Raters need scrutiny

The ratings houses covering the superannuation industry should be subject to oversight by the major regulators, according to the results of the latest IUS/Super Review Super Outlook Survey.

The survey, conducted throughout November and December last year, coincided with extensive debate at the Association of Superannuation Funds of Australia national conference in Melbourne on the role of ratings houses and their contribution to the industry.

However, the survey results suggest that most respondents believe ratings houses do not make a particularly significant contribution to the industry, and that both they and their methodologies should be subject to regulatory scrutiny.

Asked how useful they believed ratings houses were to the superannuation industry, the majority of respondents said they believed they made only a small or moderate contribution, with most (64.3 per cent) suggesting their contribution was of moderate importance.

More importantly, the survey revealed that a strong majority of respondents (95.2 per cent) believed the ratings houses and their methodologies should be subjected to scrutiny by regulators such as the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission.

Fund representatives contacted by Super Review to discuss the results of the survey said they were not surprised by its findings, with the activities of ratings houses proving to be both costly and time-consuming.

Another complaint was that the activities of ratings houses had a tendency to promote “short-termism”, with some funds becoming distracted by where they stand in terms of monthly ratings rather than in terms of achieving appropriate three-year and five-year returns for their members.