Outgoing APRA chair on rectifying super underperformance
Outgoing Australian Prudential Regulation Authority (APRA) chair, Wayne Byres, has shared his thoughts on superannuation fund consolidation and their increased weightings to unlisted assets ahead of his departure.
Byres had been chair since 2014 and announced in July that he would step down at the end of October. His successor was yet to be announced.
Superannuation was a key focus of his time with Byres saying “no other sector had seen so much change”. This included the Your Future, Your Super (YFYS) performance test and heatmaps.
Another focus had been the consolidation of funds with failure of the YFYS test leading to smaller funds to merge and APRA regularly stating it wanted to see more consolidation, prompting speculation the industry could end up with a few select mega-funds.
Speaking to Money Management, Byres denied, however, that APRA had a target in mind to see a smaller number of mega-funds in the super industry.
“If you had a blank sheet of paper, you wouldn’t design super how it is now with this long tail of smaller super funds.
“It isn’t a case of ‘big is good, small is bad’ though, it isn’t that simple, there are some big funds that need to do better and some small funds that are delivering for members. But all the evidence does show that size helps.
“So if you are small and you don’t have the efficiencies, the strength or the competitive advantage then you have to ask yourselves if you can benefit members better than another trustee? And if you can’t then you have to ask whether it would be in members’ best interests to hand them over to someone else.
“It is not a case of APRA wanting to see 10 or 20 funds, it is about how can we rectify that tail of underperforming funds?”
Moving onto the increase in unlisted assets which were being held by super funds in light of the current market environment, Byres said it was crucial funds understood they couldn’t be managed in the same way as public assets.
Funds such as Hostplus, Australian Retirement Trust and HESTA had accumulated above-average weightings to unlisted assets such as infrastructure, property and private equity.
“It is problematic? No. But that is only so long as it has the appropriate governance, risk management and valuation practices are properly managed,” Byres said.
“If you are investing in liquid assets like listed equities and bonds then they are easy to price and are managed in a conventional way. When you become an owner of a private asset for the long term, you have to think much harder about liquidity and about valuation.
“The key mistake is to just think about them as conventional assets and to manage them in the same way without thinking about changing the valuation or the investment process.”
AUTHOR
Laura Dew
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When are Hostplus going to get done for false advertising for a "balance fund" which is just a high growth product and everyone in the industry knows it, it is in about every second financial review yet the regulators do nothing and host plus was the same company in covid talking about bailouts because of 10,000 payments for members...
I fell bad for the poor person who is about retire loses half their money due to timing of a down market and listened to never been a financial adviser scott pape said host plus fund is gold but the bloke used to work there just before launching the book nothing mentioned about that in the book.... I would not be surprised if hostplus owned the publishing company who approved the book.
Hostplus will get done when Hesta gets done for advertising their fee only costs $1.50 per week. Financial Services is more about what public servant or Treasury official or ASIC staffer you're paying...making promises of a future job with your firm paying a bucket load and or making political donations to. Qualities like honesty and integrity don't exist. One of the reasons why they're so intent on getting rid of Planners cause we call out this corruption.