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CBA’s 22% super ‘failure’ underlines APRA’s methodology flaws

Mike Taylor24 September 2021
Book with Wrongful Conviction written on it next to a gavel on a pile of books

The validity and relevance of the Australian Prudential Regulation Authority (APRA) performance test has again been seriously questioned with the Commonwealth Bank pointing to the fact that a supposedly ‘failed’ CFS MySuper product had actually returned 22%.

Virtually at the same time as supposedly ‘failed’ funds are being required by APRA to write to members to inform them of the outcome of performance test, the Commonwealth Bank’s deputy chief executive, David Cohen pointed to the flaws in the regulator’s approach which will see members receiving letters despite enjoying 22% returns.

“We still own 100% of CFS and the sale to KKR will not complete until around the end of the year and CFS has not paid a dividend to CBA since around December, 2019,” Cohen told ACT Labor parliamentarian, Andrew Leigh.

“To your point around the payment of dividends and I know there has been some discussion around the dividends that have been paid over the last six years and maybe just to put dimensions around it the amount of dividends paid by CFS as a business that covers both superannuation and non-superannuation is about $1.4 billion.”

“Superannuation makes up about 66% of that but the dividends that have flowed from the particular MySuper product that failed the recent APRA performance test represent about 11% of that – around about $170 million.”

“How is it possible for the fund to pay a dividend if it has not passed the performance test?

“The particular MySuper product has performed well in terms of returns to members and returns that were in excess of the objectives that were set and those objectives were set with reference to the risk-appetite of what are generally older members,” Cohen said.

“And, generally speaking, the members of the MySuper product are older members who place a high priority on preserving their capital and receiving a per centage above CPI, so they want to preserve value.”

“In the last financial year, 2021, that fund returned 22% making it around the third highest-returning MySuper product,” he said.

“So people are going to say ‘but it did not pass the test’ but the returns exceeded its objective and were very high returns over the last year.”

“The performance test has been set to cover all funds,” Cohen said. “It can’t take account of the benchmarking and asset allocation of a particular fund and in this case the fund was geared to preserving capital while providing a return over and above inflation which is what it did.”

Mike Taylor

Mike Taylor

Managing Editor/Publisher, Financial Newswire

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Big Ears
2 years ago

I think APRA proved with their heat maps that they have no understanding whatsoever of the concept of capital preservation.

2 years ago

Any analysis of performance, without considering the underlying asset allocation, is at best pointless, at worst misleading.