A Global Perspective on Financial Regulation
Edited by John Evans, Michael Orszag and John Piggott
Hazel Bateman and Robert J. Hill In this chapter we survey some of the main index benchmarks used by Australian superannuation (pension) funds to evaluate the performance of fund managers. In recent years there has been a proliferation of specialist investment funds; this in turn has caused a proliferation of index benchmarks. Nevertheless, the benchmark of choice in Australia for equity funds is still the S&P/ ASX 200 index. We consider some alternative ways in which benchmarks could be constructed, particularly with respect to the choice of weights, the frequency of rebalancing, the choice of index number formula and the treatment of dividends. We argue that such alternative benchmarks warrant further investigation. The chapter concludes by exploring some of the implications of a mismatch between investment style and the underlying benchmark. 1. PERFORMANCE BENCHMARKS for superannuation Superannuation funds are a major element of the Australian financial industry, with total assets in excess of A$1.25 trillion, equivalent to over 100 per cent of GDP, invested across a wide range of Australian and international assets. In mid-2007, 32 per cent of assets in the default strategies of superannuation entities were held in Australian equities, 24 per cent in overseas equities, 16 per cent in securities, 8 per cent in cash and 8 per cent in property (APRA 2007). Superannuation is the main source of retirement saving for many Australian retirees, so fund performance is crucial. Under standard assumptions,1 a 1percentage point reduction in the annual rate of return over...
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