120 underperforming choice super options close
120 underperforming choice superannuation options identified as underperforming in the Australian Prudential Regulation Authority’s (APRA’s) first Choice Heatmap are now closed.
APRA member Margaret Cole has revealed the closures in a policy briefing to the Financial Services Council (FSC) today in which she said that the closure of the choice products demonstrated “that what gets measured gets done”.
Cole said that APRA would continue to push trustees to rectify sub-standard practices trough robust supervision, strengthening prudential standards and reinforcing minimum expectations in areas including investment governance, success fund transfers, financial resilience and ensuring trustees are undertaking expenditure in the best financial interests of their members.
“You can expect our push to eradicate unacceptable product performance to continue by intensifying pressure on trustees to cease offering high-fee, poor performing products, and through further scrutiny of the choice sector,” she said.
So Super Funds will all bring Asset Allocation in-house and with a preference for large illiquid and non-daily unit priced investments so they can literally smooth out the returns so as not to be below the line. The Industry Funds will get their way of having everybody invested in the same assets because they cant afford to be different.
I do worry that trustees are being forced to accept more risk in an effort to chase better performance to keep “ahead of the pack” Some industry funds now have 80% growth assets as their balanced asset allocation. Which is not balanced.
This will not end well…
Best not to look too close if you’re cynical. The amalgamation of funds has led to minimal member-level improvements. Some have led to reduced options within the new fund compared to the previous one. A look at industry funds shows a high percentage have increased their risk exposures in recent years. Is that a reflection of inappropriate benchmarks? Or is it a matter of “gaming” the benchmarks to move higher on any performance tables.
In some cases, funds are closed as “underperforming” simply because their style mandate is out of fashion or trend or market conditions are favourable to the competitor style. It will be interesting to see how the “best” funds perform following what is arguably a secular negation of the multi-decade monetary expansion period.
To be optimistic – perhaps all this attention to measurement will see better alignment of fund objectives with benchmarks?
A good start for regulators would be to come up with some sort of logic to the use of the term “balanced”. Measuring the performance of a host of funds with wildly differing asset allocations has always been a fraught exercise. You’d think something would have been learned over past decades. But no. Time and again, we see funds ranked, with the higher growth allocations at the top and the lower risk/lower growth allocations at the bottom. Watching the same thing play out in what is supposed to be an educated, modern marketplace is the equivalent of squeaking chalk on a school blackboard.
The Liberal government really pushed a socialist agenda where competition is reduced and the government dictates how trade is conducted.