Confirmed: Super performance test skewing asset allocation
New analysis has confirmed the degree to which superannuation funds have altered their investment strategies to make sure they pass the Your Future, Your Super (YFYS) performance test.
Critics of the superannuation fund performance test argued that it would distort investment strategy decisions, and new research carried out by National Australia Bank (NAB) has confirmed that 88% of funds admitted it influenced their decision-making.
The research, contained with the NAB Super Insights Report, revealed that 88% of funds indicated that the YFYS performance tests influenced how they set their Strategic Asset Allocation and implemented their investment strategy.
It found that when setting their strategic asset allocation , the major of funds looked at absolute investment risk, relative peer performance risk and YFYS risk.
The NAB research found that increased YFYS benchmark sensitivity was driving allocations to asset classes that are readily benchmarked.
The research also found that there exists a strong preference for unlisted over listed international markets with funds indicating that over the next two years they would be increasing their relative exposure to unlisted international infrastructure, international property and private credit.
It found that while there had been increasing scrutiny over illiquidity and valuations of unlisted assets, funds still viewed the asset classes as attractive for delivery long-term returns.
Overall, it said that large funds were continuing to spearhead the increasing allocation to international assets.
“This speaks to the ongoing challenge for large funds in deploying incoming capital to the domestic market as readily as small funds without amplifying concentration risk as they seek diversification and attractive risk-based returns,” it said.
The report found that in 2023, superannuation funds held 47.8% of their assets offshore.
“Consistent with the trend observed in 2021, superannuation funds on average have increased the percentage of their investment portfolios in international assets,” it said.
So Industry Super Funds continue to push more into Unlisted Assets so they can game returns with valuations they set themselves.
And what’s does APRA do about it ? Nothing of course it’s Industry Super.
Actually APRA do plenty,
they are actively encouraging both Industry Super and Unlisted Assets with made up valuations.
When this fraud unravels I bet APRA take zero responsibility.
Bet APRA and Union Bosses ALL manage to sell out before eventual massive right downs of fanciful valuations.
“The research also found that there exists a strong preference for unlisted over listed international markets with funds indicating that over the next two years they would be increasing their relative exposure to unlisted international infrastructure, international property and private credit.”
This is ridiculous. Can someone explain how this is a good thing for super members? Unlisted valuations continue to be murky at best and now it seems we’re aiming to do more of it…
The worst piece of legislation ever documented. It’s clear that not a single investment professional was involved in drafting it. The 7 year look back rewards the risk takers in a bull market (bad luck to funds that tried to reduce member’s risk during the momentum market run), the refusal to look at the unlisted valuation debacle and basically having bureaucrats deciding asset allocation over specialists. The great idea to consolidate all industry funds into just 6 was a great one too in a small market like Australia. That will end well. Now they want these funds to provide retirement advice. Not sure how that will work with 30,000 members to each staff member.
Another example of Government intervention gone wrong. All we’re seeing is an outflow of Australian money into Overseas unlisted infrastructure and overseas private credit and a trend to the average.