Former Future Fund chairman David Murray warns that the days of Australian super funds generating double-digit investment returns is no longer realistic, at least for the next few years.
The banking doyen says the high investment returns achieved in the last financial year by median growth super funds had not been matched by the growth in corporate earnings and that given the global economic environment, future returns will struggle to break past double-digit growth over the next three to five years.
"That's the more likely outcome because that's the nature of the world we are in," says Murray, who chaired the now $90-billion Future Fund from its 2006 inception to 2012.
Figures from super research firm Chant West show in the last financial year median growth super funds - which have between 60 per cent and 80 per cent of their portfolio weighted towards equities and are where most people have their super - achieved the highest investment returns in 16 years.
Returns soared 15.6 per cent, mostly driven by resurgent equity markets.
In a bleak assessment of the investment outlook, the former Commonwealth Bank chief executive says "the investment returns in the period from 1985 to 2007 were unusually high and very high in respect of bonds ... For the foreseeable future, returns will be very different and lower, particularly in relation to cash and bonds."
Murray says the low return rate for cash, bonds and equities could go on for an extended time until governments in the US and Europe deal with fundamental reforms.
"We are only five or six years into the post-crisis period, which isn't very long," he says. "So it could be quite some time still before these things come back."
Earlier this year the London Business School conducted an extensive report into the global investment outlook, which included Australia. The authors of the report - Elroy Dimson, Paul Marsh and Mike Staunton - concluded we are entering a 20-year period of low investment returns and make a point of saying that when real interest rates are low, real equity returns also tend to be low.
Australia's official cash interest rate is now at a historic low of 2.5 per cent, with further rate cuts predicted by economists over the next 12 months.
The academics predicted an investor with a 20- to 30-year horizon faced close to zero real returns on inflation-protected government bonds, while the annualised real return on a rolling investment in cash is likely to be negative by as much 0.5 per cent over 20 years. They forecast real equity returns in the region of 3 per cent to 3.5 per cent over 20 to 30 years. Weighing also on Murray's mind are the findings released this week in the World Economic Forum's global-competitiveness report for 2013-14.
The report showed Australia falling further behind in international competitiveness, with its ranking down one place to 21, three places behind New Zealand. "The main message is relying on the sort of returns we had prior to the crisis might not be the smartest thing to do," Murray says.