While superannuation funds are facing a huge amount of work, but have only a short period of time in which to get ready for Stronger Super, funds should also use the opportunity to make sure their investment risk governance standards are up to scratch.
That is the message from Mercer senior associates JP Crowley and Jacki Chorazy suggest funds should attempt to "leverage" the Australian Prudential Regulation Authority's (APRA's) SPS 530 prudential requirements to improve governance.
"Funds should not be making [SPS 530] a 'ticking the box exercise', but [they should] take a step back and say, 'How can we align ourselves with the required standards so we're improving every step of our investment process?'" Mr Crowley told InvestorDaily.
The government has set an ambitious timetable for funds to make changes, which is putting pressure on them as they try to bed down MySuper strategies. Mr Crowley noted that APRA has received fewer MySuper applications than anticipated thus far, but cautioned funds not to leave it until the last minute.
"We encourage funds to start engaging with APRA . this is likely to be an iterative process rather than just sending an application and receiving an approval. Keeping up engagement [with the regulator] is our key message," he said.
It is favourable, he added, that APRA is bringing the governance standards of super funds into line with what is required of large banks and insurers.
Ms Chorazy said investment governance is often absent in any discussion when super funds are doing well but is one of the first things looked at when a fund or organisation has a problem with its investment governance framework.
"It's important for funds to take this [SPS 530] opportunity to think strategically, to look at what makes sense for the fund, and how to put in governance frameworks," she said. "The key is to create an investment governance framework [that] provides a strong foundation for the funds so they can maximise value for members."
It is easy to get lost in the detail of investment governance standards but now is the time to reflect on the strategic side, she said.
"We recommend a checklist to get through the process, [so that funds can] show they're considering each aspect of their investment selection process," Ms Chorazy said. "When formally reviewing their strategic asset allocation they can then demonstrate to APRA that they've considered their liquidity position and done a stress test analysis."
The SPS 530 prudential practice guide has a lot of detail around liquidity management and other things APRA is expecting from funds on an ongoing basis, Ms Chorazy said.
Being able to analyse demographics within the fund, project a cash flow position, assess the liquidity position and do a stress test are things super funds will have to enhance, she said.
