Do you know what your super fund is invested in?

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What is portfolio holdings disclosure (PHD)?
Why knowing more about your super fund’s investments matters
What will super funds disclose?
What don’t super funds need to disclose?
Portfolio disclosure: Another way to compare super funds?

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 the investment assets of many super funds being far from transparent – both publicly and for fund members.

It’s a situation the government has tried to remedy over a number of years, but from 31 December 2020 all that’s changing. You will finally have a chance to see exactly what assets your super fund has invested in using your retirement savings.

What is portfolio holdings disclosure (PHD)?

Traditionally, super funds have not been required to provide full disclosure of their investment holdings, with many funds arguing the process is too complicated and expensive.

But from 31 December 2020, large super funds will be required to make information about their investment holdings publicly available on their website within 90 days of the end of the quarter. This means large super funds will need to have detailed information about their investments as at 31 December 2020 on their website by 31 March 2021.

Super funds will be required to disclose their holdings on an item-by-item basis for each investment option (although some investments will be excluded).

Although many large super funds have already begun voluntarily disclosing a portion of their portfolio holdings, progress across the broader super industry has been pretty slow.

Background

The introduction of portfolio disclosure for super funds has a long history, with the provisions first introduced way back in 2012.

Although the original 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 fund investments was 31 December 2017, but this date was pushed back yet again to 2019.

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 fund members.

According to Treasury, super funds have been particularly concerned about the costs involved in collecting data for 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 What are listed and unlisted investments and why does it matter? and How investing in infrastructure boosts your super account).

While it seemed all the delays had finally come to an end with passage of the Member Outcomes legislation in April 2019, the necessary regulations covering what details super funds had to report were slow to appear. This saw ASIC again delay the start of reporting for another year until 31 December 2020.

Why knowing more about your super fund’s investments matters

Many super fund members are interested in seeing what assets their super fund invests in – it’s their money after all.

According to the government, the reforms will encourage super fund members to get more involved in saving for their retirement, with better disclosure increasing the “amount and quality of information available to superannuation fund members, employers and other stakeholders”.

Improved disclosure of super funds’ investments will also allow both financial analysts and fund members to better assess the level of investment diversification and risk inherent in the way a super fund has constructed its investment portfolio.

If you are concerned about particular social, environmental and governance issues, PHD will provide a valuable source of detailed information about your super fund’s investment portfolio. You will have more information to decide whether you want your retirement savings managed by the fund.

Fund members concerned about carbon reduction, for example, will be able to see if their fund invests in companies that fail to take account of this issue in its business activities.

For more information, read SuperGuide article Super investing: How to choose a responsible investment option.

What will super funds disclose?

Under the new PHD regime – when it finally starts – super funds will be required to disclose on their website’s information about the investment holdings in each of their investment option twice a year. This means their investment holding as at 30 June and 31 December each year will be disclosed.

The new rules require each fund to disclose sufficient information to identify:

Each investment asset in all the investment options offered by the super fund
The value and the weighting or exposure of each investment asset
The total value and the weighting or exposure of all disclosable assets.

Super funds will be required to disclose sufficient information to enable people outside the fund to identify all the assets it holds directly (such as direct investments in listed and unlisted assets and derivatives).

The fund will also need to disclose its indirect investments held through third-party entities, but only the investment in the first level of non-associated entities and not subsequent entities in the holding structure.

What don’t super funds need to disclose?

Under the new rules, super funds don’t need to provide information about any investments in an investment option closed to new members for at least five years. Investments in an asset held solely to support a defined benefit interest or an asset relating to certain kinds of life policy or investment account contracts also don’t need to be disclosed.

Super funds don’t need to disclose investments they have in a non-associated entity or information about the individual investments owned by non-associated entities. For example, a 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.

Need to know

Super funds are able to select any 5% of their holdings (other than derivatives) from each investment option to be exempt from disclosure.

This exemption is permitted if the super fund believes the assets are ‘commercially sensitive’ and disclosure would be detrimental to members. The idea here is that public disclosure of some commercially sensitive investments could prevent super funds from investing in them, particularly unlisted and alternative assets.

Portfolio disclosure: Another way to compare super funds?

Both super fund members and financial analysts are likely to find the new information about the assets held in super funds’ investment portfolios interesting. It should also provide a new tool if you want to compare super funds.

Given the detailed nature of the investment information super funds are required to provide, it’s likely financial analysts and super ratings agencies – rather than ordinary fund members – will be the biggest users of the new PHD information.

Analysts and ratings agencies will be keen to work through the new itemised information about each investment option. Hopefully, this will lead to the development of simpler, more easily understandable versions of the information for fund members.

Activist groups interested in specific issues such as fossil fuel mining, corporate governance and labour standards are also likely to be interested in the new PHD 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.