How will Basel 3 and associated
regulatory changes affect the investment
strategies of superannuation funds?
Discussant comments
by Michael Skully
Monash University
www.buseco.monash.edu
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.
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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)
Retail Employees Super
26.1bn
22.6bn
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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 nonbank activity.
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Loan syndications: Aust. vs. USA
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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.
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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.
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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.
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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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