Super funds leverage roundtable for performance test changes
Superannuation funds are aiming to use the Government’s Economic Reform Roundtable to achieve changes to the superannuation performance test to facilitate their investment agendas with respect to infrastructure, private equity and residential housing.
The push for Government support to modify the performance test is revealed in a submission filed by the Association of Superannuation Funds of Australia (ASFA) which is arguing that it risks the unintended consequence of limiting investment allocations.
The big superannuation group has also urged that the Australian Securities and Investments Commission (ASIC) does not over-play its hand with respect to reforms to private markets.
It said that in order to manage portfolios against the current performance metric, superannuation funds invest with regard to their budget for tracking error against the prescribed test benchmarks.
“While products with a relatively large performance buffer can tolerate a larger tracking error budget in the short-term all products are subject to a (sustainable) long-term tracking error budget,” ASFA said.
It said the effects of needing to manage tracking error on asset allocation decisions are likely to be more consequential for assets/asset classes that are not well-represented by the existing set of benchmarks.
“This includes the broad range of unlisted assets, but particularly unlisted ‘greenfield’ investments in energy transition infrastructure, private equity and non-residential housing,” ASFA said.
It said that with respect to ‘greenfield’ investments more broadly – particularly in infrastructure, private equity and non-residential housing – “up-front capital costs mean that assets are likely to underperform benchmarks early in the investment cycle”.
On private markets, ASFA said it considers that potential reforms should recognise the superannuation industry’s “robust and improving investment governance practices and sophisticated approach to investment decision making, including with respect to private markets”.
“Potential reforms should avoid regulatory overlap and duplication of existing reporting and compliance,” it said. “With APRA already applying heightened scrutiny, further regulation by ASIC may risk duplication – which would add complexity and divert resources from delivering returns for members.”
Industry Super continue to want to keep making up the Unlisted Asset values as and when it suits them.
Jim, family and friends no doubt invited multiple times to ISF sporting boxes to discuss over ISF member paid for food, drinks and prime event tickets.
Benchmark everyone to the same performance outcome and all you will do is make everyone the same without any deviation other than fees – at least when every fund has the same asset allocation in their investment options it will make future SFTs simpler and more cost effective.
Poor idea in my opinion. Buying investments because it’s what your benchmark says you must do is a really ordinary way of investing capital. You should be buying investments because they are good long term propositions to build wealth, not select investments because if you don’t have them in the portfolio you’ll fail some arbitrary (and rather stupid test).
Price discovery gone.
The outcome would be only as good as the parameters of the test and as it stands, when Canberra makes up something, they almost certainly make a mess of it.
The performance test methodology is deeply flawed as it is and appears to heavily herd funds subjected to it to the benchmark.
Industry super and unlisted assets however, they can simply be quiet. They should be made to disclose the carry value of every asset on their books, if not, automatic fail.
If you want to brag about your performance, or receive favourable rules to support the unlisted rubbish, then how about increase transparency as well.