Morningstar super ratings to include fund governance

Australia’s largest research and ratings house, Morningstar, is declared it will be upgrading its ratings methodology of superannuation funds to focus more deeply on fund and trustee governance.

At the same time as the Australian Prudential Regulation Authority (APRA) has imposed additional license conditions on Cbus and BUSSQ, Morningstar said it would be adapting its existing approach to more rigorously take account of trustee governance.

“The Morningstar Medalist Rating for superannuation will adapt the existing approach with a material focus on the Parent pillar,” it said. “This Parent pillar– which assesses stewardship – will have a 25% weight on a superannuation multi-sector strategy compared to 10% applied on a single sector strategy.”

Morningstar Director of Manager Research Ratings, Matt Olsen pointed to the rationalse behind the move.

“We have increased the weighting on the Parent pillar, given the crucial role trustee governance has in supporting investment teams that deliver exceptional member retirement outcomes,” he said.

“This sharper focus on stewardship is also consistent with Morningstar’s commitment to the end investor,” Olsen said.

“We believe it’s not enough to simply evaluate investment outcomes — we must also review the organisational culture, governance integrity, and operational excellence that underpin those outcomes,” he said.

Morningstar’s dedicated superannuation methodology follows the launch of its 2024 inaugural Superannuation Fund Landscape report that highlights the superannuation funds play an important role in funding retirement income and they manage a significant proportion of Australian household assets.

Superannuation assets have soared from A$150 billion in 1992 to nearly A$4 trillion by mid-2024; some forecasts predict it to hit A$9 trillion by 2040, according to the report.

“While mega funds present benefits, new challenges are emerging and members must be discerning in their choice of super fund,” Matt says.

The Morningstar announcement said the enhanced methodology includes a deeper analysis of the people driving those processes, the overarching organisational and business strategy, including quality of product offering; scale and viability; group culture; retention of talent; fund level net flows and member growth.

The Medalist Rating will also widen Morningstar’s coverage to include industry and retail superannuation funds beyond its current coverage of AustralianSuper, ART, Cbus and UniSuper.

It said this move reflects an ongoing effort to provide investors with greater transparency and insights across the superannuation landscape.