Super fund pension schemes powering structured products market in Australia

Bigger employer contributions to superannuation guarantee pension schemes in Australia is encouraging more individuals to invest in self-managed super funds, spelling good news for structured products providers

Structured products benefit from pensions boost

While superannuation guarantee schemes – commonly known as super funds – have been running in Australia for 20 years, recent changes have allowed individual investors or groups of up to four people to take charge of their own funds, with structured products being among the investments of choice.  

In an added boost to the industry, super fund contributions are set to rise. In the 2013/14 financial year, Australian employers will need to contribute 12% of an employee's earnings rather than the current rate of 9%.  

Self-managed super funds (SMSF) are superannuation schemes that can be directed by the person who is set to receive the funds on retirement, but are generally managed through a financial adviser. The funds give investors the freedom to access any type of investment they choose, in contrast to the other common option of using a retail super platform, which might offer a limited choice of investments.

According to market participants, yield-based structured products are particularly popular with the SMSFs.

"The self-managed super environment is one of the biggest growth areas in the Australian market," says Chelsea Wise, Sydney-based director and head of structured product sales for Australia at Credit Suisse.

"Because they tend to be high-net-worth investors, they are typically looking for more sophisticated investments and diversified strategies beyond term deposits and long-only equity exposure."

According to Wise, the SMSF investment schemes are one of the main reasons that Credit Suisse maintains a retail capability in Australia. "We tend to build offers that are tailored towards self-managed super funds and distribute them through advisers who target these investors specifically," she says.

Financial services conduit and structured products distributor Instreet Investment has also benefited from SMSFs as its Mast structured products are popular with the funds.

"The self-managed super fund space is a market we tend to target. They use our Mast product as portfolio construction tool – it allows them to put their money into defensive assets and then they use the yield generated by these defensive assets to buy the Mast products," says George Lucas, managing director of Instreet in Sydney.

Instreet's Mast products give investors geared exposure to either the ASX 200 index, which is the main Australian securities index, the S&P 500 in the US, or the Barclays Combats Volt 5% Excess Return Index.