In their response to the Financial System Inquiry interim report, both REST and SuperRatings said a trend away from active asset management towards passive management will not necessarily be a positive development for superannuation members and could “detract from member value over the longer term”.
REST explained that while not all investors will possess the necessary attributes or resources to achieve excess returns, funds with a “commitment to capacity” and implementing a successful asset management approach “should be able to continue to do so in the best interests of its members”.
The fund argued that active management enables investors to “capture market opportunities by buying cheap assets, and to manage downside risk by lowering allocations to expensive assets”.
The industry super fund said markets are not always rational and prices for assets can “deviate from fundamental value”.
“History provides us with many examples of this, such as the rise in prices being paid for technology stocks before prices subsequently crashed in the early 2000s, and the over-inflated prices for many global banks and subsequent crash in prices during the global financial crisis,” said REST.
“Whilst the passive investor did not have the ‘tool kit’ to either avoid those very expensive stocks, or to invest additional funds after prices had fallen substantially, REST was able to add significant long-term value for its members in both these examples due to its active asset management approach.”
SuperRatings expressed the same view in its response to the FSI report, stating that “many funds have successfully utilised active fund management to add value over the long-term”.
The superannuation research provider said the interim report focused too heavily on the fees charged by superannuation funds, without taking into account the overall benefit provided to members, which “must take into account investment earnings [because] these, more than anything else, are the main driver of retirement”.
SuperRatings also criticised the report for relying upon findings from the Grattan Institute report, which SuperRatings said has “since been recognised by a number of superannuation experts as an uninformed view of the highly complex superannuation industry”.
The research company also disagreed with the findings in the report, suggesting that industry competitiveness is insufficient.
“We believe that there continues to be a reasonable level of competition within the market, albeit the disengaged nature of the majority of superannuation members continues to make this challenging,” SuperRatings said.
