Super flow-on effects widespread

INDIVIDUAL superannuation investors may feel powerless when it comes to influencing company directions, but put the money into the hands of a fund manager and the influence stretches far beyond just controlling individual companies.

World Bank director of social protection Robert Holzmann, speaking at a business breakfast last week while in Perth to address the International Federation of Ageing Global Conference, believes compulsory or contractual savings has influenced industry sectors, regulators and governments throughout the world.

Professor Holzmann said the effects of funded pensions such as compulsory superannuation not only led to an increase in private and national savings but also accelerated the financial market development and reform process, improved resource allocation and efficiency while achieving a higher growth path.

“Pension funds contribute to a major diversification in investments. It makes the system more stable, and contractual savings also make the market more liquid,” he said.

“It also leads to efficiency in bringing companies together with labour.”

Besides this it improves corporate governance and financial market regulation, innovation and competition in the banking sector.

“Well-developed financial markets can lead to a permanently higher growth rate.”

While efficiency was improving in the flow of capital to target companies, superannuation fees and charges, and charges from other financial institutions were draining the economy, Professor Holzmann said.

Administrative fees around the world were typically in the range of 10 to 30 per cent of contributions, or 0.5 to 2 per cent of assets under management.

Professor Holzmann said a central clearing house for all super funds, such as already existed in Sweden, Poland and Croatia would be helpful, so that the role of the fund manager was limited to that of a manager.

Yet for all its sphere of influence, managed superannuation funds had not been able to withstand the plummeting markets. Internationally, equities have fallen 25 per cent in the past year.

The ‘brains trust’ of the funds management industry, as the Morningstar Expert Asset Allocation Panel likes to be called, met earlier this month for its quarterly meeting and was cautiously optimistic about the future.

The panel based its optimism on five factors – the technical state of the equity market; a ‘muddle through’ economic outlook; reduced investor expectations on corporate profits but increased confidence that corporates will deliver against them; the relative valuations of international equities versus international bonds; and continued growth in our own economy, through a lowing rate.

The panel felt that, in the current environment, the relative valuations of equities versus bonds favoured equities. This was not only because of the equity markets’ current ‘pricing for failure’ but also because bonds appeared to be very overvalued by historical standards.

On the downside, the level of debts now being carried by both US households and corporates would act to constrain growth and profits, the panel said.

Current members are Donal Curtin, international economic consultant, Merv Peacock AMP Henderson Global Investors chief investment officer Asia-Pacific, JB Were Investment Management’s Suzanne Branxton, Merrill Lynch’s David Hudson, JP Consulting Jonathan Pain, Armstrong Jones’ David McClatchy and BT Financial Group CEO Craig Stobo.

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