AUSTRALIAN SUPERANNUATION FUND MELTDOWN

                                Members of superannuation funds have spent the past 18 months on the Big

Dipper. As global sharemarkets plunged relentlessly, so too did the monthly losses suffered by

super funds. For calendar 2008 this culminated in the median super fund shedding more than a fifth of its value, the worst performance on record and wiping out all the gains achieved in the previous two years. Little wonder that the word "unprecedented" has become synonymous with virtually all things financial.

The size of the average super fund loss was more than three times the previous record decline of

6.8 per cent posted in 2002. These figures are for the balanced funds, the default option where most of us have our super. Some funds reported losses far greater than the 22 per cent median decline last year (see page 28). The worst performers suffered from having a high exposure to listed assets such as equities, while those funds at the top of the league table tended to have a higher portion of their portfolios invested in unlisted assets such as roads and buildings, the prices of which have so far remained fairly constant.

The community mood is raw and angry following the shrinkage of funds put aside for retirement.

This, under the watch of industry bosses who are amongst the highest paid in the country. There is now much soul searching about how the industry should adapt for the future.

So what has it been like for those who run Australia's $1-trillion retirement savings

industry? And given that even further declines are almost certainly on the way, why didn't they
understand that the collapse of the US sub-prime mortgage market would lead to such sharp falls in share markets, and why didn't they act to protect our savings? The super funds had been
warning savers for well over a year that high rates of return recorded in 2006 and 2007 were
unsustainable, but they appear to have done nothing to prepare their portfolios to cope with a
deteriorating economy.

John Evans, associate professor at the Australian School of Business, blames the funds' failure to avoid heavy losses in part on their herd mentality. Super funds benchmark themselves against
each other, so no investment officer has any incentive to go out on a limb. "There is no incentive to be different to the pack," Evans says. "If you get it wrong, the board will crucify you."