Big super cock-ups - Should you switch?

for profit industry funds. But always added the caveat that they are alone to themselves. They're very big fish in a small pond. They're not particularly answerable to any regulator. In particular, they're not particularly answerable to their own investors. And sooner or later this was going to be trouble and Sebus, the big industry super fund, really has spoils

party here. They have about nine hundred and thirty thousand members, about ninety four billion under assets, big operation and behave so badly basically behind the scenes in terms of not delivering due payments to death benefits and disability payments the most basically it's the most vulnerable people and investors in their group. That ACID had to go as far as taking them to court and suing them for allegations of

problems in this area. So this sort of bursts the bubble, I think to would agree on big super and there has been in and around the same time a whole string of incidents. Cebus isn't the only one unisuper. Their site was out for days some months ago where people

couldn't see their super couldn't see what they have. Art Australian Retirement which is the second largest super fund in the market, they had delays for days of pensioner payments and in common with these issues I just mentioned at the other funds, they don't advertise this, they don't tell you about this, they tell you if you're affected. But basically, onto the current system they're able to quietly try and

put out these spotfires as they occur. The issue now, of course, is that ASEK has really put this on the table and the ACIC Deputy chair Sarah Court, is saying that there's going to be more action on this, and even as I speak to you today this morning, literally an hour or so before we started to sit down and record this show. Hesta big fund that's traditionally associated with hospital workers and nurses, is also in trouble,

can you believe for an entirely different issue. But it's got to do with their unlisted assets and the greet which they mark them down and didn't mark them down in a coordinated fashion back at the time of the COVID crisis. So it's really all starting to turn and I want to look at this, and I want to also look at property unlisted assets on the investment side.

Unlisted assets are the big mystery at industry funds. They have been useful to them, but they also are very opaque and it's very hard to get steer on how much they have, how much they're worth, except to say that in commercial property, certainly there's a lot of problems starting to form and SeaBus has had big losses there and so have other funds. We'll put it all together, I guess today is James Girard of Financial Advisor dot com dot au. Hi, James, how are you hy?

market services which they had used. And I think in some of the more recent scandals there's been other service companies like Mercer has been mentioned in passing here. I don't know about you, but I never take I have no time for a company who blames the outsourced service because they outsourced, right. I don't want to know. I don't care. I don't even want to hear that they outsourced it. It's their problem. I don't know if that's a reasonable response. Do I sound reasonable? It is?

you know we outsource. Well, we do the outsourcing for quite a few super funds on the insurance side, and there's plenty of other customers that we have. They're all meeting their KPIs with regards to processing times. We're just following the instructions that you gave us, and so don't blame us, go blame yourself.

on there. They are facing regulatory inquiry by both OPRA, the prudential regulator unquestionable expense, questionable expenses. They're also basing an acquiry from APRAA on the links and suitability of personnel related to their union appointments through CFMU and then they're facing a core case from ACIC about delays to payments, And as a sort of rational financial person, I will say, okay, I don't like any of that, but I look at the ten year returns for c BUS and they're fine.

They're absolutely passable. They're about eight percent, and that's about what you'd expect at most of those big funds. So the investment formats to date, James hasn't been hit. But as an advisor, like, do you are you concerned if there's an organization and there's all sorts of problems at the back office, are you concerned that could in some way or could it interfere with their performance at the front office where they're investing? You know, otherwords, could one

spoil the other? Could one poison the other?

decisions across all different departments. And I think it's a shame overall, because I like the competition that the industry super funds bring, that they hold the retail accounts super funds accountable and drive competition in the market, and it's a shame to see that these things have come out and that their conduct has been that that way, because if anything, we want more super funds out there, driving down costs and more competition for investors, rather than less

super funds. But one point I'd make is that industry super funds are still a little bit in the bed

with the union. So when you look at the investment committee and the board composition, I'm sort of painting a broad brush here, but for several of the major industry super funds, their management end directors are comprised of something like half of independent directors and half linked to unions, and so I sometimes question the I guess the governance and the investment expertise that these super funds have given that And probably this is too strong to say, but

it's not like a union junket, but there's definitely union influence there and a lot of the major industry super funds, which I don't particularly like.

on a board? Would they be put on another board of another company that was valued at ninety two billion? There's a question. I think it does. Puts it on the line or right now, I want to What I want to do is take short break and we're going to come back and we're going to look at what if you are facing this situation, if you are in these funds, what you should be doing. Hello and welcome back to The Australian's Money Puzzled podcast. I'm James Kirby

talking to James Gerard. Look, I suppose for most people, James, they see these stories and they say, gosh, I don't like that I see Unisuper. There was a problem with Unisuper. If I was in Unisuper, I couldn't actually see my super for a while, or at art my payments were delayed for one reason or another. At Cebus, I can hardly keep up with the number of investigations that's going on in this fund. So what does someone do if they're in one of those funds? And is it a

big trouble? Should they switch? And is it a big trouble to switch?

If you like in their assessment of SeaBus, and specifically when they were moving to downgrade their parent view of SeaBus from average to below average, met the point that they were uncomfortable with the personnel on the board, specifically with the political links. So to that extent, that's a financial agency not remotely interested in politics, which found that

they couldn't separate the two. So, coming full circle back to that, I think we have to take it that there is a point at which they crossed, and there's a point in which one cuts into the other, and they're not actually entirely autonomous. So develop what you're saying there about how people should assess this. Not will react fair enough, but at what point do you act?

you think okay, that's okay. But if there seems to be more systemic problems and you have the government regulator coming in, you have third party independent research houses coming in putting out views, then you start to build a bit of a case for well, is it that are there alternatives that don't have the same scrutiny in issues that are with my current fund, and would my retirement

savings be better being put elsewhere? And then if you make that decision that yes, okay, I prefer to go to another fund, then the next step is to understand what will that cost you financially to move from one super fund to another super fund, And in answering that, it really depends on what stage you're in. If you're in the accumulation stage, there's potentially a capital gains tax will be triggered when you sell down all of the investments.

But then on the other hand, it may not be triggered because most industry super funds are unitized, which continuously calculate capital gains tax. So whatever you have as a balot showing today, that's inclusive of any capital gains tax that's continuously counted. And then it depends also if you maybe you're in the pension phase where there's definitely no tax implications. The next thing to consider is time out

of the market. It usually takes one to two weeks for the current super fund to sell down your investment you're in cash, there's a rollover request with the new super account. It will usually take three to five days to set up your new super account, so under normal commercial timeframes, you might be out of the market from one to three weeks, and if that the markets move upwards over that period, you've lost out because you're sitting in cash. But conversely, it can work out in your

favor if there's a downturn in the market. So that's just a risk which could go for you or against you.

the new super fund. You can take out independent insurance where with a retail standalone company and they'll link it to super fun then request a payment once a year.

Or alternatively, you can keep a small residual balance in your old super account and you need to contact the super fund because every superfund is different, but it's usually between five to ten thousand dollars that you need to keep as a minimum balance, and you need to keep the account active by either signing the form every year and a half or putting a contribution in to keep the insurance cover active in the old superfund.

number one to fund number two. So the issue might be the older you are, particularly the more the issue of insurance will come up, because as you know, as you get older, it costs more to be insured. And if you walk in cold off the street, you're going to pay a lot more than someone who was in an arrangement and industrial relate arrangement if you like, for a decade or two decades. So keep that in mind, and it's it for everyone. We are not going to we are not going to stand here actually and say

roll over from one fund to another. That's not how we operate. But we would ask everyone to consider their own situation and whether they think the fund that they're in is good enough and it's the same fund that they that they considered when they joined. And there are people out there already suggesting that people roll over. I would always say there's two sides to that. You know,

there's leaving and then that's where do you go. And one of the things that's occurring with these incidents with the super funds is that it's like any of these stories when the damn bursts, they all come flying through. So if you ask me who's in trouble last week, I would have said art, Uni, Super and SEEBUS. This week I have to add hest to that gang. So it's not over yet. We are not quite clear as to who the good guys are and who the bad

guys are. And that's only in terms of their management ability. I would call it their non investment management ability. This is where the issues are. The performance of the funds have run broadly as you would expect them to so far. So we haven't seen any fund infectedly beliked by these incompetence in other parts of the organization. But there's time for that. Okay, we'll take short break back in a minute. Hello, welcome back to the Australian's Money Puzzle. I'm James Kirby

talking to James Gerard. We're talking to our surprise really about a lot of the issues that have emerged in recent days on the big super funds, and I thought, folks that we really should cover that. It would be remiss of us not to do so. Part of the trouble at the funds, I said that their performance to a large degree is are acting as one by that I mean, there isn't an awful lot of difference in the ten year timeframe if you look at how the

different big funds are performing. And I'm talking here all the time about the industry funds, and they dominate Australian Super, c Bus Host Plus, Unisuper. You know that you know them. They never stop advertising. I'm sure you're familiar with them. One of the things that has occurred though, is that on the investment side, the big funds, also the industry funds. One of their merits, or certainly one of their advantages,

had been that they have unlisted assets. That is, they have a large way on listed assets, very simply their assets that aren't on the share market that you can't go and look up and find out about. And part of that had been in commercial property. The property that operator for the big funds is called ISPT and it acts for It acts as an umbrella group for them. It acts for Australian Super and SeaBus and UNI Super,

all those names I've just mentioned. They pooh their money and ISPT is their operator in commercial property and they released they had a two hundred million dollar loss last year. They had a one point five billion dollar loss this year, which tells you that the big super funds are exposed quite heavily to commercial property and separately SeaBus, who are so far the worst of the funds in relation to their management issues just now. They have also had a

negative return in the last financial year. They did twelve percent over a decade. That's really dropped and it's top twenty two percent you see in the last three years, so you can see that they're starting. The unlisted asset side of the business for the big super funds are starting to become a problem at the worst possible time, you might say, James, What.

to chug along. And also the funds who own them have the advantage of I guess a bit of valuation bias or treatment that it's a little bit difficult to value these investments on a daily basis, so sometimes they might only be valued half yearly or yearly, which means that if you have a short shock to share markets like what we saw when COVID hit, and that recovers a few months later that whole market downturn has been in between saluation cycle of the unlisted asset, and so

its value has been flat throughout that whole period.

was more stable. But it was just turned out that one hadn't been adjusted yet, so then that one got readjusted a week later, so they've got a double kit.

don't really know until you actually sell the assets. So you might be creating this false sense of security by thinking you have these assets, but when you go to liquidate it, there's no one around wanting to pay the price that you thought it was worth.

And that's an ongoing problem because of their dependency on these on disted aseids, much more so than for profit funds. Traditionally, that is a big difference between the two funds. Okay, really interesting. We want to stay with this issue now and segue for once usefully into a question that relates to the show that we've just been doing. Quite a detailed question. It's from Direct dr e K. I'll try

to synopsize it as much as I can. We invest it in a privately helpbsidially fund of a sex listed century capital called Censurre Health, and direct boat big time basically into this fund, and the units were to generate six percent yield, and they used jointly held self managed

super funds. And of course the point I should have made the earlier part of the show is the obvious alternative if you are unhappy altogether with your industry fund or your big super fund of any description, is self managed super We will leave that another day as to how suitable you might be to it and how much you should have in it, but it is the obvious ultimate sort of alternative to big super is self managed super funds that anyone can have if they're prepared to

put in the time Now, Derek says, because the initial return of our investment was in line with the company brochure, we increased the investment with two additional payments. Soon after the final payment, the unit prices started declining. Then we started losing some money in our investment. Initially, we trusted the fund they would overcome this weakness, and we kept our full support in it. Anfortunately, our judgment was wrong

and the unit prices continued to decline. In twenty twenty four, that's a few months ago, March twenty twenty four, we asked for a complete withdrawal of our investment. At that time we held over and he gives a large number here, a dollar number. As soon as the redemption process started, the price per units started plummeting. Down to seventy six cents at the third redemption. Also, the number of units in each redemption was ridiculously low. That is, they were

letting them only redeem a small amount. I expect at the time, summarizing the amount of cash received and the current value of the remaining units, we've lost twenty five percent of our initial investment. That's a terrible hit on what should have been a steady property. Just to finish. Direk says. We thought multi billion dollar companies such as a Tourer Capital was to be reputable and trust worth the ASX company and couldn't get it wrong. My question

is there anything that I can do to stop this? Okay, first things first, there's nothing obviously inappropriate in this issue with this property truster or a reta as they call them now at Centura. Commercial property has been in the doghouse for some time now, and if a fund said that they expected things to improve, that could have been a genuine expectation. They all want things to improve, they

don't want things to get worse. But the issue is obviously with a fund when people start selling at the same time and they have redemptions, then that they have to manage that very slowly because the money is not there. It's as simple as that, and that happens at most big funds. And though we tell people on the show a million times this is the issue, it always surprises people that they can't get all their money out of

a big property fund. When things go the wrong way, they can't get it out on the day they wish You've read that fairly close to James. This is never advice. It's only information, as everyone knows. But if I was sitting opposite you and I said to you, Hey, James, I've been in censura and I can't believe how badly it's gone. I've lost twenty five percent. Is there anything you would say to me that I haven't thought of? There?

years yet, and appreciate you. They're still behind the initial investment amount by quite a bit, but they should be having at least a five to ten year timeframe on this type of thing. And then that's because the fortunes of this type of investment really swings from year to

year quite dramatically. And so if I use the index, for example, there's a Vanguard ETFVAP which covers the whole listed property and reach sector, so it'll have Goodman Group and at Move, Ecdexus, all these type of companies over the past twelve months. If you put money in at this time a year ago, you'd be up forty percent. But then if you go back twelve months before that and you put money into it, you would have been down thirty percent. So even though it's property, you think

it's all commercial buildings and hospitals. It does swing quite wildly because there's these external factors which impact the value of these investments. And so when it comes to property and these type of property investments, one of the big things that's an external factor in terms of what they're worth is what's happening in the bond market. Because these type of property trusts are seen as what we call in the finance world as a quote unquote bond proxy.

Investors will swing between bonds to generate yield and swing to property trusts at the right time. And what we've seen over the past couple of years is the cash rate go up, bond rates go up, and investors have sold out of these type of property and healthcare trust and thus we're seeing these big drops.

them to resolve themselves. Looking at the long time frame, things have been fine. But it's a difficult one for Derek as to what to do because I can feel the disdain with this investment and the wanting to get out of it, but on the other hand not wanting to take a twenty five percent loss there. So yeah, I can't give the personal advice.

people reverse what they did a few years ago. They're now selling out of the bonds and shoveling money back into the property trusts.

me on this, James. The only stock split of any serious significance I could have find really was CSL back in two oh seven three from one split and overseas Tesla course, and in Nvidia. I think more recently, when a company has the stock split, it tends to be they are dizzyingly successful. Warren Buffett famously, of course, they did a sort of a kind of a split which the THEA class hairs and the big class chairs once upon a time, which was a similar thing. So we

haven't had one for a long time. I think it's a great notion, Andrew, sometimes a great notion that they could split. There is a there is obviously people who for some reason feel better buying two stars two combat shares for seventy five bucks each rather than one for one fifty. But actually it makes no difference whatsoever. I think, What do you think, James.

more expensive of property. But it doesn't work the same on the share market. That's said, I don't think CBA has too much of an issue. You touched on Berkshire half away. Their Class A units are over seven hundred thousand dollars per stock, so that's each each class Andrew, Yeah, yeah, so yeah, if CBA gets the seven hundred thousand, maybe send in another request and then yeah, that's probably more

valid at that stage. But I think at the current price it's it would be good for perception, but it's not really necessary.

going to change. But I'll tell you one thing. If I was Matt Common and it started to slide, that might be the time to announce a split. And then you forget the James Gerard theory that it would just go up anyway because people would think it's cheaper, though of course it isn't cheaper. It's the same price. It's

more liquid though it is more liquid. And we should explain to everyone that the theory behind the stock sibility is that at a certain point, stocks that are very successful where the share price goes absolutely bananas, a liquidity issue does arrive ultimately, and so they do split to bolster liquidity, which is what happened at Tesla and in Media and CSL once upon a time. There's no risk of them needing to do a stock split at the moment at CSL because they have been sliding and going nowhere.

thank you very much. That was very interesting and I think it was a very pragmatic response to the issue at big super and the issues that are forming. I mean, as we say, the million dollar question on those big funds, folks, is whether they can quarantine their successful investment performance from the sort of hapless, inept news stories we're seeing on their management side. How long can they keep those two things separate? That's the issue. Okay, we'll be talking to

you soon. Thank you, James, talk to you again, pleasure.