CSC’s purpose: Maintaining confidence in retirement outcomes in an uncertain world

CSC

Fund category: Public sector

In this Q&A Commonwealth Superannuation Corporation’s CIO, Alison Tarditi, shares how her team navigates market shocks and global shifts to keep members on track for a comfortable retirement.

What is CSC and how does its investment strategy stand out?

Commonwealth Superannuation Corporation (CSC) is a retirement benefits provider for members of the Australian public service, defence force, and their families. Our well-defined member base differentiates our investment strategy. Unlike many funds, we derive our investment objectives directly from the specific demographics, risk tolerances, and preferences of our members, rather than adopting a general approach for the average Australian.

What investment options does CSC offer?

We offer two pre-mixed investment choice options tailored for different stages of working life:

Aggressive Option: Designed for members early in their working life.
Income-Focused Option: A more conservative choice for members seeking greater certainty as they approach retirement.

Both choice options rate highly in the top quartile of their peer groups over all time periods from 3 years and longer, both in terms of net real returns, as well as net real returns, after accounting for risk.¹We also offer a pure cash option as a risk-free choice.

What is unique about CSC’s default MySuper Balanced Option?

Our default MySuper Balanced Option is designed for members who do not make an active investment choice. This option is tailored to the demographic profiles and risk appetites of these CSC members.

We measure its success based on whether defaulting members are on track to achieve an ASFA comfortable standard of income at retirement, rather than comparing it to generic industry benchmarks. Currently, the average contributing CSC-defined member is on track to retire with a savings balance approximately 20 per cent higher than required for a comfortable retirement income standard.²

How does CSC manage risk in its default MySuper Balanced Option?

Our MySuper Balanced Option aims to capture, on average, 90–95 per cent of the upside during strong market conditions but avoid, on average, 20–25 per cent of the downside experienced by peers during market downturns. This balance is designed to achieve a surer path to a well-defined retirement outcome for our members.

What is the Retirement Income Strategy, and how does it help members?

Our Retirement Income Strategy uses analysis of member demographics to customise solutions for eight cohorts of members with similar financial characteristics. Members can identify their financial profile and further personalise their solution based on preferences for higher income, greater liquidity, or less volatile income throughout retirement.

What challenges do modern investment strategies face, and how does CSC adapt?

Sources of investment risk have increasingly arisen from factors unrelated to economic business cycles. These include geopolitical competition, climate policies, government debt, unconventional fiscal tools, and technological changes. So, while the implementation of investment strategies changes, CSC’s respect for the underlying principles of investing have not.

We have worked hard to build enduring competitive advantage as an investor that can move early and quickly, before other market participants recognise the opportunities. This helps us to build resilient portfolios by being early to emerging opportunities and acquiring future-fit real assets. For example:

Investing in windfarms in 2015, before the renewables opportunity became market consensus. This enabled us to later recycle that appreciated capital into renewables development platforms in Europe, where investment capital was relatively more scarcely deployed.
Acquiring Canberra Data Centres in 2016 ahead of market recognition of their value as critical infrastructure in a digitalising world.
Purchasing inflation-linked cash flows from telecommunications towers in 2021, before central banks and the market consensus recognised inflation risks.

How does CSC respond to market shocks?

Temporary losses are unavoidable over a customer’s retirement journey spanning decades of global change. For instance:

In December 2018, global equity markets fell 12 per cent due to fears of global growth slowdown and potential trade frictions.
In March 2020, equity markets fell by 34 per cent in four weeks due to the pandemic but rebounded by 58 per cent over the following 12 months. A customer joining a super fund in February 2020 would have a very different experience compared to another customer starting two months later in April 2020.

These examples demonstrate the importance of reducing losses as well as capturing market recoveries. The same investment return through recovery will generate greater dollars when it is applied to a higher preserved savings pool. Over the last 10 years, CSC’s PSSap MySuper Balanced option has consistently avoided more of the peak-to-trough loss on average than other comparable super funds. Further, after such events, CSC’s MySuper option typically recovers its dollar value within six to seven months of the material adverse market correction.³

What is CSC’s approach to diversification and risk management?

CSC leverages risk diversification, asset quality, and proactive management to protect members’ financial wellbeing. Our real-time risk management processes incorporate behavioural, technical, and structural data. We prepare for a wide range of potential portfolio vulnerabilities that can emerge under multiple plausible future scenarios, rather than relying on any point estimates of expected market and economic outcomes.

We execute this strategy using our first-mover advantages to opportunistically acquire or build the types of investments our portfolios are likely to need before others recognise their intrinsic value. And we prioritise the future fitness and quality of the management teams and business structures of the real assets we acquire so that they can be proactively stewarded for resilience and growth.

What is CSC’s competitive advantage as a mid-sized fund?

CSC’s $75 billion scale provides a natural but unique advantage. Our mid-range size allows agile access to diverse global investment categories, from large established assets to emerging opportunities, without compromising diversification or early mover advantage.

The CSC investment team has also manufactured competitive advantages through its globally recognised and unique intellectual property in governance as a platform for continuous innovation. The resulting cultural integrity and agility of the team empowers the right people to make the right decisions at the right time, This has been foundational to CSC’s demonstrated skills in:

Building investment-management businesses in demand from other funds.
Acquiring private assets early, benefiting from structural tailwinds.
Proactively stewarding investments with specialised teams experienced in local regions and industries.

Where can members find more information about CSC’s investments?

For more information, see CSC investment examples.

¹Source: SuperRatings peer surveys to 30 September 2024.

²The Association of Superannuation Funds of Australia (ASFA) estimates how much money a single person or couple will need to live a comfortable lifestyle in retirement. To find out more, visitThe ASFA Retirement Standard.

³Source: SuperRatings SR 50 Balanced Index as at 30 September 2024.