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Perpetual, BlackRock, Macquarie
Life insurance
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Opinion: Michelle Russell-Dowe Schroders
Proposed super benchmark flawed Annabelle Dickson
he Your Future, Your Super legislation T package, slated to come into effect on July 1, has the industry up in arms over the proposed annual benchmarking test. Under the reforms, the products that have underperformed APRA’s standards over two consecutive annual tests will be prohibited from receiving new members until a further annual test that shows they are no longer underperforming. Speaking at the recent Australian Superannuation Fund Association (ASFA) conference, Hostplus deputy chief investment officer Greg Clerk said he is concerned the benchmarking test will detract fund resources to ensure adherence to the benchmark. “The first and utmost responsibility every trustee will have going forward is to make sure your fund is still in existence in one year but also then in two years’ time when the test hits again,” Clerk said. “What that means is that we are going to have to spend a potentially disproportionate focus on tracking error of our actual portfolio versus the benchmark.” Clerk explained that, as of today, 50% of Hostplus’ strategic asset allocation is nonbenchmark positioned. “The benchmarks fail to understand the investment universe,” he said. “Now we have a decision framework for an entity like ourselves that says of that 50% of non-benchmark positions ‘how much conviction do you have in each of them?’” The Australian Institute of Superannuation Trustees (AIST) is concerned that some of the suggested benchmarks in the policy document are inappropriate. “At a minimum the benchmarks should be made up of assets that are in the asset class being assessed, having regard to the location of assets, and whether the assets are listed or unlisted,” AIST head of advocacy Mel Birks says. “A fund’s investments should not be assessed against assets that do not reflect the underlying investment.” Frontier head of consulting Kim Bowater agrees and says the test does not evaluate an underperforming or outperforming fund but instead captures the value generated from implementing the strategy.
“It doesn’t assess whether the fund has a good strategy or link the actual objectives funds have, which are generally ‘CPI plus’ objectives reflecting what members actually achieve,” she says. “To us it is quite a specific, different test and there is an issue where it could result in different decisions being taken compared to trying to achieve ‘CPI plus’ objectives.” Birks agrees and believes the proposals around the benchmarking lack any real substantial and important detail. “Important detail about the methodology used to benchmark and calculate performance should be decided in legislation, not regulation,” she says. Further, some of the benchmarks indicate a certain risk level or type of exposure that previously funds may not have been taking. Even then, Clerk said, a fund’s conviction in its strategy needs to be predicated on longterm conviction or short-term conviction; “It will depend on where you are currently tracking versus the seven-year test before it becomes an eight-year test.” For example, Clerk explained Hostplus’ property portfolio is measured against the REIT benchmark. “We might be doing an appropriate thing by having a low-risk, low geared property exposure at around 10% gearing, but how is that going to compete long-term against a REIT that is geared at 50%?” he said. Bowater explains it could be that the test embeds an active decision about the property being unlisted. “There is an implication that the starting point is a listed exposure and the fund is actively choosing to be unlisted and thus is benchmarked against listed markets,” she says. The consequence of this is that it could discourage some new investments in unlisted assets, particularly when there are lower risk alternative strategies. “The listed index is generally higher risk than what is sought in core unlisted portfolios,” Bowater says. She shares the same sentiments as Clerk in terms of having conviction in a strategy that is not aligned with the benchmark. However, she says: “The risk is the timeframe.” “We think those portfolios will outperform over the long term but the question is whether it will over the eight-year benchmark?” fs
22 February 2021 | Volume 19 Number 03 www.financialstandard.com.au 20 January 2020 | Volume 18 Number 01
Executive appts:
Featurette:
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Estate planning
Justin Arter Cbus
Industry mental health improves Eliza Bavin
Kim Bowater
head of consulting Frontier
Despite the trials and tribulations brought on by COVID-19, those working in the financial services industry overall saw an increase in mental health, according to SuperFriend. The financial and insurance services industries climbed from sixth place in 2019 to second overall in the thriving workplace score in 2020. The research highlights a large improvement in the mental health of financial and insurance services workers amid the COVID-19 pandemic. The leap comes after a challenging few years, following the Senate Inquiry into Insurance and the Royal Commission. The report found that the industry’s overall thriving workplace score leapt to the second highest in 2020, from just sixth in 2019 (up by 3.3 points to 67.6 out of 100). All five domains of thriving workplaces (connectedness, leadership, policy, culture and capability) showed improvement, with the policy domain recording the strongest improvement. Continued on page 4
Investors not doing enough Over 70% of companies are not prepared to detect unexpected events like COVID-19, according to a survey of over 400 global risk and compliance decision makers. The study by Dataminr found that only 29% of firms felt confident they have the technology to accurately obtain an early view of unexpected events. The study, titled Risk in a Real-Time World and conducted by Forrester Consulting, surveyed 410 global risk and compliance decision-makers across Australia, New Zealand, the US and the UK. It evaluated current risk management priorities and practices, and how real-time information is used in risk management and crisis response. Dataminr chief executive Ted Bailey said the COVID-19 pandemic has made companies aware of their weak spots. “At the onset of the COVID-19 pandemic, Continued on page 4
