Morningstar has repeated its calls for Australia to improve its “watered down” portfolio holdings disclosure rules following the release of new benchmarks for the Future Fund.
Annika Bradley, Morningstar Australasia’s director of manager research ratings, told InvestorDaily that the Future Fund “has the opportunity to pave the way for transparency across the industry”.
“We’d like to see as much transparency to the end investor as possible,” she said.
The new disclosure obligations for Australia’s sovereign wealth fund, which were released earlier this month, are said to be “broadly consistent” to the rules that apply to super funds, according to Minister for Finance Katy Gallagher.
Specifically, the Future Fund board will be required to publish information on the amounts of cash held in financial institutions, the amount and value of shares invested in companies, and the level of investments in properties and infrastructure.
In a report published in May, Morningstar branded Australia as being the weakest market for fund disclosure requirements in the developed world.
“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,” Morningstar’s global head of manager selection, Grant Kennaway, said at the time.
While noting that Morningstar does not have a view specifically on the new rules for the Future Fund, Ms Bradley highlighted a number of areas where the firm believes that disclosure could be improved across all funds.
“Where we would like to see it get to is values and weightings for individual assets across the board. So basically, where the portfolio holdings disclosure has ended up for equities, we’d like to see that level of disclosure applied across all the asset classes,” she explained.
Ms Bradley pointed out that Morningstar has been vocal in its criticism of Australia’s portfolio holdings disclosure regulations since their release in late 2021.
“We thought that watering down wasn’t in the best interests of investors and so we would like to see that legislation go even further than it’s gone at the moment,” she suggested.
“To the extent the Future Fund could take a lead on that, as I said, that would be fantastic, but really to get down to values and weightings for individual assets would be great.”
Even though individual investors are unlikely to trawl through holdings disclosures, Ms Bradley asserted that transparency is an important pursuit.
“I do think that transparency is certainly the trend, even to the end individual investor, we’re seeing that through the level of transparency around, say ETFs,” she continued.
“But I do think it also provides the industry an opportunity. I think in the absence of transparency, there’s questions asked. There’s doubts around different things, and where there’s full transparency available, a lot of those doubts can be quashed.”
The executive manager of the Responsible Investment Association Australasia (RIAA), Dean Hegarty, previously told InvestorDaily that portfolio holdings disclosure is “really the bare minimum expectation” of funds like the Future Fund.
He suggested that sovereign wealth funds like the Future Fund arguably have an even greater obligation to disclose their holdings and practices compared to other funds since investments are being made on behalf of the entire country.
“You only need to look at the New Zealand Super Fund, who have used transparency as a way to remain accountable to the citizens they serve but there are countless examples globally,” he stated.
“We are a long way behind on this and hopefully, holdings transparency is just the first step.”
Additionally, in Mr Hegarty’s view, there is an “incredible opportunity” for the Future Fund to become a key tool in driving a more prosperous and sustainable future.
“All of the work being done to meet our government commitments on net zero, transitioning our energy sector, and solving social challenges require capital investment,” he said.
“We’re already seeing it happen in the retail and industry superannuation space, and in the Future Fund, we have a $250-plus billion sovereign fund that should be aligning its investment to support these critical priorities, while maintaining strong returns we can all benefit from.”
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.
