Future Fund managing director David Neal called on super funds to become “braver and more courageous” at the Association of Superannuation Funds of Australia (ASFA) Investment Interchange in Sydney yesterday.
“The technology we’re using to turn savings into investment return is pretty outdated.
“We’re still doing things pretty largely the same way we were doing them a pretty long time ago,” Mr Neal said.
With the exception of 'target date' funds, there has been very little innovation in the way super funds build portfolios, he said – although he acknowledged it is "starting now".
"Personally, I think [the problem] is the governance of institutional funds. It just needs to get better and become more expert, braver and more courageous," Mr Neal said.
The Future Fund boss also admitted to being "puzzled" about the 'peer group' mentality of institutional investors in Australia given superannuation members are typically unengaged and do not switch funds.
"If nobody switches, what are you worried about?" he asked.
Mr Neal also gave some insight into the interaction between the Future Fund investment committee and the fund's board.
Asked how the $116 billion Future Fund avoids the problem of 'silos', Mr Neal said it starts with the board – with only one of the directors having been on a super fund board before.
"The rest are all successful corporate people and they didn’t really have a ‘this is the way it’s done’ [attitude]," he said.
According to Mr Neal, when the Future Fund was founded in 2006 and the investment committee began discussing possible investment constraints, the board responded by saying: "Why put any on yourself?"
As a result, the Future Fund's performance is not measured by a benchmark, he said – although the investment committee must report to the board monthly.
"That means if we’re doing a bad job [the board] know we’re doing a bad job," Mr Neal said.
"[The absence of a] benchmark just completely frees us up to go and build the right portfolio, and explain to the board why it’s the right portfolio," he said.