Our investment performance to 30 June 2023

At CSC, everything we do, from how we invest to who we invest in, is done with your future in mind.

Amidst ongoing social recovery from the COVID-19 pandemic, high inflation, interest rate hikes, and an increase in global instability, at CSC, we are continuing to focus on providing comfortable retirement outcomes to Australian Public Service and Defence customers and your families. We do this by investing in high quality businesses and considering long-term risks holistically.

For more insights on our investment philosophy and how we manage risk, see our investment philosophy.

The 2022-23 Financial Year

While Australian and global share markets struggled to find direction early in the 2022-23 Financial Year, they recovered through this volatility to deliver positive overall returns. Our investments performed strongly over the financial year, honouring our commitment to pro-actively protect our customers’ savings from inflation erosion.

Your investment portfolios have to be able to withstand many different economic, policy, political and market environments over the timespan to your retirement. This is why we build them with a wide view to the potential risks and macro scenarios that could plausibly occur. We model how different assets in our portfolio might behave in different scenarios—such as geopolitical events, changes to government policies, recession, economic slowdown, persistent inflation, other macroeconomic shocks, disruptive technological and other innovative breakthroughs.

As foreshadowed by Chief Investment Officer, Alison Tarditi at our 2021 and 2022 Annual Member Meetings, we anticipated potential inflation early, before it was widely acknowledged by the market, and was able to invest in inflation-protected assets at attractive prices.

How we performed

Our investment returns for the 10 years to 30 June 2023 for the Default, Balanced and MySuper Balanced options of our schemes exceeded their objectives, despite historical highs in Australian inflation rates.^[1]

• For the financial year to 30 June 2023, our MySuper Balanced option delivered 9% p.a. This exceeded inflation by +3.0%, meaning the investments in this option helped to not only preserve, but actually grow, the purchasing power of your savings over the past 12 months.
• Our Aggressive option delivered 11.4% p.a. for the financial year, building wealth for customers through inflation-hedging and non-cyclical growth assets. This exceeded inflation by +5.4% (an extra 8.9% above cash).
• Our Income-Focused option was one of the best performing^[2] conservative options compared to peers, delivering 5.3% p.a for the year. It preserved significantly more purchasing power than the equivalent median peer funds were able to.^[3]

Our primary investment objective is to maximise long-term, real (that is, above inflation) returns for customers, with a target of 3.5% per annum over rolling three-year periods for our Default, Balanced and MySuper Balanced options, while keeping risk to an acceptable level (defined as a probability of loss in no more than five years out of 20).

This investment objective is designed to provide adequacy in retirement for our average customer.^[4]

Examples of the portfolio activities in the financial year 2022–23 that contributed to performance included:

• Developers of renewable energy assets: These businesses collectively have a pipeline of solar, wind and battery development opportunities across Western Europe, Central Europe, Latin America, North America and Australia. Some of these projects protect returns in down markets, while still capturing gains in rising markets.

• Digital infrastructure: We invested in an Australian residential broadband business and a US data centre business, which further diversify our portfolio of digital assets geographically and across different types of digital infrastructure investments ^[5]. We look for digital assets that have both defensive cash flows from an infrastructure business model and exposure to growth from digitisation trends that are less correlated to market and economic cycles – such as working from home, growth in data usage and storage, and shifts from traditional to ‘cloud’-based workloads.

• Transition to electric vehicles: A leading UK car benefit scheme provider, supporting employers in providing employees with a salary-saving scheme to access a new, fully insured and maintained car. A key part of the strong returns was transitioning the business to electric vehicles, which accounted for 80% of new car orders at exit, up from 0% at the time of acquisition.

• Supporting the energy transition through more efficient financial markets: This business enables companies and organisations to achieve their climate-related goals and regulatory compliance by facilitating the buying and selling of renewable energy quota certificates and energy attribute certificates. As renewable and non-renewable power sources generally share the same power grid, determining the source of electricity can be a challenge. Renewable energy certificates provide a way for owners of certificates to legitimately attribute their power to renewable energy sources.

• Cybersecurity: A US-headquartered company that helps businesses identify and protect sensitive data through its data security and compliance.

• High quality property: While our real estate investments are not 100% immune to interest rate hikes in the current environment, their overall premium quality contributed to outperformance compared to peer funds in this financial year. This quality is reflected in well-leased assets with a broad and diversified tenant base in strategic premium locations.

• Building new investment management businesses: We identified and partnered with global best practice investment talent to create new sources of investment returns for our customers in a tailored and cost-effective way. By seeding these new businesses early, we are able to share profits in the partnership, effectively lowering fees over time as the businesses grow by winning additional new global clients that increase their assets under management.

• Value for money: Our focus on continuous improvement means that structures we have been putting in place over the past seven years continue flowing through to sustainably reduce the investment costs of our Balanced, Aggressive and Income-focused investment options.

1. Consumer Price Index, June Quarter 2023 | Australian Bureau of Statistics

2. Our PSSap Income-focused ranked first in the SuperRatings SR50 Captial Stable survey across the 5, 7, 10 years to 30 June 2023, and in the first quartile for the 1 and 3 years (on a net returns adjusted for risk basis).

3. Peers refer to the average return of the SuperRatings Top 50 super funds across government, industry and retail balanced default product.

4. ‘Adequacy’ is defined by the Australian Superannuation Fund Association (ASFA) as a ‘comfortable standard’. The ‘comfortable’ retirement standard allows retirees to maintain a good standard of living in their post work years. It accounts for daily essentials, such as groceries, transport and home repairs, as well as private health insurance, a range of exercise and leisure activities and the occasional restaurant meal.

5. Starting with domestic data centres in 2016, we have added an Australian wireless tower infrastructure, a fibre optic network business in Europe, data centres and fibre assets in Asia and a broadband investment in the US in the last 6 years.