A new report released by Morningstar has branded Australia as the weakest market for managed fund disclosure requirements in the developed world.
In an update to its Global Investor Experience (GIE) study centred around fund disclosures, Morningstar indicated that Australian investors have limited, regulated right to know what securities their investment and superannuation funds hold in their portfolios.
According to Morningstar’s global head of manager selection and report author, Grant Kennaway, Australia is a “notable laggard” that has failed to deal with “basic deficiencies” in disclosure practices or adapt to changing investor expectations on ESG and stewardship disclosure.
“Australia blew a chance to improve its portfolio holdings disclosure regulations in November 2021, when after drafting median global standard regulations, the government caved in to lobbying from vested industry interests to deliver what are essentially meaningless asset-allocation disclosures,” he said.
“Australia stands alone as having clearly the feeblest disclosure regime among the 26 markets in Morningstar's GIE study universe and a lack of political will to implement meaningful change.”
Among the range of flaws Morningstar has identified with Australia’s regime, Mr Kennaway suggested that the disclosure requirement of simple asset types like bonds is “opaque”.
“If a superannuation fund were to invest in an external bond fund, it need only disclose the name of the fund manager, obscuring whether the investment was in Australian government debt, emerging-market bonds, and so on,” Mr Kennaway continued.
“If the external fund had exposure to a ‘blow-up’, such as Credit Suisse hybrids, the super fund members would be unaware of this fact, given the lack of compulsory disclosure.”
The “opaque” disclosure of cash and the grouping of derivatives into types also attracted criticism from Morningstar. Furthermore, the firm noted that the regime only calls for a semiannual disclosure and does not cover managed funds.
“Unless the fund is a related party to an Australian registrable superannuation entity and managing superannuation fund assets, there are no portfolio disclosure obligations,” said Mr Kennaway.
“The regulatory duty is unfortunately on the superannuation trustee and not the responsible entities of managed investment schemes (managed funds) in Australia.”
Morningstar also pointed out that Australia has yet to introduce any ESG-related regulations to provide more standardised mandatory disclosures and lacks a code or regulation that would require disclosure of stewardship activities.
However, the firm acknowledged the government’s work regarding climate-related financial disclosure requirements, which Morningstar said could potentially benefit fund investors.
Mr Kennaway concluded that, with the issue of liquidity recently being thrust back into the spotlight alongside the increasing promotion of ESG credentials, regular and timely access to the individual securities of funds is now more important than ever for investors.
“The importance of timely reporting on portfolio holdings disclosures was recently in the spotlight with the collapse of Silicon Valley Bank and the wipeout of Credit Suisse’s hybrid securities,” he said.
“Fund investors in markets with best practice disclosures had a relatively clear picture of their exposures. Fund investors in markets such as Australia were left in the dark as to what their exposure to these securities may have been.”
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
