November 2002 Volume 83 Number 11 "serving the protectors"
Police Super Update www.policesuper.sa.gov.au
By Micheal Hogg

Investment performance for the 2001-02 financial year

Funds SA is a statutory body established under the Superannuation Funds Management Corporation Act, 1995. Funds SA is responsible for the management and investment of the fortnightly employee (member contributions) and employer (SAPOL contributions) superannuation contributions to the Pension and Lump Sum Scheme Divisions of the Police Superannuation Fund and the Employer Contribution Account (SAPOL contributions).

Superannuation contributions (both employee and employer) are invested by Funds SA across a diversified range of asset classes:

• International Shares 38%
• Australian Shares 34%
• Property 8%
• Inflation Linked Bonds 12%
• Fixed Interest Bonds 6%
• Cash 2%

The past financial year was a very challenging year for investors, globally. For the 12 months to 30 June 2002, Funds SA achieved investment returns (after fees) for the Pension and Lump Sum Schemes of –5.3%. As with other superannuation funds, Funds SA’s investment performance was impacted by significant negative returns from world share markets. For example, the United States share market recorded a return of –19.6%, Japan –20.0%, United Kingdom –14.1% and Germany –25.8%.

History demonstrates that investment markets can experience short periods of extreme volatility from time to time. It is important, therefore, that a sound investment strategy be pursued, underpinned by a target return which may realistically be achieved over an appropriate time horizon with an acknowledged level of risk. The investment objective set for the Pension and Lump Sum Schemes (the basis on which the abovementioned investment asset class allocations have been determined) is to provide an average return of 4.5% per annum in excess of the rate of inflation over an investment time horizon of eight years. During this period, however, returns may be volatile and indeed negative returns may be experienced in two years out of eight.

Funds SA’s current investment strategy has not yet been in place for a full eight years, however, investment returns over the six years it has been in place have averaged 10.6% per annum, 8.1% per annum in excess of the rate of inflation. This is well above the long-term real return target of 4.5% per annum. Looking specifically at the past five years, the following table shows the investment returns (after fees) achieved by Funds SA in each year and the average return over the period, compared to the rate of inflation.

INVESTMENT RETURNS						5 years to 2002
SCHEME	1998	1999	2000	2001	2002
PENSION	12.8%	9.5%	16.9%	3.2%	-5.3%	7.2%
LUMP SUM	12.0%	10.3%	17.0%	3.2%	-5.3%	7.1%
INFLATION	0.7%	1.1%	3.2%	6.0%	2.8%	2.7%

Central to Funds SA’s investment approach is the rigorous implementation of the concept of diversification. Primarily, this is achieved by spreading investments over a broad range of asset classes as shown above. Further diversification is achieved by allocating funds to a range of specialist fund managers carefully selected for their different and complementary investment styles. As at 30 June 2002, Funds SA had contracts with 21 major external fund managers to manage its investment portfolio.

Funds SA does not take short-term, tactical views on the performance of the different asset classes, but instead maintains a disciplined focus on long-term asset class allocations designed to produce superior returns over the targeted investment timeframe and within the agreed risk profile.

Full details on Funds SA’s investment strategy can be obtained by contacting Funds SA by:

• Telephone: 8204 2355
• Fax: 8204 2366
• Web Site address: www.funds.sa.gov.au
• Email: ceo@funds.sa.gov.au

Crediting rates

At the end of each financial year, the Police Superannuation Board is required to declare rates of return to be credited to the various accounts of members of the Pension and Lump Sum Scheme Divisions of the Police Superannuation Fund. The investment returns achieved by Funds SA are used by the Board to calculate end of year crediting rates.

The Board has determined the following policies in respect of end of year crediting rates to be applied to members’ accounts.

Member contribution accounts

The end of year crediting rate calculation is based on the average of the net rates of return (money weighted return net of the Board’s administration costs) achieved for the Police Superannuation Fund (Pension and Lump Sum Scheme Divisions) by Funds SA over the previous three years.

For the financial year 2001-02, the Board declared crediting rates for the Pension and Lump Sum Scheme Divisions of 4.9 per cent and 4.8 per cent respectively, to be applied to member contribution accounts. The following table shows crediting rates for member contribution accounts over the past five years.

CREDITING RATES TO MEMBER CONTRIBUTION ACCOUNTS
SCHEME	1998	1999	2000	2001	2002
PENSION	13.5%	14.3%	13.0%	9.8%	4.9%
LUMP SUM	12.6%	14.0%	12.9%	9.9%	4.8%

Voluntary contribution accounts

The end of year crediting rate is the net rates of return (money weighted return net of the Board’s administration costs) achieved for the Police Superannuation Fund (Pension and Lump Sum Scheme Divisions) by Funds SA as at 30 June each year.

For the financial year 2001-02, the Board declared crediting rates for the Pension and Lump Sum Scheme Divisions of –5.3 per cent, to be applied to voluntary contribution accounts.

Roll over accounts

The end of year crediting rate is the net rates of return (money weighted return net of the Board’s administration costs) achieved for the Police Superannuation Fund (Pension and Lump Sum Scheme Divisions) by Funds SA as at 30 June each year.

For the financial year 2001-02, the Board declared crediting rates for the Pension and Lump Sum Scheme Divisions of –5.3 per cent, to be applied to roll over accounts.

Police Superannuation office:
Ground floor, 30 Flinders St, Adelaide, 5000.
Postal Address: GPO Box 1539, Adelaide, 5001.
Internal postcode: 128.
Phone: 8204 2964 or 8204 2965.
Fax: 8204 2303.
E-mail: admin@policesuper.sa.gov.au
SAPOL Intranet: Police Superannuation,
Services, Business Service, FMSB.

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