Are you one of 320,000 tertiary eduction employees with your superannuation tied up in UniSuper? Then brace for an unpleasant surprise when you get your next statement.

Here are some extracts from our subscriber-only emails that have pointed out worrying investments of the fund.

In our sealed section of 24 July 2002, we pointed out more troubles at MacBank and noted that UniSuper has a particularly large exposure:

“5. MACQUARIE BANK UNDER THE PUMP

The Australian’s Mark Westfield gave Macquarie Bank a trademark bollocking in Wednesday’s paper as they blow-up much of the goodwill in their franchise with their greedy pursuit of fees at all cost

AMP must still be cursing that they sold most of their 10 per cent stake in Macquarie before it listed in 1996. Interestingly, we’ve heard that UniSuper, the giant fully funded super scheme for all our academics and university workers, helped bail Macquarie out in 1989 taking a cheaply priced placement of 10 per cent of the shares. Tasmanian veteran Peter Byers headed the UniSuper investment committee for almost 20 years and this was his best ever investment.

A quick scan through the 2001 UniSuper annual report shows its largest single equity investment as at June 30, 2001 was News Corp with $304 million followed by Macquarie Bank with $296 million.

Can Crikey politely observe that UniSuper has seen about $200 million of this $600 million exposure disappear into thin air over the past year?

And two of its largest foreign equity exposures were $35 million holdings in Citigroup and AOL-Time Warner which have both more than halved over the past year. Citigroup and JP Morgan were both down almost 10 per cent in early Wall Street trade last night as they have been fingered for coming up with all those dodgy off balance sheet debt structures for Enron.

It just goes to show how this global share meltdown affects ordinary Australians. If the 320,000 account holders at UniSuper have defined benefit schemes, taxpayers will be making up the difference. If they are accumulation schemes then don’t expect to live quite so comfortably in retirement.”

– Ends –

We followed this with a report in our sealed section of 25 July 2002 after a report from a UniSuper insider telling that the fund was preparing to batten down the hatches in anticipation of a policy-holder backlash:

“1. AVALANCHE OF CRIKEY BUYING

Now we’re starting to see some value folks. Crikey borrowed another $1600 yesterday and bought 95 Seven Network shares at $5.40, 65 WMC shares at $8.19 and 280 Computershare shares at $1.79.

We’ve now spent about $3500 over the past nine days and, when you include brokerage, we’re down by about $400 but with Wall Street soaring more than 6 per cent last night we’re feeling reasonably relaxed.

But this is toe in the water stuff when contrasted with super funds that are fully invested in equities. One emailer yesterday claimed that the $9.7 billion UniSuper fund for 320,000 academics and workers at our 37 universities is set to report almost $1 billion in unrealised losses in 2001-02.

Staff are currently being briefed about how to treat member enquiries on the negative returns so the recently formed communications team are starting to earn their money!

It will be interesting to see if they have anyone at the Macquarie Bank AGM at the Westin Hotel at 10.30am today (come on down for some sport folks) as they have been their most enthusiastic institutional supporter in Australia.”

– Ends –

This was followed on 2 August 2002 by a mightily miffed superannuant who had just received a nasty surprise in his annual statement:

“14. GOT YOUR SUPERANNUATION STATEMENT YET?

A very unhappy superannuation investor writes:

“I received my half-yearly superannuation statement in the mail the other day. I wasn’t expecting great news after the UniSuper stories I’ve read here, but I was flabbergasted.

My “Leaving Service Benefit” stood at $20,298 at 31 December 2001.

At 30 June 2002, it was $18,289.32.

A decrease of 10% in 6 months!!!

I don’t mind being obliged to put away money for my retirement, but I hate the fact that it is for all intents and purposes out of my control. I could do a much better job than the goons who have control over my investments – probably some geek fresh out of university who doesn’t give a toss about “other people’s money”.

I’ve had pathetic returns over my (relatively short) working life, but this plunge into the red has really got my blood boiling.

Not happy, Jan.”

CRIKEY: When are some of these fund managers going to volunteer for a cut in fees as they turn in these appalling results. As has been pointed out recently, Australian mum and dad investors pay about 2 per cent a year in fees which is double what they pay in the UK and US. Too many BMW driving fund managers are waxing fat on the hard-earned of ordinary punters and it’s about time those fees came down to soften the pain.”

On 5 August 2002 another subscriber explained the background to Not happy, Jan’s woes:

“9. UniSuper AND INTERNATIONAL LOSSES

A subscriber writes:

“Stephen

Your “unhappy Jan” correspondent obviously doesn’t realise that a certain percentage of her UniSuper fund was invested in International Equities, which have dropped by no less than 35% this year. Obtaining negative 10% isn’t too bad, all things considered. This may be a problem for an older member closer to retirement, but not much of a problem for someone who is much younger and has recently joined the scheme. Fees of 2% pa of not much is very little. Would hardly cover the compulsory Federal Government reporting costs for the member!

The lowest management costs are in Indexed Equity Funds, but compared to a number of actively managed funds, have dropped just as much. Same loss for the member. Alternatively, if you wanted equity exposure (& had total control over your super funds), one could have invested in the Platinum International Share fund and done quite nicely, thank you very much.

At the end of the day, you cannot escape fees (of some sort) & Govt contributions tax in super funds. What is not considered is the after tax position of investing elsewhere. Unless you are geared to the hilt (often at great risk), other investments will attract both capital gains tax and income tax, usually far more than in a super fund.

When the member of a super fund subsequently invests in an Allocated Pension or a Complying Annuity, they will not attract CGT or income tax within that fund. Not to mention a 15% rebate on the pension income. That is why the pension income sector of the market is growing by the billions each year.

Savvy investors investing for retirement also realise that fees are only one part of the equation. The net after tax return is just as important. The real issue with superannuation (which the Industry Super Funds, the Democrats & Labor don’t want to talk about) is having the ability to control of your own money full stop.

If your “unhappy Jan” had $200,000 in her UniSuper fund, with the ability to direct her super funds wherever she wanted, she could have established her own Self Managed Fund and invested in a property in central Melbourne if she wished. She would have cleaned up over the past year if she had. Limited choice of investment option (balanced, growth, conservative etc) is not control of your own retirement funds.

The question needs to be posed, why are some in the Senate so afraid of introducing competition to the superannuation industry through total freedom of choice for one’s own retirement funds? Why are they so hell bent on building a monopoly for the Industry Super Funds? Are the salaries & travel junkets of the Union card carrying management of “low cost” super funds being clearly disclosed to members? Of course not!! Were the kick-backs that existed (before the new Financial Services Regulations were introduced) on the group life insurance premiums in Industry Super Funds being disclosed? Of course not!

Fees become pretty much irrelevant when you have total freedom of choice. If there was no choice, the Industry Funds could charge whatever they liked. So bring on total control over your own super funds to bring down fees.

Other questions could also be posed about why a certain percentage of the funds could not be used for a self funded health care or life long (tertiary) learning account. Also, why couldn’t small business be able to make undeducted (non tax deductible) contributions into their fund, and use that component as security for a business loan? The self employed usually avoid super because they cannot tolerate locking up their equity for lending purposes. Time for a major overhaul?

Food for thought.

Name Withheld”

– Ends –

On 6 August 2002, another UniSuper “victim” let rip about the removal of their choice of either a defined benefits or an accumulation fund:

“10. COMPULSORY UniSuper-ISM

“Your UniSuper correspondents have forgotten to let on that they all had the choice whether to park their super in a defined benefits scheme or an accumulation type scheme. In fact, up until a few years ago, if you had your UniSuper in a defined benefits scheme you were allowed to change it over to an accumulation type fund at any time.

A few years ago the UniSuper group removed the option to change it. You had to make your choice to stay with either a defined benefits or an accumulation style fund and live with your decision. They sent out fairly comprehensive information and made it clear it was your decision. At the same time, any new starters were allowed to make a choice of which fund they would prefer and they are usually given 12 months to make their final decision, after which they also cannot change.

At the time UniSuper made the final offer to existing contributors to change to an accumulation style fund ‘or forever hold your peace’, the funds had been returning 15% p.a. + for years, as had just about every super fund. It was July 1999 if memory serves me correctly, and everyone knows that the decade leading up to that was a great time to be in an accumulation type fund. As it happens, a lot of people took up their last chance to change from defined benefits to an accumulation fund on the basis of the returns that had been.

Caveat emptor, I think we have since had 2 out of 4 years return negative results or so close it doesn’t matter. So while Jan is not happy, Jan forgot to tell you that she could have been in a defined benefits scheme and been whistling dixie while the stockmarket falls to hell.

While on the subject, I must challenge your correspondent’s views on the lack of ‘choice of super’. Labor and the Democrats have held up this legislation for years and there are plenty of good reasons to do so. While the ideal would be to have unlimited choice, the idea for super is that it should reduce the burden on future governments for pensions.

The example given of a property trust buying up in central Melbourne would have been great, or you could do the same and buy an apartment in Sydney’s CBD right now, with the likelihood of significant negative returns for the next 3, 4 or 5 years or more. That’s the problem with choice in super, at least the industry funds are going to be there in 20 and 30 and 40 years time. Unlimited choice will produce a lot of losers, and all the losers will then have to be paid a government pension, so we are all losers.

The other problem is the financial industry requires extensive regulation before we could let people invest their super anywhere. There are more cowboys in the finance industry than used car sales, or political parties.

Methinks your correspondent is a budding or incumbent ‘Personal Financial Planner’. Sorry, it just ain’t that easy.

Anon”

– Ends –

And the final word goes to the UniSuper website, where it appears the fund managers are trying to allay the concerns of investors. Good luck!

From our sealed section of 12 August 2002:

“15. PROBLEMS AT UNISUPER

A subscriber writes:

“UniSuper has published a piece on its website trying to calm down members about negative returns.

At the bottom of the “spin doctoring” it suggests that members on defined benefit could have their pensions cut if their current disastrous investment policy continues. That’s a bit rich given that members in this plan obviously think – or thought – they are guaranteed a specified return based on their last 3 years salary average.

It also appears the losers are winners. The fund managers apparently get paid even if the lose: UniSuper doesn’t invest directly. It works through fund managers which the investment committee chooses (on the basis of past and anticipated future relative performance). Now it’s the ‘norm’ in the money business for fund managers to take an annual fee as a percentage of funds invested — not earnings achieved!

So there we are -lose one billion dollars of other peoples’ retirement savings and pocket a big cheque for your “expertise” (sic).

Name withheld”

Peter Fray

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