5. Our Investments
Introduction
CSC manages and invests five schemes:
This section details how investment performance of these schemes affects a member’s superannuation benefit.
It also provides CSC investment performance to 30 June 2018, together with information on our investment approach, strategy, internal governance, environmental, social and governance practices as they relate to investments, and investment options.
How investment performance affects a member’s benefit
The impact of investment performance on a member’s benefits differs across our schemes. Investment returns do not affect PSS contributing members’ final benefits because they are in a defined benefit. Investment performance has a greater impact on CSS contributing and deferred benefit members and on PSS preserved benefit members because in those circumstances performance directly influences a member’s final benefit.
In some circumstances, investment returns also affect the Australian Government’s financial outlays on members’ benefits, such as in the case of PSS contributing members.
For MilitarySuper, investment performance directly affects the final benefit for all members, together with a small part of the employer benefit for contributing members.
Benefits in PSSap, ADF Super and CSCri (including transition to retirement income streams) are directly affected by investment performance.
The 1922, DFRB, DFRDB and the PNG schemes are unfunded superannuation schemes. While CSC administers these schemes, CSC does not invest monies for these schemes.
Our investment approach
We aim to achieve consistent long-term returns within a structured risk framework.
To achieve this, we manage and invest each scheme’s investment option to enable its stated investment objective within strictly defined risk limits. Each scheme is also managed in a way that allows for payment of monies to meet member benefit payments, and to achieve equity among all members, as well as exercising care and diligence to maintain and grow the assets of the schemes.
CSC jointly invests the schemes in one pooled investment trust, providing economy-of-scale benefits to members in each regulated scheme.
Professional external investment managers are responsible for managing investments, enabling investment options in each scheme to gain exposure to a number of different asset classes.
Target asset allocation and rebalancing ranges are set for each investment option. These allocations and ranges are outlined in Table 10.
Our investment strategy
Our investment strategy focuses on providing financial adequacy in retirement for all scheme members. The level of risk taken reflects a focus on maximising the likelihood of achieving this outcome for all CSC members.
This means that CSC-managed investment portfolios, relative to those managed by other superannuation fund providers, should help to preserve more wealth through periods of negative equity market returns and capture a proportion, but not all, of the returns available through very strong market conditions. Note, however, that through these periods of strong equity market returns, CSC members’ investment returns should comfortably exceed targeted objectives.
Over the full investment horizon (that is, the length of time an investor expects to hold an investment product), as more capital is preserved in weak markets and most of the returns are captured in strong markets, the cumulative return, to members, will be very competitive and the volatility of returns will be reduced.
Our investment governance
Our investment governance focuses on managing and pricing investment risks efficiently. CSC’s primary objective is to achieve stated investment objectives within strictly defined risk limits.
Our Board has established a comprehensive investment governance framework, which includes a clear statement of both Board and Executive responsibilities.
The CSC Board
Our Board is responsible for the sound and prudent management of the assets of CSC’s schemes. It sets, reviews and oversees the investment strategy, mission statement and core investment beliefs. It approves and monitors investment strategies for each investment option, agrees the budget, and determines appropriate delegations.
To approve CSC’s investment strategy, factors such as CSC’s specific scheme-membership characteristics, including demographics, perceived organisational comparative advantages, scale (as measured by funds under management), and the broader investment environment are all explicitly considered.
To approve an investment strategy for an individual investment option, the Board considers the objective, in terms of return and risk measures, and the investment horizon, in the context of these factors.
Our Board delegates management of investment activities to relevant members of the Executive. Reports on approved investment policies, investment performance, liquidity, risk, external investment manager and portfolio activity, portfolio structure, capital allocation and the risk budget are submitted and discussed at every Board meeting.
Our Investment team
Our Investment team advises the Board on investments, implements Board-approved strategies and manages all investments that fall within Board-approved delegations. The team is led by the Chief Investment Officer (CIO) and manages investments in a manner consistent with the Board’s investment strategy, its decisions on asset allocation, and its detailed investment policies.
Our Investment team performs two major functions:
Both functions are fulfilled by specialist senior investment managers, supported by investment analysts, who report directly to the CIO.
Our Investment Operations team
Our Investment Operations team is led by the Executive Manager Investment Operations. This executive position reports to CSC’s Chief Operating Officer, who reports to the CEO. Responsibilities of the Investment Operations team include:
Investment managers
Under scheme legislation, CSC is required to invest through external investment managers. On the recommendation of the CIO, the Board approves the appointment of ‘investment-grade’ managers who may be appointed at any time by CSC.
Investment managers are selected for their specific expertise and invest according to individual mandates, set by CSC, that address CSC’s specific portfolio requirements. These mandates provide directions to the type of investments to be held, the maximum and minimum holdings for each investment type and target rates of return and risk limits.
External investment managers are paid a fee usually based (in part) on the value of assets managed on behalf of CSC, but importantly (where possible) on their performance in both returns and risk taking.
Fees reflect investment costs applicable to each asset class category and the investment style of each manager.
Some managers who exceed predetermined benchmarks within specified risk limits may be paid a performance fee, which is usually a share of the excess performance.
Environmental, social and governance factors
We have long endeavoured to integrate consideration of all relevant risk factors into our investment process, including those that have the potential to impact future franchise values over long horizons. We take this responsibility seriously and we have been recognised globally for our innovation and market-leading approach from both the UN and the Bretton Woods II initiative (for more on our recognition as a leader in responsible asset management, see the Chair’s Report.
We actively pursue the principles of good governance in our own operations and seek them in the companies in which we invest. Poor governance, sometimes evident in poor environmental and social practices, can be a sign of poor corporate management and may lead to a decline in the value of our members’ investments. We seek to identify these risks, where they are potentially material to our members’ superannuation savings, and mitigate them. To this end, CSC is an active owner of all our investments because our mission is to create and steward enduring wealth for our members.
Our ownership is prosecuted through several channels, including:
CSC is currently:
Principles for Responsible Investment (PRI)
In November 2006, CSC was among the earliest signatories of the United Nations–supported Principles for Responsible Investment (PRI, founded in April 2006). PRI provides a framework for institutional investors to align investment activities with the broader interests of society while maximising long-term returns for their beneficiaries.
The six principles of PRI and its signatories are:
Montreal Carbon Pledge
We are a signatory to the Montreal Carbon Pledge which is supported by PRI. It aims to increase investor awareness, understanding and management of climate change–related impacts, risks and opportunities. Under the pledge, we commit to measuring and disclosing, on at least an annual basis, the carbon footprint of our public market equities portfolio.
Table 9 shows that our public market equities carbon footprint (as at 30 June 2018) is estimated to be 14.5% lower than its benchmark by 16 million tonnes of CO2 emissions per AUD million invested.
Table 9. CSC’s public market equities carbon footprint at 30 June 2018
|
CSC listed equities |
CSC |
Benchmark |
Difference |
|
Carbon footprint* |
96.7 |
113.1 |
-16.4 |
|
Coverage** |
83.8% |
98.3% |
-14.5% |
*Carbon footprint is measured in tonnes of C02e (Scope 1 + Scope 2) per AUD million invested (as at 30 June 2018).
**Carbon emissions data is sourced from MSCI ESG Research and covers the MSCI ACWI universe of companies. For more information visit msci.com
Table 10. CSC investment options at 30 June 2018
|
Investment option (scheme) |
Objective |
Risk |
Minimum suggested time frame |
Target asset allocation including CSCri TRIS (ranges) |
CSCri standard target asset allocation (ranges) |
|
|
Band |
Label |
|||||
|
Cash (CSS, PSS, MilitarySuper, PSSap, CSCri and ADF Super) |
To preserve capital and earn a pre-tax return in line with that of the Bloomberg AusBond Bank Bill Index by investing 100% in cash assets |
One |
Very low |
1 year |
Cash 100% (100%) |
Cash 100% (100%) |
|
Income Focused (MilitarySuper, PSSap, CSCri and ADF Super) |
To outperform the CPI by 2% per annum over 10 years |
Three |
Low to medium |
5 years |
Cash 30% (10–100%) Fixed interest 20% (10–100%) Equities 15% (0–40%) Property 24% (0–35%) Infrastructure 1% (0–35%) Alternatives 10% (0–70%) |
Cash 35% (10–100%) Fixed interest 20% (10–100%) Equities 10% (0–40%) Property 24% (0–35%) Infrastructure 1% (0–35%) Alternatives 10% (0–70%) |
|
Default Fund (CSS/PSS) Balanced (MilitarySuper and CSCri) MySuper Balanced (PSSap and ADF Super) |
To outperform the CPI by 3.5% per annum over 10 years |
Five |
Medium to high |
10 years |
Cash 15% (0–65%) Fixed interest 14% (0–65%) Equities 45% (15–75%) Property 10% (5–25%) Infrastructure 1% (0–20%) Alternatives 15% (0–30%) |
Cash 19% (0–65%) Fixed interest 15% (0–65%) Equities 40% (15–75%) Property 10% (5–25%) Infrastructure 1% (0–20%) Alternatives 15% (0–30%) |
|
Aggressive (MilitarySuper, PSSap, CSCri and ADF Super) |
To outperform the CPI by 4.5% per annum over 10 years |
Six |
High |
15 years |
Cash 3% (0–35%) Fixed interest 5% (0–35%) Equities 65% (20–95%) Property 16% (0–50%) Infrastructure 1% (0–50%) Alternatives 10% (0–70%) |
Cash 3% (0–35%) Fixed interest 5% (0–35%) Equities 60% (20–95%) Property 16% (0–50%) Infrastructure 1% (0–50%) Alternatives 15% (0–70%) |
Note: Investment risk bands and labels (used by CSC’s standard risk measure) are explained in the Investment Options and Risk booklet, which is part of each scheme’s Product Disclosure Statement (PDS).
Investment performance for each option is calculated after fees and taxes (please note that past performance is no indication of future performance).
Performance is calculated based on the actual value of investment option assets as at the end of the quoted performance period (which is 1 July 2017 to 30 June 2018 for this report) and is indicative only of the returns that a member achieves on their investment.
Earning rates (for CSS and PSS) and unit prices (for MilitarySuper, PSSap, CSCri and ADF Super) are used for daily member transactions and will determine the actual performance a member achieves based on the timing and amount of their individual transactions. The earning rates and unit prices are determined based on the best available information at the time they are declared. Valuations are incorporated into the calculations for earning rates and unit prices as soon as practical after they are received.
Using earning rates or unit prices to calculate investment performance for the 1 July 2017 to 30 June 2018 period will provide similar—but not identical—returns to the investment performance figures published below.
Analysis of CSC’s investment performance is included in the Chair’s report and in the Annual Performance Statement.
Table 11. CSS investment performance to 30 June 2018
|
Objective |
1 year (%) |
3 years (%) pa |
5 years (%) pa |
10 years (%) pa |
|
|
Australian inflation |
2.1 |
1.7 |
1.9 |
2.1 |
|
|
Options |
|||||
|
Default Fund |
To outperform the CPI by 3.5% per annum over 10 years |
9.4 |
6.9 |
8.9 |
6.0 |
|
Cash Investment Option |
To preserve capital and earn a pre-tax return in line with that of the Bloomberg AusBond Bank Bill Index by investing 100% in cash assets. |
1.5 |
1.7 |
1.8 |
2.8 |
Table 12. PSS investment performance to 30 June 2018
|
Objective |
1 year (%) |
3 years (%) pa |
5 years (%) pa |
10 years (%) pa |
|
|
Australian inflation |
2.1 |
1.7 |
1.9 |
2.1 |
|
|
Options |
|||||
|
Default Fund |
To outperform the CPI by 3.5% per annum over 10 years |
9.3 |
6.8 |
8.8 |
5.9 |
|
Cash Investment Option |
To preserve capital and earn a pre-tax return in line with that of the Bloomberg AusBond Bank Bill Index by investing 100% in cash assets |
1.5 |
1.6 |
1.8 |
2.8 |
Table 13. MilitarySuper investment performance to 30 June 2018
|
Objective |
1 year (%) |
3 years (%) pa |
5 years (%) pa |
10 years (%) pa |
|
|
Australian inflation |
2.1 |
1.7 |
1.9 |
2.1 |
|
|
Options |
|||||
|
Cash |
To preserve capital and earn a pre-tax return in line with that of the Bloomberg AusBond Bank Bill Index by investing 100% in cash assets |
1.4 |
1.6 |
1.8 |
2.8 |
|
Income focused |
To outperform the CPI by 2% per annum over 10 years |
6.2 |
6.1 |
6.3 |
4.2 |
|
Balanced (default) |
To outperform the CPI by 3.5% per annum over 10 years |
9.3 |
6.9 |
8.8 |
4.9 |
|
Aggressive |
To outperform the CPI by 4.5% per annum over 10 years |
10.5 |
7.8 |
10.4 |
4.9 |
Table 14. PSSap investment performance to 30 June 2018
|
Objective |
1 year (%) |
3 years (%) pa |
5 years (%) pa |
10 years (%) pa |
|
|
Australian inflation |
2.1 |
1.7 |
1.9 |
2.1 |
|
|
Options |
|||||
|
Cash |
To preserve capital and earn a pre-tax return in line with that of the Bloomberg AusBond Bank Bill Index by investing 100% in cash assets |
1.4 |
1.6 |
1.8 |
2.8 |
|
Income focused |
To outperform the CPI by 2% per annum over 10 years |
6.2 |
5.9 |
6.1 |
5.4 |
|
MySuper Balanced (default) |
To outperform the CPI by 3.5% per annum over 10 years |
9.3 |
6.8 |
8.8 |
6.0 |
|
Ancillary Balanced |
To outperform the CPI by 3.5% per annum over 10 years |
9.2 |
6.7 |
8.7 |
6.6 |
|
Aggressive |
To outperform the CPI by 4.5% per annum over 10 years |
10.5 |
7.7 |
10.5 |
6.8 |
Table 15. CSCri investment performance to 30 June 2018
|
1 year (%) |
3 years (%) pa |
5 years (%) pa |
|
|
Australian inflation |
2.1 |
1.7 |
1.9 |
|
Options |
|||
|
Cash |
1.7 |
1.9 |
2.1 |
|
Income focused (default) |
6.5 |
6.3 |
6.6 |
|
Balanced |
9.8 |
7.2 |
9.6 |
|
Aggressive |
11.6 |
8.4 |
11.5 |
Note: The date of inception of the Cash, Income Focused and Balanced options was 7 May 2013, and 25 June 2013 for the Aggressive Option.
Table 16. CSCri TRIS investment performance to 30 June 2018
|
Objective |
1 year (%) |
|
|
Australian inflation |
2.1 |
|
|
Options |
||
|
Cash |
To preserve capital and earn a pre-tax return in line with that of the Bloomberg AusBond Bank Bill Index by investing 100% in cash assets |
1.4 |
|
Income focused |
To outperform the CPI by 2% per annum over 10 years |
6.7 |
|
Balanced (default) |
To outperform the CPI by 3.5% per annum over 10 years |
9.5 |
|
Aggressive |
To outperform the CPI by 4.5% per annum over 10 years |
10.9 |
Table 17. ADF Super investment performance to 30 June 2018
|
Objective |
1 year (%) |
2 years (%) pa |
|
|
Australian inflation |
2.1 |
2.0 |
|
|
Options |
|||
|
Cash |
To preserve capital and earn a pre-tax return in line with that of the Bloomberg AusBond Bank Bill Index by investing 100% in cash assets |
1.5 |
1.6 |
|
Income focused |
To outperform the CPI by 2% per annum over 10 years |
6.2 |
6.1 |
|
MySuper Balanced (default) |
To outperform the CPI by 3.5% per annum over 10 years |
9.3 |
9.4 |
|
Aggressive |
To outperform the CPI by 4.5% per annum over 10 years |
10.6 |
11.1 |
