Speaking to the Association of Super Funds of Australia (ASFA) annual conference, HESTA CIO Sonya Sawtell-Rickson warned that the performance benchmarks contained within the Your Future, Your Super reforms risked hurting the superannuation industry if loopholes around performance and fees weren’t closed.
“I don’t think anybody disagrees with the intent of what the government is trying to achieve here, which is to measure performance in the industry and address those underperforming funds and ensure that anybody negatively impacting retirement outcomes is addressed,” Ms Sawtell-Rickson said.
“I think the real challenge then is how do you do that objectively and effectively and with a framework that actually allows you to clearly identify those bad funds and not accidentally identify any good funds.”
One of the most significant shortcomings of the performance benchmarks is that they don’t measure “absolute returns and absolute outcomes”, and Ms Sawtell-Rickson said the only way to view them was as “a risk that (they) need to now adjust the portfolio to align with”.
“I do think for those funds that don’t have outperformance history – in our case we’ve got plenty of outperformance history – for those that are a bit more borderline, I think you’re going to create some problematic responses around risk mitigation,” said Cbus CIO Kristian Fok.
However, the performance benchmarks have yet to be finalised, opening the door for a wider range of indices that would allow more precise tracking across asset classes.
“The right to operate in regard to the APRA benchmark will become important in the future. We do think that through time taking risk away from passive investing will add value,” said Aware Super CIO Damian Graham.
“It’s really only going to be points in time that the issue may become significant for a fund or two…we should stay with our member outcomes in retirement as the critical issue and keep an eye on and make sure we understand where we sit with the benchmarking and the peer relative. But that prioritization is very important.”
