Introduction

A debate has erupted recently about the level of equities held by the average super fund with various industry luminaries lining up to call for the weight to fall. Whilst the arguments are multi-faceted much of the debate has focused on sovereign bonds as an alternative to equities. Whilst global economic growth remains at risk, and much risk capital has been destroyed, superannuation funds and their Trustee Boards have a responsibility to ensure the appropriate risk is taken to achieve the objectives they have signed up to achieve. To be clear, assuming inflation remains around its previous five and ten year average of 3%, the median balanced superannuation fund needs to generate an annual return over the forthcoming five years of approximately 12.5% in order to achieve its 10 year return objectives.

Investors face a harsh truth – risk needs to be taken in order to achieve objectives and the failure to take appropriate risk is a risk in itself! In this quarter’s Perspective we consider whether credit can offer an alternative source of return to equities, whilst maintaining the potential to achieve required return objectives.

Please contact us if you would like a copy of this Perspective.