Investment committee chairs from Cbus, HESTA, QSuper, Rest and SunSuper have addressed a letter to Treasury as the government opens its proposed super performance benchmarks to discussion.
Arguing against the government’s proposed changes and pinpointing a number of issues, the super funds also propose their own solution, suggesting a “two-stage” approach for assessment with a panel comprised of experienced industry professionals, who are collectively impartial.
According to the chairs, the fundamental issue with the proposed performance test is that it “is unable to distinguish poorly performing funds (say, because of high fees and bad management on the one hand, or just by the unpredictable nature of markets on the other) from better-performing funds.”
“It also does not distinguish underperformance as a result of risk mitigation versus underperformance as a result of endemic problems within the fund,” the chairs noted.
“It is neither right nor sensible to adversely penalise a fund (and particularly its members) who have underperformed an arbitrary benchmark largely due to the capricious nature of markets, or because of their deliberate risk management strategies,” they added.
Instead, the fund chairs opined that their “two-stage” process could plug all the inconsistencies identified in the government’s original proposal.
“We wish to make it quite clear that our proposal for a two-hurdle approach is not to evade clear accountability. We believe that poor-performing funds that do not meet their promise to members should not be entitled to receive funds flow from a government-mandated system.
“Indeed, the second hurdle will be particularly imposing for those funds that are called before the panel. No fund would want to get into that position,” the chairs noted.
The annual performance test is part of the government’s Your Future, Your Super Bill, which Treasurer Josh Frydenberg believes will make the super system “better for members” in four key ways – preventing the creation of unintended multiple super accounts, helping members choose well-performing products that meet their needs, holding funds to account for underperformance and increasing transparency and accountability.
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