Addressing AIST’s virtual Risk Symposium on Thursday, APRA general manager of superannuation Katrina Ellis said the regulator would be keeping a close eye on how funds had performed during the crisis and look to tweak some elements of its product heatmap, which was launched in late 2019 to assist funds in comparing performance.
“What we are very interested to see when we publish the next heatmap in December is [the] different return environment in 2020 with the volatility and some asset classes having significant downturns,” Ms Ellis said.
“[Looking at] how that plays out in the [longer-term] performance of funds and whether our methodology holds up through that, or do we have to add some other ways of comparing investment performance.
“The growth-defensive split has been something that everyone in [the] industry has an opinion on, it’s been quite controversial and that is something we’re interested in continuing to understand the different views on and the best way to categorise assets.”
Ms Ellis said the government’s early super release scheme had had a significant impact on funds and identified potential gaps in their stress tests for major liquidity events, meaning trustees needed to take a closer eye to the role and potential risks of illiquid assets in a portfolio.
“We’re not trying to define the perfect portfolio, we want trustees to do that for themselves and consider how they’re getting that balance right,” she said.
“This is where scenario analysis is really important to play out the impacts of illiquidity on the portfolio. We’ve seen a lot of funds have been stressed with the early release scheme that came as a surprise and changed their liquidity needs during COVID-19, so we want trustees to understand how their investments work.
“It’s not necessarily that they need to eliminate some of those, but do they understand how they are generating performance for members and how they are getting value from each of their different investments.”
Ms Ellis said the regulator was also closely engaging with trustees of funds who had been identified through APRA’s heatmap as charging higher than average fees, and had failed to reduce these over the course of the year so far.
“These products are facing higher supervision as we’re raising concerns with the trustees about how they are considering the financial outcomes of members,” she said.
“High fees could indicate superior returns, but unfortunately this is not typically the case, so we are expecting action from these trustees to justify their MySuper products’ right to remain as the default option for members.”
