APRA questioned on industry funds and best interests

The Australian Prudential Regulation Authority (APRA) has been asked to explain how superannuation funds which invest in affordable housing without Government subsidies can satisfy the best financial interest duty.

NSW Liberal Senator, Andrew Bragg, who is a strong proponent of the use of superannuation for home deposits, has asked APRA whether it has probed investments by industry fund Aware Super to determine whether they are consistent with the best financial interest duty.

In a written question on notice to APRA as part of Senate Estimates Bragg asked APRA whether it was aware of superannuation funds investing in affordable housing in situations without government subsidies.

“Affordable housing in most cases is where housing is offered at a discount to market rents. Are you aware of any arrangements where super fund investment in such housing without government subsidy provides a level of return that satisfies the best financial interest duty?” he asked/

“For instance, Aware Super has said their investments in key worker affordable housing ‘will be rented at a 20% discount to market rent to key workers such as teachers, nurses, emergency services and social workers’.” They’ve said that ‘’returns will come from the rent received from tenants, combined with the potential capital growth on the value of apartments’.”

“Has Aware Super provided you with a justification for these investments which satisfies the best financial interest duty?” Bragg asked.

He went on to ask whether APRA has proved the investments “request trustee justifications of these investments in line with the BFID”.

“Has Aware Super explained why investing in affordable housing rented at below market rates constitutes an investment decision which satisfies the Best Financial Interest Duty, when they could invest in housing rented at market rates which would bring about higher returns?”

“Aware Super has also said that, with respect to the housing investments:

These locations are high employment areas for those working in health, education, law enforcement and emergency services, making these investments especially relevant to First State Super members, many of whom work in these sectors.

a. Isn’t Aware Super an open-offer fund available to everyone? Does it make sense for a fund to justify an investment on the basis that the facilities borne out from that investment would directly benefit certain groups of workers which constitute its membership?

i. Isn’t the point of the best financial interest duty is that it ensures investments are made in the best financial interests of all members, not just to provide benefits to a few who may or may not be members?

ii. Is this an example of an investment with a non-financial goal? Is this not in contravention of the best financial interest duty?”