Speaking to InvestorDaily, MTAA Super chief executive Leanne Turner said the disclosure of every individual security held by a superannuation fund on its website is, on the face of it, “the right thing to be doing”.
However, funds are currently required to disclose huge amounts of data, and there aren’t many members who would be interested in going through all of it, she added.
The requirement of superannuation funds, which will come into force on 1 July 2014, came about after Australian Securities and Investments Commission (ASIC) chair Greg Medcraft discovered he could not find out which companies his superannuation fund was invested in.
From the middle of next year, superannuation funds will be required to post the details of their investment holdings (at the investment option level) every six months, with no more than a 90-day ‘lag’.
Speaking at an Australian Institute of Superannuation Trustees event with Ms Turner yesterday, Towers Watson director of investment services Graeme Miller said the disclosure requirement was “well intentioned” but included “a number of practical issues that have not been resolved”.
For starters, there will be a significant administration and compliance cost involved in the disclosure, Mr Miller said.
“Custodians are working very hard … to help funds comply with this – but one thing I can guarantee is that they aren’t going to do this for free,” he said.
Superannuation funds often enter into privacy agreements with funds managers when they award them an investment mandate, he added, and those privacy agreements may well be in place to protect propriety processes (ie, embedded intellectual property) used to generate returns for members.
“And even if [fund managers] do consent, does that mean that the very act of disclosure will give away a competitive edge and erode the potential for returns?” Mr Miller asked.
Derivatives are difficult to disclose in one line of data to members, he added, and information about the carrying value of unlisted assets is often commercially sensitive.
“How is it in the best interest of members to disclose the value at which you’re holding an asset – particularly at the point that you’re trying to flog this asset into the market?” he asked.
Finally, funds will also be exposed to special interest groups and lobby groups “trawling though” a fund’s assets and forcing trustees to justify every individual holding – and perhaps vote in a particular way, according to Mr Miller.
The Australian Prudential Regulation Authority (APRA) has agreed to look into whether or not commercially sensitive data should be disclosed, said Ms Turner, adding that on top of the holdings disclosure requirement, she was also concerned about the superannuation fund performance tables that APRA plans to publish with the data it receives as part of Stronger Super.
These tables will be in addition to the ‘league tables’ published by ratings houses each year.
While there will “always be somebody at the top and somebody at the bottom”, a performance table produced by the regulator is more likely to “spook” a fund into losing focus on its long-term investment strategy, Ms Turner said.
