Super funds should disclose the returns for each asset class in order to give investors a clearer picture of investment performance, argues a new CIFR paper.
The Centre for International Finance and Regulation (CIFR) has released a paper titled 'Are Superannuation Fund Fees Too High' which proposes additional disclosure requirement for super funds.
The paper, which used superannuation fund data sourced from Chant West spanning 2007 to 2015, found that funds that charge higher investment fees have significantly higher allocations to hedge funds.
More broadly, the authors found that higher fees tend to be charged by super funds that have a higher allocation to less liquid asset classes.
Corporate and public sector funds charge the lowest investment fees, followed by industry funds, found the paper.
Retail funds, on average, charge an investment fee that is 11 basis points higher than industry funds, the research found.
The authors of the study advocated additional disclosure requirements that should be placed on super funds.
In addition to asset allocation details, the paper proposed super funds should be required to disclose the returns earned for each asset class; the investment fee charged for each asset class; and the proportion of each asset class that is passively managed.
“These disclosures would facilitate an improved flow of information to superannuation fund members and will assist them in gaining a better understanding of their investment performance,” said the paper.
“Furthermore, they would provide analysts and ratings companies with an opportunity to benchmark superannuation funds’ performance across different asset classes in a more rigorous manner than is currently possible using publicly available information,” it said.
Access to this information, said the authors, will make it much easier for investors to compare performance on a risk-adjusted basis.
“These disclosures would also enable investment fees to be accurately benchmarked,” said the paper.
“In turn, this would enable members to identify where fees are eroding their account balances, and provide them with a basis upon which to decide whether the fees are worthy of the returns being generated.
“It is important that members get a clear understanding of how their superannuation is being invested, where their returns are coming from and what fees they are incurring in the process,” said the paper.
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