Among other changes, the government’s proposed Your Future, Your Super reforms will benchmark the investment performance of superannuation funds against their peers.
From July next year, APRA will begin to conduct benchmarking tests on the net investment performance of MySuper products, blocking those that record poor returns during two consecutive years from receiving new members.
The move will effectively build upon APRA’s previous benchmarking of the sector across factors such as performance and fees in its heatmaps, which the regulator began publishing in 2019.
Industry bodies and investment managers such as IFM Investors and Mercer have criticised the idea, with fears the benchmarks could shape how the industry invests and therefore how capital flows.
Nationals senator Susan McDonald expressed similar concerns around the reform on Thursday, commenting an investor in north Australia had informed her that the change will squeeze the appetite of super funds for infrastructure and projects with a longer window.
But APRA deputy chair Helen Rowell disputed the fear, commenting the Your Future, Your Super performance test is “reasonably long-term” and will not dramatically change investment managers’ behaviour.
“Our view – the measure is very similar to the measures that we have in our heatmap. We have not seen any material changes in investment strategies or behaviour in response to the heatmap,” Ms Rowell told Senate estimates on Thursday.
“We are of the view that, a well-developed investment strategy that includes a reasonable allocation to unlisted assets and the like…an infrastructure investment more broadly, should be able to meet the benchmark test, the performance test, if it is… appropriately developed and effectively implemented.
“So we are not expecting any material shifts in investment behaviour in response to the performance test for the well performing funds.”
APRA is already taking action in relation to underperforming funds, which have fallen into the dark red areas in its heatmap.
The watchdog has issued formal notices to eight to 10 trustees for 10 underperforming MySuper products, demanding explanations for how they plan to get back up to scratch.
It has also continued on its agenda telling laggards to get better or get out, applying pressure on funds to consolidate.
There are now 164 APRA-regulated funds, almost half of the 279 that existed in 2013. APRA chair Wayne Byres’ opening remarks however stated the regulator still sees “plenty of scope for further consolidation and efficiency within the industry”.
Six mergers have taken place since June last year, with 15 more in progress that APRA is aware of, Ms Rowell reported.
