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With trillions of dollars tied up in Australia’s super funds, you’d think it would be pretty easy to find out where all that money is invested. But that’s not the case: with a survey in 2016 by carbon reduction activist group, Market Forces, finding among the 50 largest super funds, 83% of their assets were not disclosed publicly – or even disclosed to their super fund members.
It’s a situation the government has tried to remedy over a number of years, but actually making it happen has proved to be anything but a simple process.
Right from the initial recommendation in 2010 for full disclosure of their investment assets, super funds have been concerned about the cost and difficulty involved in regularly making such disclosures, fearing full disclosure would add to administration costs and drive up the fees paid by super fund members.
According to the federal government department of Treasury, super funds have been particularly concerned about the costs involved in collecting data for the assets they don’t own directly, but instead own through third parties such as investment managers and collective investment vehicles. There has also been a reluctance by super funds to disclose information about investments such as private equity deals, unlisted assets and commercial-in-confidence arrangements. (For more information about unlisted assets and super, see SuperGuide articles Super investing: What are listed and unlisted investments? and Super investing: Are you investing in infrastructure?.)
Increasingly, large super funds are voluntarily beginning to disclose a portion of their portfolio holdings, but progress is slow. The Market Forces’s report found across the top 50 super funds the level of portfolio disclosure was only 16.6%. Only one fund, Energy Super, provided 100% disclosure of its investment assets.
Compulsory super fund portfolio disclosure from December 2019 (or earlier)
To understand why portfolio disclosure by super funds is not universal, and why the investments of super funds still remain a mystery, it’s worth taking a look at the long, drawn-out process of implementing the legislation for full portfolio holdings disclosure (PHD).
The idea of PHD was first recommended as part of the Stronger Super reforms in 2010. Subsequently, legislation was developed in 2012 to require super fund trustees to publish their full investment portfolio twice annually.
Although the PHD rules were meant to come into effect in December 2013, they were delayed until July 2015 and again until July 2016. The next date for the first report on super funds’ investments was to be as at 31 December 2017, but this date was pushed back yet again and now compulsory reporting will not begin until 31 December 2019.
Since then, the government has had another go at getting a PHD regime off the ground by introducing amendments to the legislation as part of the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No.1) Bill, which was introduced into the Senate in September 2017. This Bill amends the original legislation to limit the required level of disclosure by super funds and allows a small portion of the super fund’s holdings to be exempt from disclosure.
At present, this Bill has been debated, but has not been voted on by Parliament. If is it passed before the end of the year, the PHD regime could start as early as 31 December 2018.
Benefits of knowing more about your fund’s investments
Many super fund members are interested in seeing what assets their super fund invests in: investments that are purchased using the money the fund receives from regular, compulsory employer (Superannuation Guarantee) contributions. It’s the fund members’ money after all.
The federal government agrees that super assets are members’ money, and believes better disclosure will “increase the amount and quality of information available to superannuation fund members, employers and other stakeholders”. The reforms are designed to encourage super fund members to get more involved in saving for their retirement.
Improved disclosure of super funds’ investments will also be welcomed by financial analysts and super fund members, as it will allow fund members and analysts to better assess the level of investment diversification and risk inherent in the way a super fund has chosen to construct its investment portfolio.
There is also significant interest from super fund members and investors concerned about social, environmental and governance issues. If more information about a super fund’s investments is available, super fund members can decide whether or not to place their retirement savings in a particular super fund. For example, if a super fund member is concerned about carbon reduction, he or she should be able to see whether or not the super fund invests in companies that fail to take account of that issue in their business activities (for more information, see SuperGuide article Super investing: How to choose a responsible investment option).
What will super funds disclose?
Under the new PHD regime, super funds will be required to make publicly available, details of their portfolio holdings as at 30 June and 31 December of each year. The information must be published on the super fund’s website within 90 days and it must remain publicly available until updated information is published for the next reporting period.
Super funds will be required to disclose sufficient information to enable people outside of the super fund to identify all the assets the super fund holds directly, together with those held through associated entities. The published information will also need to list the value of each of those assets at the time of reporting.
Note: Under the proposed amendments to the PHD regime, super funds will only need to disclose their investment in the first level of a ‘non-associated’ external investment fund. They will also be able to select any 5% of their holdings as exempt from disclosure if they believe this portion is ‘commercially sensitive’ and disclosure would be detrimental to members.
The Bill also exempts the trustees of pooled superannuation trusts, single member funds, and small APRA funds from the disclosure requirements.
Note: The published details must provide sufficient information so that users can identify the portfolio holdings for each investment option offered to super fund members. This requirement includes disclosing information about each financial product or other property owned by the super fund or an associated entity. The disclosure information for each investment option must include details of the investment, name of the product or property, number of units held, price per unit and total invested in each asset.
Clear information will also need to be provided about the super fund’s investment in derivatives. This information will need to identify the investment as a derivative and outline its value according to rules set out in the Corporations Act.
Super funds will be required to present information about their investment portfolio in a standardised manner (table format and chart), with each investment option within the super fund having its own table of information.
What don’t super funds need to disclose?
Under the legislation, super funds will not need to provide information about any investments in a non-associated entity and will not need to disclose information about the individual investments owned by non-associated entities. For example, a super fund will need to disclose if it invests in an overseas infrastructure fund managed by an independent investment management firm, but it will not be required to report all the individual investment assets owned by that overseas infrastructure fund.
Portfolio disclosure: Another way to compare super funds
Both super fund members and financial analysts are likely to find the new information about super fund investment portfolios interesting and it will provide a new tool for comparing super funds.
Given the detailed nature of the investment information super funds are required to provide as at December 2019 (and twice-yearly onwards), however, it’s likely financial analysts and super ratings agencies will be the biggest users of the new PHD information. Analysts and ratings agencies will be keen to analyse the itemised information about a super fund’s investment assets, before developing more easily understandable versions for super fund members to use.
Activist groups interested in specific issues such as fossil fuel mining, corporate governance or labour standards are also likely to be very interested in the new information. Full disclosure of a super fund’s investments will allow these groups to pinpoint the key shareholders and part-owners in controversial businesses and are likely to put pressure on super funds to lower or abandon their investments in these types of assets.
Learn more about super investment options in the following SuperGuide articles:
- ETFs: How do I use them and what do they cost?
- SMSF guide to hedging
- SMSF investment rules: Collectables and personal use assets
- SMSFs and property: A Super Guide
- The definitive SMSF guide to franked dividends
- What are the SMSF borrowing rules?
- SMSF investment rules: What every trustee should know
- How to create an SMSF investment strategy (including examples)
- Super investing: How to choose a responsible investment option
- Super investing: Should you change your investment option?
- Super investing: How to change your investment option
- Super investing: What is unit pricing and a crediting rate?
- Super investing: What is your risk profile?
- How to choose an investment option for your pension
Learn more about investment performance across calendar years in the following SuperGuide articles:
- Best performing pension funds over 5 calendar years (to December 2018)
- Best performing super funds over 5 calendar years (to December 2018)
- Asset sector performance: Returns over 1 to 15 calendar years (to December 2018)
- Super fund performance over 26 calendar years (to December 2018)
- Best performing super funds over 15 calendar years
- Best performing super funds over 1 calendar year (to December 2018)
Learn more about investment performance across financial years in the following SuperGuide articles: