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Banks and superannuation

How will Basel 3 and associated regulatory changes affect the investment strategies of superannuation funds? Discussant comments by Michael Skully Monash University. Banks and superannuation. Basel 3 raises some important questions for banks and through them superannuation funds.

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Banks and superannuation

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  1. How will Basel 3 and associated regulatory changes affect the investment strategies of superannuation funds? Discussant comments by Michael Skully Monash University

  2. Banks and superannuation • Basel 3 raises some important questions for banks and through them superannuation funds. • While the paper does not raise the issue directly, banks are of course major players in the retail superannuation funds business via CFS, BT and the like. • They are also major indirect players via their wholesale fund management business, custodial business and other services.

  3. Major super funds (6/2012) AMP Super. Savings Trust 51.9bn Australian Super 47.8bn State Public Service 43.5bn Colonial FS First Choice (CBA) 43.2bn Retirement Wrap (BT) 34.2bn Universal Super (MLC-NAB) 33.9bn First State Super. Scheme 33.9bn UniSuper 32.6bn OnePath (ANZ) 26.1bn Retail Employees Super 22.6bn

  4. Australian loan syndications • Banks will find it more expensive to hold assets on the balance sheet and so may seek non-banks as participants. • It is surprising that despite one of the largest managed funds industry, non-banks account for a very minor portion of this market. • In contrast, the USA is dominated by non-bank activity.

  5. Loan syndications: Aust. vs. USA

  6. Banks & super fund participation • The problem for superannuation funds to participate in term loan syndications is the matter of liquidity. Most secondary transaction in Australia has been where the banks exited problem loans. • The use of pooled funds with pro-rata repurchase rights on sale is not the solution. • There needs to be a real market.

  7. Superannuation fund liquidity • It is certainly true that superfunds should have a long term investment horizon and invest more for the longer term than other investors. • In practice, the introduction of investment choice and then member choice imposed considerable liquidity constraints on most funds. • Some illiquid investment is possible but not at the levels taken prior to the GFC.

  8. Other impacts • The LCR and NSFR were expected to reduce returns but so far the banks have continued to offer reasonable compensation for taking 31 days and longer products. • Derivatives may become more expensive but thus far the use of an ISDA with a 2 way collateral support agreement has mitigated some of the expected regulatory caused cost increases.

  9. Member directed options • Some larger superannuation funds now allow members to purchase shares in specific companies and place term deposits within their overall account. • This helps them respond to the rapid growth of the SMSFs as well as allows members to access better TD rates - as retail clients - than the fund itself could as financial institution. • Such deposits, as they are in the name of trustee, would seemingly not have FCS cover.

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