The results are in from the 2017-18 financial year for superannuation funds and — like previous years — they’re an embarrassment for the retail superannuation sector, the Liberals, and the Business Council of Australia.

According to results compiled by Superratings, industry super funds occupy the top ten places in performance over 2017-18 and nearly all of the top 20: 11th spot was taken by corporate fund Mercy Super; Qantas’s corporate fund was 15th (corporate funds are funds run by companies for their own staff, and not usually open to the public). The best retail fund, IOOF (which is no longer bank-owned) Employer Super Core, had a return of 9.59% growth, nearly a full percentage point below the tenth-placed industry fund. Retail funds make up just 15 of the top 50 funds.

The Superratings data extends out over 20 years; most of the 2017-18 top 10 have also performed strongly on a five, 10 and 20 year basis, with the best fund, Hostplus, occupying the top slot on a one year, three year, five year, seven year and 15 year basis. Only one retail fund made it into the top 20 on a ten year basis and four made the top 20 on a 20-year basis.

Tellingly, the Commonwealth Bank’s corporate fund also performed better than the retail product the CBA offers via Colonial First State (which is now to be spun off). Its corporate fund underperformed the top 20 — where the lowest performance was 9.8% — by achieving just 6.53%, but its best CFS fund was even worse at 6.29%. One a ten-year basis (remember, that takes into account the financial crisis), its corporate fund was 19th on 6.58%, while the same CFS fund managed only 5.1%. The Commonwealth Bank doesn’t perform too well for its own staff, but it performs much better for them than for its retail customers.

Separate analysis by Chant West has similar results. It has the same top ten but for the inclusion of South Australia-based industry fund State Wide; its ten-year top ten is a little different but the only non-industry funds are the Queensland government QSuper fund and one of Telstra’s corporate funds.

Chant West provides a direct comparison of industry and retail funds and shows that retail funds were not as uncompetitive as usual in 2017-18 — the performance gap was 0.7 percentage points over the year.

But on a longer term basis the comparison is increasingly embarrassing for the banking sector. This reflects not merely the higher fees that retail funds charge, and the expensive related-party transactions that happen in that sector, but the fact that industry funds are more willing to invest in unlisted assets like infrastructure and private equity and are more agile in responding to market opportunities like mispricing. 

These results again discredit the campaign run by Kelly O’Dwyer and her Liberal predecessors who, while putting their own money in industry funds, demonise them on behalf of the retail fund sector. O’Dwyer couldn’t even bring herself to admit industry funds perform better than retail funds after the Productivity Commission reached that conclusion. They also further discredit the campaign run by the Business Council’s Andrew Bragg, and hosted by the Business Council’s website, to demonise industry funds as treasuries for trade unions.

But they raise further questions. Industry funds’ performance isn’t just better because they have lower fees and fewer dodgy related party transactions. As Chant West’s Mano Mohankumar notes, they manage their funds better. But why is it that Australia’s banking oligopoly are such poor managers compared to the employer representatives and trade union representatives who oversee industry funds? Why are the latter more encouraging of agility and the pursuit of better returns in their fund managers than the banks? Isn’t that supposedly what the banks are best at? The Commonwealth Bank can’t even get its own corporate fund, for its own staff, to perform as well as industry super funds.

Maybe once the banks have spun off their retail fund arms, the latter might start to improve their performance, unencumbered by what looks like the dead hand of the banking oligopoly. Maybe they might even ask industry super for some tips.

Disclosure: the author is a member of Hostplus

Are you with an industry fund or a super fund and how did you make your decision? Write to us at [email protected].

Peter Fray

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Peter Fray
Editor-in-chief of Crikey