CEO, Bern Reilly, will conclude his tenure at ART. I appreciate Bern’s decision, and I appreciate his efforts on your behalf. 

 

Bern played an integral role in the merger of QSuper and Sunsuper to form ART, and in the critical phase of the integration post merger. 

 

I thank Bern for his leadership and commitment to our members through his tenure and for the legacy that he’ll leave.  

 

Thank you all again for being here tonight, whether in person or online, and I look forward to answering your questions later in the proceedings. 

 

 

Beth Mohle, Deputy Chair of Australian Retirement Trust - Thank you, Andrew. 

 

I’d now like to introduce Bern Reilly, Australian Retirement Trust’s Chief Executive Officer. 

 

Bern joined Sunsuper in October 2019 as CEO and was appointed ART’s CEO from completion of the merger in February 2022. 

 

Bern has more than 30 years’ experience in senior management, executive and strategy roles across the international banking and finance sector. He has spent the majority of his career at State Street Global Advisors in roles based in Australia and Asia. He was also a member of the Board Investment Committee at NSW Treasury Corporation.  

 

Bern has led ART’s team with unwavering commitment to members again this year, and I too would like to thank him for his dedication and considerable efforts. We’ve seen the team deliver a range of achievements that have made a real difference for members’ retirement savings.  

 

Please welcome Bern. 

 

Bernard Reilly, CEO of Australian Retirement Trust - Thanks Beth. Good evening. I add my welcome and thanks for joining us tonight. 

 

In the 2023 financial year, ART’s first full financial year of operations, our focus was continuing to work for you, our members, to progress our merger integration and achieve tangible benefits for you.  

 

Through this integration, we’ve achieved a number of significant milestones this year.  We brought together our investment operations, with the combined ART investment team now working together to invest for all members.  And we continue to progress towards a single technology platform for administering your accounts to deliver efficiencies and make us easier to deal with.  

 

I also announced this year the appointment of Kathy Vincent to a new Executive role - Chief of Retirement - to execute our retirement strategy and lead our retirement and our advice offering.  

 

And we opened the ART Member Centre on the ground floor of our new George Street, Brisbane, headquarters.  

 

Our member services team answered more than 1.1 million of your phone calls and live chats, and close to 20,000 of you visited us at our member centres. At times this high engagement placed pressure on our commitment to be there when you needed us.  Pleasingly, you still rated our service, knowledge and ease of dealing with us highly, though we acknowledge there is more for us to do. 

 

The most important validation for our achievements this year came from you.  

 

From Daryl, who said he and his wife ‘couldn’t believe how quick and easy it was to activate their Income accounts’, noting that Wendy, who helped them at the member centre, was ‘excellent’.  

 

And Andy in our member services team helped ART member Celia understand her insurance cover options and beneficiary nomination. Celia said that ‘having many people in the team like Andy would be great value to our members’.  

 

The year ahead will see us focus on these areas as we continue to integrate our teams and processes and progress new and better ways to deliver for you. 

I also acknowledge and share members’ disappointment with some of the results that we understand have not met your expectations.  

We were pleased to generally report our positive performance this financial year, particularly after a negative year of returns last year, though disappointed that one of our 18 accumulation investment options failed the annual superannuation performance test run by APRA.  

We intend to close that option from the first of July 2024 and believe changes already made to this investment option’s strategy and asset allocation will improve its performance in the interim.  

Those changes are part of a broader review and proposed consolidation of our investment offerings across our Super Savings and QSuper products. 

Driving continued growth as a national fund and seeking out further investment opportunities to maximise members’ retirement savings will also remain priorities.  

And day to day the team will continue to evolve and deliver the products, services, advice and guidance that you need.  

 

As our Chair mentioned, this will be my last Annual Members’ Meeting as Chief Executive Officer, although I may see you at future members’ meetings as I sit in the audience as an ART member.  

 

It has been an honour to lead the ART team over the past four years through Australia’s largest superannuation merger.  

 

And I’m proud of the position ART is now in - entering the next chapter as one of Australia’s leading superannuation funds.  

 

Thank you and I also look forward to answering your questions.  

 

 

Beth Mohle, Deputy Chair of Australian Retirement Trust - Thank you, Bern. 

 

I’d now like to introduce Ian Patrick, Australian Retirement Trust’s Chief Investment Officer.  

 

Ian has decades of experience in the institutional investment industry. Ian joined Sunsuper as Chief Investment Officer in 2015 and was appointed as ART’s Chief Investment Officer from completion of the merger in February 2022. Prior to Sunsuper, Ian held the position of Chief Executive Officer at JANA Investment Advisers.  

 

While economic events continue to raise challenges for financial markets, I can reassure you that Ian and his team have expertly managed your retirement savings again throughout this year.  

 

Please welcome Ian. 

 

 

Ian Patrick, Chief Investment Officer of Australian Retirement Trust - 

 

Thank you, Beth, and good evening, everybody. 

I do value this opportunity to reflect on the past financial year in investment terms with you. And in so doing, I represent the group of excellent investment colleagues I have at Australian Retirement Trust.  

 

And I know I speak on their behalf in saying that we take the trust you place in us stewarding your savings very seriously. 

 

Thank you, at the outset, for those who pre-submitted questions as they have guided me to address particular themes in the course of my comments.  

 

Over the next 20 minutes or so, I plan to reflect on investment markets over the past year and how they’ve impacted on the returns on your savings in ART, but I will also spend some time on what ART has been doing to drive benefits from the strong legacies of both predecessor funds. That is, how we utilise the size of the pools of member savings and the global investment focus of ART to give us the ability to deliver strong and cost-effective investment returns now and into the future. 

 

As has been noted, we last held this member meeting in February, so already part-way through the financial year ending on 30 June 2023. At that meeting I observed that share markets had already demonstrated some recovery from their lows in October 2022 and I expressed some optimism that the small negative return that ART portfolios earned in the 2022 financial year might not be repeated in 2023.  

 

As it turned out, share markets did deliver a robust return over the full financial year. That led to superannuation investors, including ART members, again experiencing positive returns on their savings. That is pleasing at one level, but I do want to immediately recognise that the type of investment option a member like Alex who I met outside was invested in made a difference to the returns they experienced.  

 

I’m going to come back to that shortly, as it is important to give all of you some insight into how your investments are managed. 

 

First, however, I am going to quickly emphasise that for most of you here and online tonight superannuation is a long-term investment. What happens in any given year is part of a longer-run outcome and the investment option you select and the investment strategy we employ for that option both reflect that longer-term thinking. 

A single annual return sits in a longer-term context.  

 

The median return of all superannuation fund options can be used to represent the average outcome in the industry. This chart shows the median return for each financial year. As you can see, the individual years show a reasonably high degree of variability.  

 

For instance, the 2021 financial year saw the second highest 12-month return in the 31-year period shown. In that year, share markets bounced back strongly on the prospect of increased economic activity following COVID.  

 

Then in 2022 there was a sea change in investment markets, with the unusual combination of negative returns from both shares and government and other bonds, which in turn led to negative returns for many superannuation investors. Recall, there were sharp rises in inflation and interest rates from the later stages of 2021 that drove those outcomes, plus external factors like Russia’s invasion of Ukraine and the ensuing energy crisis. 

 

The sharp changes in conditions and sentiment started to normalise in late 2022 and into 2023. In short, economies around the world seemed to be weathering those storms in a reasonably resilient way. Share markets had solid returns, leading to a moderately strong return for typical superannuation portfolios.  

 

To put a little colour around these comments, I’m going to share some high-level and admittedly selective statistics. At the top of the table are selected indicators of economic activity and below that some often-quoted statistics about the world economy.  

 

You can see immediately the impacts of COVID in 2020 and the sharp rebound in 2021. Though, the rebound wasn’t universal; general movement was still restricted at that point, impacting on airport passenger numbers, and new car sales suffered from the breakdown in supply chains that followed COVID.  

 

Note too that inflation shows a post-COVID uptick as people started spending again and supplies of goods and services were still constrained. 

 

Major investment markets reflect this general pattern: a downturn in 2020, followed by a strong rebound in 2021. Note that government and other bond markets have already started to respond to the evidence of higher inflation and the strong possibility of higher interest rates.  

 

Rolling forward into 2022 and 2023, the same indicators and statistics show a consolidating and stabilising economic environment, but with a significantly elevated rate of inflation, especially in 2022.  

 

That 2022 inflation picture is what led to the negative markets across most major asset types; higher actual and expected inflation drove sharply higher interest rates, which in turn brought fears that a recession would follow.  

 

Whilst annual rates of inflation have moderated in 2023, higher levels of interest rates than in recent memory and an ongoing possibility of a global slowdown or shallow recession are still present. That makes it possibly surprising that 2023 share markets were as strong as they were. 

 

Digging slightly deeper, this chart shows the rapid and pronounced uptick in inflation from late 2021 in all major economies, with signs only very recently that rates of inflation are moderating.  

 

Whilst central banks lagged behind the uptick in inflation in terms of raising interest rates across the world, it wasn’t by very long. There is no fundamental surprise that the prior chart and this one look quite similar.  

 

Central banks felt they needed to respond to strongly rising inflation in an equally concerted fashion.  

 

As pointed out on the prior chart, year-on-year rates of inflation have declined somewhat since the end of 2022, but still remain elevated relative to recent history, and there is some economic data indicating those levels could persist for some time. As a consequence, central banks have been in no rush to pull back on official interest rates. 

 

Governments borrow money by issuing bonds to investors. The prevailing interest rate over the term of a bond is referred to as its yield. The chart shows the changes in yields for 10-year government bonds. These longer-term yields reflect expectations of inflation over the term of the bond. Whilst current yields may not appear to be that out of line with longer term history, they have also increased rapidly from their lows in the COVID period.  

 

As yields rise, the value of an existing bond falls in price, leading to the negative returns from bonds that I showed earlier. 

 

Commentators sometimes refer to yields as being high at the moment. As the chart indicates, it is more the case that yields have returned to a more normal level after the generationally low levels through much of the past 10 years. 

 

Because government bonds are loans to the government, they are the types of loan that have the highest chance of being repaid. Higher yields on government bonds generally mean that investors require higher future returns from other assets too. Put another way, if the return from lending my money to the government has gone up, I want to be sure that anything else I invest in has a return premium over that to compensate for any additional risk. As a result, rising interest rates have the effect of depressing the prices of other assets. Why? Because if you want an improved return compared to a year ago, you need to buy your new investment at a cheaper price than a year or two ago, all things being equal. 

 

This phenomenon has contributed to declines in the prices of some other assets, leading to weak returns. A particular case in point has been returns from office property assets. In fact, not only have the returns from property been weighed down by the increase in bond yields but expectations of the success of leasing those properties over time have declined in light of the flexibility of work following COVID. Some cities have been more impacted by this phenomenon than others, but it is fair to say that most office property assets have seen both factors weigh on their value. 

 

To give a sense of how varied the usage effect is across cities, this chart shows the differences in use of offices across various cities in the United States on both the highest attendance day and lowest attendance day. Contrasting two cities, the differences between Houston and San Francisco are quite stark. 

 

Another way to appreciate how different individual city office markets can be is to consider the level of vacancy or the proportion of unrented space. As the second chart shows, the level of vacancy is generally higher in US cities than in Australian cities. 

 

As mentioned earlier, I will talk to the differences in returns between different investment options shortly. What I would like you to remember for the moment is that the type and location of property assets in each of the QSuper or Super Savings portfolios made a difference to returns, with QSuper portfolios having a higher proportion of property assets, and those in the United States. 

 

As a general statement, share market returns were an important part of the total return for superannuation members in the financial year to 30 June 2023. That is because shares make up a meaningful proportion of most superannuation options and they generated good positive returns. Remember the greater than 10% returns from both Australian and international shares over the 12 months to September 2023 from an earlier chart. 

 

The largest share market globally is the US share market. Some of you may be aware that the past 12 months were somewhat unusual in that almost all the return from the US market came from seven large cap, predominantly technology, shares. They have been nicknamed the magnificent seven - Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla.  

 

Clearly, not being invested in these shares or holding a weight lower than the market weight in these shares would have led to lower returns than the market overall.  

 

ART’s portfolios, and especially those of the QSuper options, were in this position, as these shares had expensive valuations relative to others and so were underweighted. 

 

Each investment option has a different mix of the various asset classes. To illustrate the different asset mixes, I’ve highlighted two examples here. While both options have similar naming, the mix of assets of the QSuper Balanced option is quite different to the Super Savings Balanced option. Each of the investment options is well diversified, but the fact that they have different weights to the various different types of assets, particularly shares and fixed income, means that they experience different returns over time. 

 

In addition to having similar naming, the QSuper Balanced option and the Super Savings Balanced option are also the two largest options by member assets and so they are good reference points for discussing member returns. 

 

Share returns for the 12 months to 30 June averaged 15%, whereas returns from fixed income or bonds averaged close to zero. In the longer term, shares are expected to outperform fixed income, but the difference over the 12 months, at 15%, was an outsized one and amplified the differences in returns for investment options holding more shares. This, plus the difference in returns from property assets I mentioned earlier, meant that the Super Savings Balanced option enjoyed a return of 10% for the 12 months to June 23, higher than the industry average for similar options, whereas the QSuper Balanced option achieved a return of 4%. 

 

Whilst the outcomes of the two options over 12 months are important to understand, it is equally important to consider the longer-term outcomes from the options as our Chair mentioned.  

 

This chart is a bit busy, but it shows four different cumulative returns over the period from 2011. The bottom line is the targeted return over the long term, 3.5% over and above Consumer Price Inflation, or CPI. The next line up is the return that was delivered by the average superannuation fund with a similar investment option. The two lines above that are the returns from the Super Savings Balanced option and the QSuper Balanced option respectively. 

 

The points to take away from this chart are that both ART options have performed more strongly than the industry average and well ahead of the long-term target return.  

 

Part of the reason that the QSuper and Super Savings options have quite different mixes of assets is that the QSuper option deliberately sets out to deliver a smoother ride in terms of the variability of returns, and particularly to minimise the size of negative returns when share markets are weak. This is illustrated by the figures to the right of the chart - the standard deviation of returns. This is a measure of the variability of returns through time. And a lower number indicates lower variability. It is immediately apparent that the QSuper option has indeed delivered a smoother ride. 

 

Going back to this chart on the asset mixes, I would like to highlight the diversification that comes from the meaningful allocations to unlisted assets. When you look at the chart, these are shown as Private Equity, Real Estate, Infrastructure and Alternative Assets. Two of ART’s key advantages are that we receive strong inflows each year and that we have a good spread of members across age bands. So, while we have many retirees, we also have many members who have 20 or more years in the workforce before they will draw down on their superannuation savings. We are also a large fund and can buy sizeable portions of unlisted infrastructure and real estate assets. The combination of these factors means we can obtain a return premium for you from holding these assets over the long term. This is a prime example of the benefit of scale and why we expect the substantial size we are as a merged fund will give us advantages into the future. 

 

This slide shows some recent additions to ART’s unlisted asset portfolio and demonstrate the way in which ART has set about diversifying the types of property assets all members are invested in. 

 

BoCo Living is the largest privately owned student accommodation provider in Norway, with 53 properties, and the circumstances in which we acquired this investment and the dynamics of student housing in Norway make it an attractive long-term investment. Being a provider of quality aged care facilities in the UK has strong demographic tailwinds and Elevation Aged Care is a pre-eminent provider in that market.  

 

Lastly, ART’s partnership with Mirvac will result in meaningful investments in state-of-the-art industrial properties in the key logistics hub of Western Sydney and the developing aerotropolis around Sydney’s second major airport. 

 

Before I conclude my remarks in relation to historic returns, I want to pause and share a chart that is a favourite of mine for superannuation members. Using the QSuper Accumulation Balanced option as an example, the chart shows how $10,000 invested at the end of 1999 would have been worth $43,257 at the end of June 2023. That’s despite volatility over time, including three global recessions. The diversification of the asset mix and staying the course on the strategy meant that over the 23.5-year period the return achieved averaged 6.4% per annum and exceeded the average annual inflation rate of 2.8% by over 3.5%.  

 

In other words, the long-term gains in purchasing power were substantial even though markets moved around in the short term. My point is that staying the course pays off, and that the speed of both negative and positive returns can sometimes catch off-balance any saver who tries to time their entry and exit, leaving that person worse off. 

 

I want to turn now to issues that are important to navigating the investment journey in front of us. There are two parts to my comments: firstly, around positioning our expertise and resources well for the future investment challenges; and, secondly, delivering stronger outcomes as a result of the merger to form ART. 

 

I talked in February about the work we have been doing in the area of Sustainable Investment. Sustainable Investment is more generally known as the integration of Environmental, Social and Governance factors - or ESG factors in short - into the way we go about investing alongside other traditional financial factors.  

 

ESG factors present key long-term risks and opportunities in our portfolios and so they have been a key part of our investment approach for some time. 

 

Climate change continues to be about the most topical issue in relation to ESG. As part of ESG integration, ART formally adopted the target of having a Net Zero greenhouse gas emissions investment portfolio by 2050 at the date of the merger, confirming the targets of both predecessor funds.  

 

Over the course of this calendar year, we have done substantial work on refining what we call our Net Zero 2050 Roadmap. The roadmap sets out for you, our members, as well as our other stakeholders, how we currently plan to transition towards that 2050 target. 

 

The roadmap includes an emission intensity reduction target for 2030 for the listed equities, infrastructure and real estate asset classes, as it is important to have clear commitments for milestones and specific actions in the portfolio to put us on the planned pathway towards a net-zero greenhouse gas emissions investment portfolio by 2050.  

 

This interim target is supported by additional targets to seek to ensure the portfolio target does not simply reduce emissions within the investment portfolio but also supports real-world emissions reductions consistent with the target. You can read all about the Net Zero 2050 Roadmap on the website. 

 

 

It is clearly important for ART to focus on climate change, given the long-term potential impacts on our portfolios, both positive and negative. This importance is reflected in developments more generally, too, as regulators have become more specific about obligations in relation to climate change, including the information that will need to be disclosed by companies and entities like ART. 

 

You can read more about our overall work on Sustainable Investment in our FY23 Sustainable Investment Report. 

 

As we have melded the two investment teams together we have been able to use our combined capabilities to full effect for all portfolios. One measure of that benefit is savings on investment fees and other improvements to returns for members. So far we estimate that to be of the order of $50 million, ahead of our expectations at merger. 

 

In addition to understanding historic returns I realise that many of you are likely interested in the outlook for investment markets. It’s always challenging to offer clear views on future market returns as they are inherently uncertain. In addition, short-term forecasts are prone to swings of market sentiment and are definitely not something we rely on for setting long-term investment strategy.  

 

Nevertheless, I will leave you with some observations that resonate with our team. 

I also note that the core of these comments are generally prepared in advance and circumstances can change quickly. 

 

There is no doubt that at this very point in time geopolitical uncertainties have the potential to influence market direction. The ongoing war in Ukraine, generational highs in tensions across the Middle East and the long-run dynamics of US/China relations all weigh on markets to varying degrees.  

 

Furthermore, China, the world’s second largest economy, is dealing with a series of economic challenges that will inevitably have broader global impacts, including here in Australia. 

 

There have been recent encouraging signs of moderating inflation and some signs that employment markets are not running as hot as they were earlier in the year. Nevertheless, until there is firm evidence of these initial indications being sustained, markets are likely to remain wary of inflation remaining stubbornly above target levels, potentially driving further rises in interest rates. 

 

Given interest rates rose fast and by significant amounts there is a risk of a significant downturn or recession in the global economy. For that reason, investors will likely remain cautious and this will mean that volatility remains high in share markets and other markets, like long-term bonds and commodities. 

It seems reasonable to us that most of the interest rate increases that the world’s central banks, including our own RBA, need to effect in the current cycle have been implemented, but we possibly haven’t seen the last of those increases just yet. Even if rates don’t increase further, it is certainly unclear how long interest rates will remain at these levels. 

 

One reason that economies have been so resilient in the face of interest rate rises is that consumers and businesses had built up significant excess savings during the COVID period and have been able to spend down those savings since. In other words, they could use savings to fund spending rather than having to borrow money at higher interest rates. As this chart for US household savings indicates, that tailwind is now behind us. 

 

Perhaps central banks will be able to engineer a so-called ‘soft landing’ for economies as opposed to a more prolonged recession. For the most part, the kinds of signals seen ahead of a prolonged recession are not firmly in evidence. Unemployment, in particular, remains very low for now. 

 

Unlisted assets are still attractive on a risk-adjusted basis. Their values were not bid up in price as aggressively as shares in the period up to 2021 and they have other characteristics that make them desirable in a diversified portfolio, so we still find them attractive to add to your portfolios on a selective basis and we can use our comparative advantages of size and leading global partnerships to execute that well. 

 

Lastly, there are numerous significant multiyear transitions in the world - so-called ‘near-shoring’ of supply chains, climate action and addressing an ageing population in the developed world are just three examples. These will require substantial levels of investment and thoughtful, well-resourced investors will be able to take advantage of those opportunities but equally importantly price the accompanying risks appropriately. 

 

As I wrap my comments, I hope you will take away some of the following: firstly, short-term volatility of returns can be concerning, but this volatility is typically part of a cycle of changes in economic fundamentals and geopolitical events that influence the sentiment of investors, particularly whether they embrace or shun risk.  

 

Inevitably the periods when investors are most fearful are followed by periods when most investors are optimistic. 

 

As one investor I respect said, the real world is generally something between pretty good and not so hot, whereas investment markets fluctuate between thinking flawless or hopeless. 

Long-term patterns of returns support holding the course if you have the time horizon to do so.  Financial advice is particularly beneficial to ensure your investment strategy is aligned to your circumstances and risk preferences. 

A further point is that diversified portfolios like those ART invests in on your behalf are one way to moderate volatility over time and protect your savings against the extremes of different investment types.  

 

As a general statement, long-term returns from ART portfolios have been strong, irrespective of whether the portfolio has been designed to protect against downside surprises or designed to participate in share market strength. 

Additionally, ART has the capacity to invest widely and successfully on your behalf in unlisted assets, and those investments should ultimately benefit both the return and risk characteristics of your savings. 

As I said at the start, the ART team takes the trust you place in us stewarding your savings very seriously. I’m proud to say that they have again executed that task well this year. We retain conviction about our longer-term positioning and believe that by remaining vigilant and positioning for opportunities with solid fundamentals we will be able to capture the returns ahead. 

 

Thank you very much. 

 

Beth Mohle, Deputy Chair of Australian Retirement Trust - Thank you, Ian, and thank you again to Andrew and Bern. 

 

Now for your questions. To those members who are not staying for the Q&A thanks for joining us. Thank you in advance to those of you who are taking the time to ask us a question tonight either in person or online.  

 

Thank you also to those of you who submitted questions prior to tonight, most of which we’ve actually already answered directly.  

 

As I mentioned earlier, our panel tonight includes the speakers you’ve just heard from, as well as Elizabeth Hallett, Director and Chair of the Board’s Audit and Risk Committee. 

 

Liz is an experienced non-executive director and chair of audit and risk committees in the financial services, infrastructure and regulated sectors. Liz was a director of Sunsuper since 2014 and remained a director when Sunsuper merged with QSuper to become ART. Liz brings deep legal, regulatory, corporate governance and risk management skills to the Board.   

 

As I also mentioned, we have some others here tonight to answer questions if needed, including our fund auditors and actuaries.  

 

If you are joining us on the webcast, you can now submit a question for the panel using the link at the top of the webpage where you’re watching. Please know that you will need to refresh your browser to see the ‘submit a question’ link. If you’re here in the room you are now welcome to line up behind one of the microphone stations. Or you can also submit your questions online using the form at the URL on the screen.  

 

We will try to answer as many of your questions as we can tonight, and the panel will answer questions from here in the room, submitted online tonight, and submitted prior to tonight that we haven’t already answered directly. Given the time we have, we also ask that you please consider whether the content we’ve presented tonight and the answers we provide to others answer your questions, as we know there are similar themes in the issues members are most interested in.  

 

We also ask that those in the room please ask just one question of the panel and try to keep your question short and direct so we can give as many members as possible the opportunity to have their question answered.  

 

We’ll aim to conclude tonight’s meeting by 7pm Brisbane time.   

 

A reminder that we’ll publish on our website the answers to any questions submitted that we haven’t had time to answer. 

 

And remember we won’t be able to answer any questions that relate to your personal financial situation or your super account.  

 

For those personal account questions, if you’re here tonight you can still speak to our team in the foyer. You can also call us.   

 

So we might kick off with some questions that have been submitted online.   

 

The first one is from member Don, and it’s directed to Andrew, who’s concerned that the time the merger is taking in order to generate the promised benefits to members clearly demonstrated in significantly different performance outcomes for QSuper Balanced fund and Savings Savings holders. Andrew. 

 

Andrew Fraser, Chair of Australian Retirement Trust - Thanks for the question. I’m happy to address all of the elements of that question.  

 

The first thing to say is that when we undertook the merger of Australian Retirement Trust through merging QSuper and Sunsuper we put in place a decision to reduce fees across the general membership of both Sunsuper and QSuper up front.  So we didn’t propose to put a merger in place and then tell people that the benefit comes down the track.  

 

We put the fee reduction in place and that applied from 1 July straight after the merger took place.   

 

So already that’s a benefit that’s gone to members across the general membership of both Sunsuper and QSuper in the past.   

 

The other thing that we’ve done is to invest in the sort of products and services that we offer and in other tangible things.   

 

For many people in the room perhaps - there’s about 300 people in the room here in Brisbane; there’s around 700 people joining us online, I got a message to say - many people here in Brisbane often turn up to the Member Service Centre.  It’s important to see someone face to face.  You will have seen the new Member Service Centre we’ve opened in George Street.   

 

But to go to the question about what does it mean for performance, I need to make this point. And that is, if you look at any superannuation fund and at the different products offered there are going to be different outcomes for different products.  A conservative option is going to have a different return profile to an aggressive or a growth option, for instance.  

 

And as Ian pointed out and I touched on earlier, the way the QSuper options have been invested over time aims to do a different thing to the way the Super Savings products have been constructed over time.   

 

So almost invariably you’re going to get different outcomes in different years.  And because QSuper in general terms seeks to take less risk for that smoother ride, if you look at the timeframe around COVID when there was a recession, then the QSuper options outperformed the Super Savings option.  What matters more is not the number today but what matters over the longer term.   

 

Now having said all of that, let me make this point. As I flagged, we’re looking to capture the benefit of the merger by merging together and streamlining into one investment product menu. Our aim is to do that by 1 July next year. Now I need to say there will still be two My Super options.  So, they will be different.  

 

But from 1 July next year our intent is to have one investment menu.  So, you can look across all of the different options offered today from the Super Savings side and from the QSuper side and choose to be in the option that best suits your needs.  And when we do that, that allows us to capture the true benefit of the merger, which comes from the scale of our investment portfolio and the way that we invest.  

 

One quick aside, just as a data point, one of the things that we do in superannuation funds is have a custodian, who plays an important role in asset management inside the fund. We  had two of those. QSuper had a custodian. Sunsuper had a custodian.  We went to the market to tender that during the course of the last financial year.  We got an excellent outcome, one that was better than we anticipated.  We now have one custodian at a better price than we achieved with two. I just use that as one example because as we go through the integration, where we had two of some things and we only need one in the future we’re going to get the benefit of that size and scale, and you’ll continue to see that as members. 

 

Beth Mohle, Deputy Chair of Australian Retirement Trust - A question from Rich for Ian, from online: do you invest in cryptocurrencies? If not why? 

 

Ian Patrick, Chief Investment Officer of Australian Retirement Trust - Thank you, Rich, for the question.  I’ll start by distinguishing the cryptocurrency or the coin or the token from the underlying technology, which is commonly referred to as blockchain. We don’t invest in the coins or the tokens. And the simple reason for that is they are somewhat if not totally speculative. They do not deliver an income.  There’s very little fundamental basis on which to assess what constitutes value in those assets. And we invest as a fiduciary on your behalf and it’s important when we do due diligence to understand the income flows or other nature of value inherent in those coins. And when we can’t with crypto, we’re not going to invest.  

 

Having said that, the underlying technology of blockchain is interesting and has already shown significant potential to transform a range of investment in other processes. And certainly within our private equity portfolio we have companies that do make use of the technology to develop applications. So, no to the coins; yes to the underlying technology. 

 

Beth Mohle, Deputy Chair of Australian Retirement Trust - We’ll now take two questions from the floor, starting from my left.  The gentleman at the speaker here. 

 

Member - Thank you. Perhaps a question for Ian and Elizabeth. Whenever I turn on the TV over the last couple of years, cybersecurity seems to be the topic of the day. As our former PM of 30 years ago said when there was another popular topic, go into the local pet shop and you’ll find every parrot talking about this. Most institutions I deal with, on any financial basis that I deal with online, have two-factor authentication.  Yet over the last two years, I’ve three times used your online system to ask when QSuper is going to implement two-factor authentication. And each time I’m told, ‘Oh, we’re looking into it.  Don’t you worry about that, sonny.’ The question really is: what has two years’ worth of looking into it produced?  What assurance can you give me that our funds, particularly my funds, aren’t going to disappear into the pockets of some hacker in Rwanda, or Nigeria or somewhere in Russia? 

 

 

Bernard Reilly, CEO of Australian Retirement Trust - Thank you for your question. As a merged organisation we’ve only been together for just over 18 months. So I can’t comment about two years ago.  But what I can tell you around multifactor is, as we bring together - as Andrew mentioned earlier, we have two of everything. We’re bringing two systems together into one. And as we bring those together, we’ll be able to implement multifactor authentication. So it’s something that is in process for us as an organisation.  But when we think about it from a security perspective, cyber is something that the board - which I know Liz will touch on in a second - spends a lot of time focused on this, as does the executive team.  Because it is members’ money at stake. There are also the investments we make on behalf of the fund as well that have that potential risk as well. 

 

Elizabeth Hallet, Chair of Audit and Risk Committee for Australian Retirement Trust - Protecting members’ data and funds is really, really important to us. And cybersecurity is one of the most significant responsibilities we have as a board and  I know I speak on behalf of my fellow board members and the Chair when I say we take this really, really seriously.  Cybersecurity is a really challenging topic, because every organisation is subject to the risk, and we are working really hard to mitigate that risk and make the organisation as safe as we can to protect your data and your funds.  

 

I’m a member as well so my funds are at the same risk as your funds.  We are working on multifactor authentication, as Bern mentioned.  We have it in place for our internal systems. And we are in the process of installing it for our members.  I can’t give you a definite timeline.  But I’m sure by the time we meet again at the next meeting we will have some really significant progress in relation to that.   

 

I think it’s also important that APRA, our regulator, with whom we meet regularly, APRA is also very keen to see us install multifactor authentication as quickly as we can, but they also want us to do it effectively. They understand the challenges we have putting the two platforms together.  So hopefully we’ll have a better update on MFA when we meet next year.   

 

In the meantime, there are a lot of steps that we take internally to protect our data. It’s our data, and our funds, my funds and your funds. I can go through those, but the work that we’re doing is benchmarked to other organisations around Australia. Many of us around the board table sit on other boards, including Commonwealth government statutory authorities, which have the highest level of security. And until we install MFA we’re able to benchmark the other work we do to give the best security that we can.   

 

I know it’s not a perfect answer. Unfortunately, with cybersecurity there will never be a perfect answer because no matter what we do the baddies, if I can use that technical term, will do more. But we are very, very mindful of our obligations to protect our data, your data, my data and our funds. Thanks. I look forward to seeing you again next year and I’m very confident we will have much further progress to discuss with you. 

 

Member - Tonight you’ve been discussing information about investment.  My question relates to expenditure.  And in particular some of the items that are listed on your additional financial disclosures document. I just wonder, firstly, who decides all of the donations and how much money you’re going to give to these organisations and why would some of the donations that you have made not appear on that additional financial disclosure document? 

 

Andrew Fraser, Chair of Australian Retirement Trust - I’m not sure that we have made donations. I’m not sure what information you’re referring to there.  But we do have arrangements where there are sponsorships with commercial entities and other entities. But if you believe there’s something that should be there I’m happy to hear it. 

 

Member - Well, for example, the Reconciliation Action Plan - I understand $62,914 was given to deliver that program. I just wonder who decided that that money should be donated to that organisation. 

 

Andrew Fraser, Chair of Australian Retirement Trust - Sure, and that’s not a donation.  That’s a payment for a service to do that planning work with the team. And that’s something which, for the 3,000-odd people who work for the fund, it’s important for us as a large employer to reflect the values of all of the people who work for us. And that work was done as a payment of service for an actual delivery of a plan, it’s not a donation. 

 

Member - Why should that not appear in the financial disclosure statement? 

 

Andrew Fraser, Chair of Australian Retirement Trust - It’s not a donation and it’s not marketing or sponsorship. All of those payments that are in the disclosure are there to meet the law, and we’ve complied with the law.  That’s why you can see them all there. 

 

Member - How can people like myself know what sort of organisations like this are being sponsored or whatever term you’d like to use for it? 

 

Andrew Fraser, Chair of Australian Retirement Trust - Well, It’s not a sponsorship and it’s not a donation. 

 

Member - I’m having trouble working out the difference, but that’s all right, thank you.  

 

Beth Mohle, Deputy Chair of Australian Retirement Trust - Bern or Liz, did you want to add anything to that? 

 

Bernard Reilly, CEO of Australian Retirement Trust - The one part I’ll add is when we’re making any expenditure for the fund, so the executive team is making any expenditure for the fund, we are very focused on our members’ best interests, our members’ best financial interests.  As Andrew mentioned, the example you raised is around a service provided for the organisation.  So it’s not in that case a donation at all. But we’re very focused on every dollar spend, because we know where it comes from.  It comes from members. 

 

Beth Mohle, Deputy Chair of Australian Retirement Trust - We have a couple of questions from online.  One from Greg to Bern: why was the new self-invest option closed? 

 

Bernard Reilly, CEO of Australian Retirement Trust - Greg, good evening. Thanks for your question. Some members might not be aware what the Self Invest option is.  It’s an option to be able to invest in a variety of different stocks or different funds. When we’re looking to bring the two investment menus together - as Andrew mentioned earlier tonight - we’ve looked at how are we best to do that and what’s the most efficient way for us to do that and what options are our members using.  

 

In the case of the Self Invest option, we had a very small number of members using it and that costs members money for us to be able to offer that option on an ongoing basis. So we’ve made the decision to close that option to new members. Those members who are invested in that option will stay invested in that option, we’re not taking that away from them. But we’re closing that investment option to new members. As we consolidate that investment option, as Andrew mentioned, our aim or our intent is to be able to offer the combined investment menu from 1 July next year. 

 

Beth Mohle, Deputy Chair of Australian Retirement Trust - Another question to Bern from Rhonda, Gary and David: Why fund Riverfire? 

 

Bernard Reilly, CEO of Australian Retirement Trust - Rhonda, Gary and David, thank you for your question. For those online who aren’t from Queensland, you may first wonder what Riverfire is. So let me give you firstly a little bit of context. Riverfire is an event that’s part of the Brisbane Festival. So it’s a community event. In this case we actually provide sponsorship for that, and the heritage organisations have done for a number of years.  But why do we do that? 

 

Sponsorship or marketing is a way for us to continue to get the name for the fund out there. It’s very important for us to get the name of the fund out in the broader marketplace. It’s a competitive landscape, superannuation, and we want to continue to grow the fund.   

 

For us to be able to offer the scale and benefits and continue to offer those scale and benefits to all our members, growth is very important for us. So focusing on that is important.  But in doing that, we don’t just go and sponsor anything. When someone comes and asks us, we don’t just go and sponsor anything. We have a really clear process as an organisation and criteria around how we look at any opportunity that comes to us. So again, it’s governed for us by members’ best financial interests. It needs to be in your interests - I’m a member as well; in my interests - for us to sponsor an event like Riverfire.   

 

So, when we look at that event and we get that exposure - and when we’ve looked at it in the past, we get two times the amount of exposure through media coverage for us, for what we pay. So, two times the amount of what we pay we get in exposure. That’s probably understandable when you think about Riverfire. I wasn’t there this year, but I know there were around 500,000 who watched the event on the Brisbane River. And it is also broadcast on Channel Nine. And the ART name gets out there.  When you think about our organisation, we have heritage of many, many years for both organisations; ART in and of itself is a reasonably new organisation, less than two years old. So getting the name out there in particular at this stage is very important. 

 

Andrew Fraser, Chair of Australian Retirement Trust - Can I add one further point to that. For those who may not be aware but for those in the room, many of you will be, Riverfire is a free public event. When I have gone to Riverfire in the past over many years - not every year, but probably more than I can count - you’ll see huge amounts of young families populating the riverside to witness the fireworks. And the name Australian Retirement Trust is out there for their consideration. So, we operate in a place, in a market, where you can choose to be a member of Australian Retirement Trust or you can choose not to be. And so for us to be able to market our name is important, and one of the line items in the disclosure - you can see what it costs to fund Riverfire. And I just put it in this context: the cost per member per year is 20c. 

 

Beth Mohle, Deputy Chair of Australian Retirement Trust - Thanks, Andrew.  We’ll have two questions from the floor now.  The lady in the pink jacket. 

 

Member - It’s Wendy here.  I wish to speak to the whole board.  Your prime task is to act as stewards to our life savings, to invest for growth with security.  Since amalgamation, fees have increased and returns have diminished, for me at least. Since amalgamation, your remuneration should be in line with ours. We’re living off the super. It’s not. The board should have compensation reduced by the amount that our returns are reduced.  

 

And as for the Riverfire - if you’re going to be environmentally zero by 2050, lose Riverfire. It is an absolute environmental disaster. 

 

Andrew Fraser, Chair of Australian Retirement Trust - Thanks for your viewpoint.  On the first point around returns and fees, as I pointed out earlier, we reduced admin fees for the membership across the general Sunsuper and QSuper membership and put that in place from 1 July straight after the merger.  That was a clear thing we did to demonstrate the benefit to members.   

 

I acknowledge that returns have been different since the merger has taken place.  But you might recall Ian’s first slide, which pointed out that in the year of the merger the average fund lost 3.4 per cent, and funds like Australian Super and Aware had negative returns in that same year. And so, I just put this case to you that Australian Super, well regarded as a good performing fund over a long period of time, and Aware both had negative returns. They weren’t doing a merger like us. And so to ascribe the negative returns to the merger I think is to ascribe what’s happening in markets to a circumstance that’s different.  And so I do very much appreciate the point that when there are negative returns it’s a challenge. And there are negative returns in some years. What we try to do is deliver positive returns in many more years than the negative outcomes so that over the long run members are better off.  That’s what we aim to do.   

 

To your point about the board, I would just make this point. The board hasn’t increased its remuneration since the merger has taken place. And the two constituent funds had 18 directors collectively; the new board has 13. We’ve reduced the number of directors on the board. 

 

Member - My question is to Ian.  Ian, thanks for your presentation.  It was very clear and very comprehensive. What I raise is a small thing but bigger than Riverfire. It concerns the $150 million we’ve given to the State Government QIC for the purposes of building social housing using the not-for-profit, I believe Brisbane Housing Company.  I think that was announced some 18 months ago. And it was up to $150 million I believe was the decision, that we would put some of our funds into social housing using that mechanism.  Normally I understand Brisbane Housing Corporation, a very well run, very admirable organisation - it normally simply gets its funds directly from the state government or through from the Commonwealth. I would imagine at the moment it’s receiving a fair bit from the Commonwealth. The situation now compared with 18 months ago is very different for social housing funding.   

 

Anyway, this is a one-off I think or at least an unusual thing - the first time a superannuation fund has actually put money into something that normally a state government would do or a federal government would do.  

 

So my questions are this - I have three simple questions.  How was it decided that $150 million would be the appropriate amount to put into social housing, into the not-for-profit organisation - a top-up for the state government’s funds or a replacement for state government’s funds?  What’s the tangible asset that we get as members for our $150 million?  Do we actually own part of a building somewhere? Are we part-owners with the Brisbane Housing Corporation? They have an extremely big portfolio - an excellently run organisation, I think. What’s the tangible asset? Is it a loan that we’ve given them, a long-term loan?  What’s the actual return for us on that?  Thirdly, finally, you would do due diligence. You don’t hand over $150 million and think, ‘It will be right; we’ll find out what happens.’ In the due diligence what was the anticipated return on investment for us as members we were going to get for $150 million that we’re giving to the state government’s QIC that will then go on to public housing, taking the place of what the government would normally do?  What was the return on investment we anticipated on that?   

 

I know Australian Super, as mentioned before, has said publicly at meetings 12 months or so ago that they would only get into public housing if the return was between 6 per cent and 11 per cent. They made it very clear to their members.  That’s what they do, and they’ve said, ‘No, we’re not going to do it because we don’t think it’s appropriate; that not a good use of members’ money.’  But we’ve decided, okay, we will.  They’ve been open. Can you be open on the range? If it’s in-confidence or secret super business or something, could you give us a range, X to Y, what you think the return would be or negative X to negative Y? If you can’t give that, can you simply explain how you would get a positive return from social housing?  I have trouble, given the nature of tenants. The Brisbane Housing Company - what they charge is based on the income. A lot of them are pensioners. They’ll take a third of their pension, plus the supplement they get, direct rent assistance. How do you get a positive return from investing in social housing?  Thanks, Ian, specifically for you. 

 

Ian Patrick, Chief Investment Officer of Australian Retirement Trust - Geoff, thanks for your question. Going to the first one, how is an investment which is a commitment in this case in exchange for - if it closes, it hasn’t yet closed, this deal - a loan?  How do we decide?  We decide it like every other investment we decide.  The first satisfaction we have to make is are we acting in the members’ best financial interests? Is this going to give us an equivalent risk adjusted return to investing in any similar bond? Which probably takes me to the third point you mentioned, the Aussie Super 6 per cent to 11 per cent. I’ll be open with you. One of the reasons - it was 18 months ago, and we anticipate financial close just into the new year - is that interest rates have risen substantially. And we want a market commensurate return.  So, what are we looking for when we underwrite these assets? We’re looking to get a return equivalent to a similar credit or a similar credit risk. So, it’s a premium - if current cash rates are 4.35% and you think then it’s a term loan, it’s going to have a bit of a premium over that, we want a premium over that term loan.  Because it is commercial-in-confidence I’m not going to give you an actual number, but it is in the Aussie Super range, I can confidently say. 

 

Member - So it’s a positive amount? 

 

Ian Patrick, Chief Investment Officer of Australian Retirement Trust - It is a positive amount.  And then your middle question is, what’s the tangible asset?  It is a loan.  We are benefiting here from the strong relationship between QIC as an asset manager, its primary stakeholder Queensland Treasury, and the Brisbane Housing Corporation, which is one of the pre-eminent community housing providers.  Yes, there are government supplements to complete the income which services the loan. It’s not just the payment by the individual in the social housing; there is a government supplement from the housing fund to complete the income. And we don’t carry construction or other development risk, which is also important. 

 

Member - What’s the term of the loan? 

 

Ian Patrick, Chief Investment Officer of Australian Retirement Trust - I will take that on notice.  I don’t know. 

 

Beth Mohle, Deputy Chair of Australian Retirement Trust - We have to move on.  We have a lot of people lined up.  We have two more questions from online, from Natesh for Bern: does ART have future expansion plans with more acquisitions or mergers? 

 

Bernard Reilly, CEO of Australian Retirement Trust - Good evening, Natesh. We’re always looking at opportunities to grow the fund.  As I mentioned earlier, growth is important for us to continue that scale and be able to deliver cost reduction and benefits to all of our members. Andrew mentioned earlier as well about one of the funds that just recently joined us, being CBA staff, which has 80,000 members and just shy of $12 billion that has joined the fund last month.  That’s an example of something that’s happened recently.   

 

What I will say - and it’s important to note - is that when we look at these opportunities we don’t just take any opportunity that comes. We need to make sure that it is in all of our members’ best interests to take on another fund, for that to come into the ART family. 

 

Andrew Fraser, Chair of Australian Retirement Trust - I might just add one further point. What Bern is talking about, what I mentioned in my earlier remarks, where smaller funds join into Australian Retirement Trust is a very different thing to the merger between QSuper and Sunsuper. Do we anticipate doing a merger like that with another large fund? The answer to that is no. 

 

Beth Mohle, Deputy Chair of Australian Retirement Trust - A question for Ian now from David: is ART placing too much attention on ESG in preference to maximising investment returns? 

 

Ian Patrick, Chief Investment Officer of Australian Retirement Trust - Thanks for the question, David. I think the first point to make is they’re not mutually exclusive. Our first duty to all of you, our members, is to act in your best financial interests. We believe that managing ESG risks, which are real financial risks - a disorderly climate transition is a real risk to many assets in the portfolio. If we don’t manage the risks and opportunities associated with the environment, with social factors like modern slavery and with good governance, the companies steward the capital that shareholders give them - if we don’t manage that successfully we will prejudice the financial return of our members.  I see it as a true integration task. We have to integrate those factors into the overall assessment to generate members’ best financial outcomes. 

 

Beth Mohle, Deputy Chair of Australian Retirement Trust - Two questions from the floor, the gentleman down here. Thank you. 

 

Member - My question is for Ian. Ian, I’m interested in your investment strategy. Coalmining can be on the nose for quite a number of people. However, coking coal is an essential ingredient of steelmaking, which we all need. So, how do you assess investment in mining considering that Australia is one of the better producers of fine quality coal compared to China or Poland. Are you able to indicate how you make decisions on investing and coalmines? 

 

Ian Patrick, Chief Investment Officer of Australian Retirement Trust - Sure.  Thank you for your question again.  The way I’d frame that up is to say most forms of energy have a role over an extended period as we transition to a low carbon economy.  Some are more essential than others. And to your point, metallurgical coal is essential to many industrial processes today. So our view is not to divest simply on a theme. Our view is to think about the complexion of the energy mix and engage directly with companies to ensure that we understand their transition pathway. Eventually, green hydrogen may replace metallurgical coal in some industrial processes. We are a long way from that today.   

 

As a consequence, we want to invest - because metallurgical coal companies will be important to members’ returns in a total portfolio context - we want to invest but we want to engage with the company to see that they develop transition plans to a Net Zero world, because we believe the sum of activity in the world will eventually end up with something approximating a Net Zero outcome in 2050. And we have to be on that journey with the companies but, no, we’re not divesting, if that was behind your question. 

 

Member - Firstly, I’ll repeat something I said last year: 2,258 listed companies contributing to my QSuper Balanced portfolio is a dog’s breakfast. It’s not a balanced portfolio of shares.  Then I get on to the question: I see in total you’re paying money to 46 investment managers; 11 of them are handling Australian listed equities. I guess I can see some justification for using investment managers in equities if you’re in the small end of the market. But major Australian shares - I honestly believe that ART should have sufficient investment power to do their own investing. And I think that would save a deal of money, as would reducing the number of shares - of holdings -in the portfolio.  Each holding has an administrative cost.  I really think you’re probably paying too much at the big end for stuff that would be better off done in-house and paying too much at the little end for stuff that is really just administration and adding to administrative cost. Bob Reid is my name. I’m sorry I didn’t introduce myself. 

 

Ian Patrick, Chief Investment Officer of Australian Retirement Trust - Thank you, Bob, for your question.  The first point I’d make is that we believe, in terms of our investment model today, given our size we can negotiate fees with external managers to deliver a very cost-effective outcome, even managing at the top end of let’s call it the ASX50.   

 

Our capacity to attract and retain investors in the top shelf that we can employ externally is not a given, and when we can extract very good fee deals from external managers we believe sourcing the best talent is the right way to invest your money.  So that’s in an investment model sense.   

 

In terms of the plethora of companies in our holdings, you would have identified those are global holdings.  Across the broad spectrum of global holdings, it’s not unreasonable to have a highly diversified portfolio like that. You can’t get the range of technology and healthcare companies in Australia that you can get in the US.  Similarly, the diversity of materials companies in emerging markets - all of those contribute to a diversified portfolio. And then to your cost point on let’s call it the holding cost of individual shares, our fee arrangements - and I don’t want to go too deep into this because it’s commercial - with the custodian are not on a per line item basis. That I can tell you. 

 

Member - I take your point. Thank you very much.  But I still consider that across the whole lot 2,000-plus is just too many for even your staff to realise what your investment managers are doing.  I think you’re over-trusting your investment managers in a lot of cases, particularly on the smaller holdings. 

 

Ian Patrick, Chief Investment Officer of Australian Retirement Trust - That does prompt me just to add to my answer if you don’t mind, Bob. To get cost-effective outcomes we hold a large proportion passively, meaning we invest in the market index, and that creates that long tail. Clearly the portfolio holdings that matter are the largest holdings that you’d see listed in our disclosure. 

 

Beth Mohle, Deputy Chair of Australian Retirement Trust - We’ll go to two questions online now.  The first one is for you again, Ian, from Collette: what impact do you expect AI to have on the global economy?  And how are you positioning investments for it? 

 

Ian Patrick, Chief Investment Officer of Australian Retirement Trust - Collette, your question is ‘the’ question that every investor is pondering at the moment. I think if I knew the answer I wouldn’t be sitting here. I’d be off doing something else.   

 

But in general terms - and I’ll give you a personal view - AI has the potential to be as transformative as many developments in the past, possibly even more so than the internet.  But look how long it took to realise true economic benefits from the internet.  It wasn’t in the dotcom boom in 2000. We really generated those productivity benefits a decade or more later. So I think it will have an impact on the global economy. I think we can have a guess at which industries it will have near-term impact versus longer term impact.   

 

In terms of positioning investments, doing that research and understanding the potential scenarios that can emerge are absolutely critical. And we do that work actively.  But to give you an explicit answer about is it going to make a two per cent difference to productivity -  I think it’s way too early for that kind of conclusion. 

 

Beth Mohle, Deputy Chair of Australian Retirement Trust - A question now from Michael.  It’s about valuations.  So, Ian and Liz could respond to this.  Please provide an update on the valuation process for private assets, especially real estate and infrastructure equity? 

 

Ian Patrick, Chief Investment Officer of Australian Retirement Trust - Our valuation process for private assets is largely to get quarterly valuations on all our private assets.  Those come from a collection of external valuers who are professionals in that task, and then we get some valuations from managers particularly in private equity and their portfolio companies. It’s important that that process is done regularly and we have as up-to-date information on unlisted valuations, because you can select to switch your investment option at any point in time, and having a fair value represented is important.   

 

The last point I’d make before handing to Liz is that we have a formal process under a valuation review committee that considers market events and emerging information around the trading conditions or otherwise of assets, and will make out-of-cycle adjustments to those valuations if deemed appropriate. So we don’t just wait for the next quarter; we’ll make a valuation adjustment in the interim if deemed appropriate. 

 

Elizabeth Hallet, Chair of Audit and Risk Committee for Australian Retirement Trust - From a governance and board perspective - I’ll try to be brief - we aim to be benchmark best practice in ensuring that our valuation of unlisted assets is appropriate. There are two parts of the board committees that have work to do to ensure that we are best practice. The audit and risk committee that I chair checks the valuation methodology of various unlisted assets as part of our assurance process in preparing the financial statements for the board to sign in September of every year.   

 

Separately there is a board valuation oversight committee that meets regularly to check the valuation changes to our unlisted assets, including doing back testing. So, when an unlisted asset is sold, are we comfortable that the methodology that was used to value that unlisted asset was the right methodology, so we can have continuous improvement in how we value our unlisted assets. So just in summary, we do aim to be best practice in the superannuation sector for the valuation of our unlisted assets. 

 

Beth Mohle, Deputy Chair of Australian Retirement Trust - Thank you. If we’re very quick we have time for two more questions from the floor.  Over to here. 

 

Member - My name is William. I have coffee with a number of retirees quite often, and cash seems to keep creeping into the conversation. My question is: what is ART’s attitude towards cash and is it going to change? 

 

Ian Patrick, Chief Investment Officer of Australian Retirement Trust - Thanks, William.  I want to get behind this a little bit.  If the question is, is cash an attractive investment - it is certainly much more attractive today than it was 18 months ago. I mentioned the overnight cash rate of 4.35 per cent.  You can get more on a term deposit. That’s significantly better than a fraction of a per cent that was in play directly over COVID. That makes the forward return on cash look somewhat attractive today. And of course, cash offers you liquidity.   

 

If you look in the rearview mirror, if you’re looking at your statement for the cash option, clearly that shows some of those low returns.  Because it’s only been more recently that cash rates have been up. Having said that, in terms of returns, the other comment I’d make is that cash remains vital to ongoing liquidity in the fund. An so we always have an allocation to cash within our various investment options. Is it more attractive today than fixed income or government bonds?  No, I don’t believe so, because over time you get a premium for holding the long-term bond and you get deflation or recession protection because long-term bonds will appreciate in value if interest rates come off whereas cash won’t deliver you that excess return when interest rates come off. 

 

Member - Hi. My question relates to the life and income protection service that ART provides to members. Robust life insurance is a critical component of any wealth strategy. A number of people in this room today will have a change in circumstances over the next 12 months, and depend on an efficient, respectful and transparent management of a claim. So my question is around the business strategy for the life insurance unit. Is this designed and operated as a support service for members or a commercial insurance business which prioritises profit? 

 

Bernard Reilly, CEO of Australian Retirement Trust - Your question on life insurance - there are some activities that the fund undertakes itself.  Life insurance through QInsure is one; Administration is another. We look at whether they make sense from a members’ best financial interests perspective. Can we offer those services more effectively than going outside?  

 

So that’s the first thing. I should have started off by saying I couldn’t agree with you more about life and income protection. It’s a very important strategy when you think about broader wealth. We’re insuring ourselves, but it’s our loved ones who benefit if something happens to us.  I agree with you on that.   

 

But for us it needs to meet members’ best financial interests.  It needs to be right for our members.  So, it’s a function that is run - QInsure is the example I think you’re using.  It’s run on behalf of our members from a particular cohort of our members and it is there for their best financial interests.   

 
From time to time, though, premiums will change. If you think about what’s happened over the last couple of years and we’ve seen claims go up across the industry - post COVID we’ve definitely seen that. For us to make sure that it’s covering its costs, premiums at times need to go up. But we look at that - we’re very rigorous in how we do that. We look at that on a regular basis. I hope that answers your question. 

 

Beth Mohle, Deputy Chair of Australian Retirement Trust - We have run out of time, but there are some people who standing in the queue. If you could provide the question in writing we’ll make sure we get a written response to you.  Because we have run out of time, we’ve gone past 7 o’clock. We can provide the information to you in writing, though.  We have come to the end of the time.  Unfortunately we’ve run out of time and I’ll have to formally close the Annual Members’ Meeting.   

 

Thank you to our panellists and thanks to all of you for being at the Australian Retirement Trust Annual Members’ Meeting.   

 

You can expect to see the answers from all of the questions from the meeting that we haven’t had time to answer, along with the minutes and the video of the meeting, on the website within the next few weeks.  We want to continually evolve our Annual Members’ Meeting to meet your needs. So I hope you can take the time to complete a survey that we’ll send to you. We’ll also continue to look across the sector to learn from how our peers are serving members through their Annual Members’ Meeting.   

 

Thank you again very much for being with us tonight.  It has been a great pleasure to serve you this year and we look forward to continuing to work on your behalf in the year to come.  Best wishes to you all and goodnight.