Letter to Canberra Times

CSS Chief Investment Officer addresses a number of factual errors for the information of members.

14 July 2004

The Editor
The Canberra Times
PO Box 7155
Canberra Business Centre ACT 2610

Dear Sir,

I refer to the two Daryl Dixon articles the Canberra Times has run over the last week or so concerning the Commonwealth and Public Sector Superannuation Schemes (CSS and PSS). These were "Members need investment choice" in the most recent Public Sector Informant (6 July 2004) and "CSS fund finally in profit mode" in the Sunday Canberra Times (11 July 2004).

The articles contain several factual errors which I would like to correct, as follows:

The final investment returns are not yet available but are expected to be in the 13% to 14% range for both Funds. The crediting rate for members will be below this because some of this year's earnings will be used to replenish reserves used to keep member balances steady in 2001-02 when investment earnings in both funds (and in most other funds) were negative. Mr. Dixon's articles confuse investment returns (earnings rates) with crediting rates.

Survey information on industry fund performance is available only up until the end of May. The SuperRatings survey of 41 industry and MasterTrust funds' balanced options (and SuperRatings estimate that over 80% of fund members use balanced options) has a median earnings rate over those 11 months of 10.6% compared with the PSS return of 12.3% and the CSS return of 11.9% over the same period. Only two of the 41 funds have a higher return than the PSS and only three are higher than the CSS.

This reflects the fact that the CSS pays tax and the benchmark doesn't. On a pre-tax basis the CSS return will be around 1% ahead of the benchmark in 2003-04. Furthermore the CSS benchmark return is simply the return of our Strategic Asset

Allocation (SAA). A good benchmark return then reflects a good SAA choice by the trustees and the comparative return numbers set out in the previous point are suggestive of a good SAA choice by the CSS trustees.

As we pointed out to The Canberra Times last year when Mr. Dixon made this claim, the CSS holding of about 25% in overseas shares is below the 27% held in this asset class by the average fund in the InTech Major Funds survey.

Australian equities did perform well in 2003-04, returning 21.6%. Hedged international equities did better, however, returning just under 25%. Hedged international bonds also out-performed Australian bonds in 2003-04.

There were in fact only two negative monthly returns in 2003-04, November and April when returns were minus 0.1% in both cases. These negative months were followed by strong positives, being 2.7% in December and 0.6% in May. Most of the "gyrations" in 2003-04 were therefore positive. Hedged international equity returns were in fact less volatile than Australian equity returns in 2003-04, though there wasn't much in it.

Mr. Dixon also criticises the Fund for following a "long-term investment strategy" with a balanced diversified portfolio "including both Australian and overseas assets". We plead guilty as charged.

This is the second year in a row that Mr. Dixon has attacked the performance of the CSS and the PSS using incorrect "facts". In order that readers are informed rather than misinformed we would be happy to check any facts that you are proposing to publish about the Funds before you go into print.

Yours sincerely,

André Morony
Chief Investment Officer
Public Sector and Commonwealth Superannuation Schemes (PSS/CSS)