In a new paper, the research house said the dire consequences of failing the test (public shaming, member anxiety and existential threat to the fund) so far outweigh the rewards for passing, that some funds would make passing the test their prime investment focus.
“Of the 13 funds that failed the first test in 2021, only two now survive,” it said.
“But funds have a strong survival instinct and quickly worked out what they needed to do to pass the test, with the result that no fund failed in 2022 that had not already failed in 2021.”
Chant West said it is seeing clear evidence of how the test is influencing funds’ investment behaviour.
“We forecast that some funds’ ‘best ideas’ might be compromised, and we know of several instances where funds have not taken up investment opportunities that they would have taken up eagerly before the test,” the research paper said.
Chant West argues that the current test is that it is so myopic, relying on just one measure over one period.
“Evaluating super funds properly is complex and multi-faceted, and ideally requires a whole range of measures to be taken into consideration,” it said.
“These might include the current test together, perhaps, with return versus peers, return adjusted for risk, and return versus a simple reference portfolio.
“Each of these measures has merits, but each also has its own drawbacks.”
