Australia’s embarrassment – world’s most feeble portfolio holdings disclosure regime

There exists a contradiction in the Australian Prudential Regulation Authority’s (APRA’s) calls for more transparency around the unlisted holdings of superannuation funds when there has still be inadequate movement on the broader question of legislation around portfolio holdings disclosure.

That is the assessment of major research and ratings house, Morningstar which has renewed its call for the Government to move on portfolio holdings disclosure and therefore bring it into line with international standards.

What is more, a global assessment undertaken by Morningstar has rated Australia at the bottom of the international scorecard on portfolio holdings disclosure – a position it has held for some time.

It rated Australia as “standing alone as having clearly the feeblest disclosure regime among the 26 markets in the study”.

Morningstar head of manager selection, Grant Kennaway has been a long-time critic of the Australian portfolio holdings disclosure regime and has renewed his call for change, describing the current disclosure requirements for unlisted infrastructure and private equity as appalling week.

The flaws in the Australian Portfolio Holdings Disclosure Regulations released in November 2021 are many, but Morningstar would call out these specific points:

“For unlisted infrastructure and private equity, the values and weightings for individual assets are not required for disclosure. Only the total value and weighting for the asset class are required. For unlisted equity, the name of the fund manager needs to be disclosed. (Currently, this allows some super fund investors to play a game of “Where could my Canva holding be?”),” Kennaway said.

The disclosure requirement of simple asset types like bonds is opaque, making these disclosures meaningless. Simply listing the issuer of a bond tells investors nothing about its credit quality and interest-rate risk.

If a superannuation fund were to invest in an external bond fund, it need only disclose the name of the fund manager, obscuring whether the investment was in Australian government debt or emerging-market bonds, and so on.

Australians looking to invest sustainably have no regulator-enforced way to know if they are exposed to fossil fuels.

The current Australian Portfolio Holdings Disclosure Regulations only require a semi-annual disclosure and don’t cover managed funds. Unless the fund is a related party to an Australian registrable superannuation entity and managing superannuation fund assets, there will be no portfolio disclosure obligations.

“More topically, the current disclosure requirements for unlisted infrastructure and private equity are appallingly weak,” Grant says.

“Super fund trustees must be held to the high standard portrayed in their marketing and answer why it is in the best interests of their members to obscure these unlisted holdings. If they cannot answer this question adequately, leading trustees should move ahead of regulations and target a higher quality of governance than what is presently enforced by disclosure regulations.”

Morningstar has previously highlighted disclosure issues in the Australian market. Morningstar’s Global Investor Experience Report on Disclosure revealed Australia had received a Bottom Grade.