Govt accused of making super funds uncompetitive

Superannuation funds should be treated no differently to the Future Fund when it comes to Portfolio Holdings Disclosure and should be entitled to maintain confidentiality and therefore competitiveness.

That is the bottom line of a key submission to the Treasury from the Association of Superannuation Funds of Australia (ASFA) which has compared the treatment of the Future Fund to that which the Government intends inflicting on superannuation funds with respect to their portfolio holdings.

The ASFA submission warns that the level of detail being sought from superannuation funds under the new regime will place them at a significant disadvantage when similar requirements are not being imposed on other market participants.

“ASFA has significant concerns about the level of detail required to be disclosed under some of the provisions in the Exposure Draft Regulations, most of which were detailed in our submission to Treasury on a previous exposure draft version of the regulations in May 2021,” the submission said.

It said the most significant issue was that the detailed disclosure of portfolio holdings only applied to the trustees of Australian superannuation funds.

“The disclosure will be available to all market participants. All other investors, domestic and global, will have detailed information about the investments of Australian superannuation funds that other investors in the same market are not required to disclose,” it said. “This will place Australian superannuation fund trustees at a material disadvantage when investing.”

It said that as a direct result of portfolio holdings disclosure Australian superannuation funds will

• be denied the opportunity to invest in particular investments, such as private equity
• no longer be able to invest directly in unlisted assets but be forced to invest through third parties
• be forced to disclose a ‘reserve price’ for unlisted assets, thereby reducing gains on their disposal
• disclose the price of futures contracts, which undermines the position of the fund
• disclose the amount of outstanding hedges, that may affect pricing and liquidity.

This will have an adverse effect on the investment returns to members – clearly not in their best interests.

ASFA then noted that the Future Fund had been excluded from disclosing similar information in response to Freedom of Information requests on the following basis:

• publishing details about holdings could compromise the ability to implement investment strategies
• given the Funds Under Management (FUM), any compromise could have a significant impact
• disclosing commercial information is a risk to investment managers’ effective engagement – will have less access to information from investment managers than normally would expect

there is a significant likelihood of

o negative effects on investment outcomes

o reduced access to investment opportunities

o prejudicing investment managers in their dealing with other market participants

• disclosure of investments could make the disclosing investor less attractive as a client
• given

o the growing size and complexity of the investments being managed

o competing institutional investors in global markets generally are not subject to this disclosure there is significant value and public benefit in being able to compete on a level playing field.

“All of these statements apply equally to Australian superannuation funds,” it said.

“Given this, there is a need to ensure that superannuation portfolio holdings disclosure does not compromise the ability of superannuation funds to implement investment strategies, risk investment managers’ engagement, produce negative effects on investment outcomes, reduce access to investment opportunities or make Australian superannuation funds less attractive as clients.”

“Competing institutional investors in global markets generally are not subject to this disclosure – Australian superannuation funds need to be able to compete on a level playing field.”