In this week’s edition of Firstlinks I get to put pen to paper in reprising and updating a piece I wrote eight years ago.

There’s this story about a group of US Air Force generals in World War II who try to figure out ways to protect fighter bombers (and their crew) by examining the location of bullet holes on returning planes. Mapping the location of these holes, the generals quickly come to the conclusion that the areas with the most holes should be prioritised for additional armour.

Statisticians from Columbia University were engaged to confirm these findings. Instead these outsiders pointed to a flaw in the military groupthink; the areas where the holes were weren’t the most vulnerable, they were the least. The generals couldn’t see the holes that were taking down their bombers, which in the returning aircraft were areas where the holes weren’t. Those needed strengthening instead.

Australia’s superannuation system is similarly prone to groupthink and confirmation bias, leading to systemic weaknesses. Those who live it, breathe it and work within it are often least able to see it as it truly is, warts and all. It therefore helps to have the occasional ‘outsider’s view’.

That’s why this week I revisit the Mercer CFA Institute Global Pension Index, comparing the most recent report with one from 2013.  The super system has been on quite the rollercoaster ride in the intervening years, and my piece attempts to put our system in its rightful global context.

Don Ezra then picks up the story, looking at ‘decumulation’, as he notes possibly the “hardest problem in finance”, to provide some handy hints on how to sensibly live on your retirement nest egg when you can’t possibly know in advance how long it needs to last.

The recent commencement of the ‘Your Future, Your Super’ rules will almost invariably result in some consolidation amongst APRA-regulated super funds. There have already been several recent high-profile announcements, a trend that’s likely to escalate. There can, however, be a tension between the benefits of scale on the one hand, and sufficient competitive tension on the other.

David Gallagher and Graham Harman turn their attention to what consolidation might mean, in light of a current House of Reps Standing Committee on Economics inquiry into common ownership and increasing shareholder concentration by fewer, larger, superannuation funds.

World leaders might now be home, having made their appearances at the opening of the COP26 climate summit in Glasgow, but now the real work begins. Not just by their teams left behind to put a workable framework around targets for achieving net zero carbon emissions, but by stakeholders globally. Of which the investment management sector, being custodian to the current and future wealth of so many, is a critical one.

So this week features two articles on aspects of investing through an Environmental, Social and Governance (ESG) lens.

Andrew Lockhart and Alison Chan look at the role of ESG investing in private markets, an area with its own special challenges, given the differences in disclosure requirements between publicly listed companies and those who remain privately held.

Alison Savas then continues the ESG focus, looking at how companies are already ‘decarbonising’, and what this might mean for you as an investor. Interesting to see how looks can be deceiving, with the south-west region of the US already generating more than 10,000 Megawatts (MW) of electricity via utility-scale solar plants. According to the Clean Energy Council, Australian large-scale solar generation was approximately 4,000 MW during 2020 by comparison.

In the world of commercial property, the industrial and logistics segment has traditionally been seen as the unglamorous sibling to A-Grade office and high-end retail. Yet in a post-COVID world, demand for warehouse space to fulfil e-commerce sales, and demand for cold storage and food logistics, is changing the dynamics of property investing. Steven Bennett and Sass J Baleh take a look at this interesting corner of the property market from an investor’s perspective.

What gets measured gets managed. This week’s edition is rounded-out by a piece from Morningstar’s Ben Johnson. Ben looks at the important, but under-appreciated, considerations that go into selecting an index against which to compare an investment strategy.  Good indexes have certain characteristics that enable them to provide an effective and efficient benchmark for performance comparison, and Ben walks readers through what to look for in a suitable index.

This week’s Comment of the Week comes from Chris Darby in response to “Trust your instinct”, a conversation between Hamish Douglass of Magellan and Sir Frank Lowy AC, founder of Westfield Corporation (now Unibail-Rodamco-Westfield):

“There are some out there who need to heed the advice of the Lowy family, If you have a little, give a little, if you have a lot, give a lot, it would make this world a better place. Inspirational Sir Frank!”

This week’s white paper is available to you courtesy of MFS on Emerging Market Debt (EMD), looking at fixed interest securities such as bonds issued by governments, quasi-governments and potentially corporates (depending on the index used) in emerging economies. The paper covers issues surrounding exchange rate risk, and how to mitigate it, in this lesser-known yet interesting asset class.