Super trustees told: 'don't hug the index'

mtat · 19th Nov, 2020

Who are these muppets running super?

Super trustees told: 'don't hug the index'
After sowing confusion among fund managers and superannuation trustees with the release of new super fund performance benchmarks, the federal government is, in effect, urging trustees to adopt more risky investment strategies.

Australia's superannuation trustees have been told in no uncertain terms by the federal government not to hug the passive benchmark indices that will be used by regulators to "name and shame" underperforming super funds.

Also, trustees have been urged not to abandon the environmental, social and governance (ESG) principles that have underpinned sustainable investment strategies and are the drawcard for Millennial super fund flows.

This long overdue message to trustees responsible for $2.9 trillion in super assets was delivered by the Assistant Minister for Superannuation, Jane Hume, during The Australian Financial Review Banking and Wealth Summit on Wednesday.

Assistant Minister for Superannuation Jane Hume is trying to end the confusion about new performance benchmarks. David Rowe

Hume spoke at the summit after a week spent visiting Sydney-based fund managers who were concerned about the unintended consequences of the performance benchmarks released by Treasurer Josh Frydenberg in the federal budget last month.

In a document called Your Super. Your Future, Frydenberg said the government wanted to "protect Australians’ retirement savings from underperforming superannuation products to maximise their retirement savings".

The government wanted to maximise net investment returns, hold funds accountable for the outcomes they delivered, and make members aware when their super products underperformed.

The centrepiece of this policy package was a benchmarking performance test using 11 local and international indices. Any fund that underperformed this benchmark over eight years would be named and shamed.

But the super industry, based on advice from asset consulting specialists, claimed the passive benchmarks would take the industry's performance down a road to mediocrity, make trustees risk-averse and discourage investment in infrastructure and other illiquid assets.

During a conversation with The Australian Financial Review's wealth editor, Aleks Vickovich, Hume said: "Yes, the underperformance tool is based on benchmarks and those indices are largely listed asset indices – that's fine, that's no problems.

"But if you decide as a trustee that you don't back yourself enough, that you're going to essentially put your job ahead of the members and you're going to go and hug the index so that you never get called out for underperformance, what you'll find is that in that online performance tool – the Your Super comparison tool – you will just be middle dwelling.

"And if you're going to hug the index, you'd better do that at seriously low cost, because that's what you are going to be measured on in that performance tool."

Hume said the best managers would go out and look for Alpha, which is performance above the index.

"They'll look for low cost Alpha through things like illiquid investments. It might be in infrastructure, it might be in listed property, whatever it is. They'll look for opportunities in venture capital and private equity."

Time will tell whether or not trustees will risk making investments in assets that are not correlated to indices and have very long-term investment return horizons.

On the topic of ESG, Hume said: “It’s entirely prudent for trustees to focus on the importance of risk management – and that includes the management of non-financial risk via ESG considerations – when discharging a trustee's duties in terms of the sole purpose test."
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Super trustees told: 'don't hug the index'

monk · 19th Nov, 2020

mtat said: ↑

Who are these muppets running super?

Super trustees told: 'don't hug the index'
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' I'm from the Gummint & I'm here to help'. Oh no, please don't .

Redwing · 19th Nov, 2020

In Lake Wobegon ALL the Super Funds outperform the index; but then again in this fictional town "all the women are strong, all the men are good-looking, and all the children are above average"

In other news

From July 2021, the Australian Prudential Regulation Authority will conduct benchmark tests to find funds that underperform for two consecutive years, then block them from receiving new members until they improve.
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Super trustees told: 'don't hug the index'

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