Finance Your Super ASIC is pursuing underperforming superannuation funds

ASIC is pursuing underperforming superannuation funds

ASIC threatens super.
ASIC chief James Shipton is coming for the superannuation sector. Photo: AAP
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The corporate watchdog is moving on misconduct in the superannuation sector with CEO James Shipton telling a conference in Sydney “ASIC is putting trustees on notice where there is persistent underperformance”.

Poor performance will be in the gun as “consumers expect super trustees to act in their best interests to improve retirement incomes”.

“While underperformance is not illegal, it is frequently caused by conduct that does breach the law e.g. conflicts of interest, failure to act in members’ best interests, or lack of diligence by trustees,” Mr Shipton told the Financial Services Council conference.

Acting on Hayne

The Australian Investments and Securities Commission (ASIC) is beefing up its compliance action following staunch criticism of the regulator by financial services royal commissioner Kenneth Hayne, who characterised it as being weak.

ASIC also admitted to the commission that it lacked powers to enforce its responsibilities.

Following moves to give it more legal muscle, Mr Shipton said “ASIC will look particularly at trustee behaviour that causes monetary loss to members, financial exclusion, loss of market integrity and confidence, and behaviour that undermines competition”.

APRA wants clarity

In another regulatory move the Australian Prudential Regulation Authority (APRA) told The New Daily it would provide “clarifications over the definitions of defensive and growth assets” for superannuation funds, which an APRA spokesman said had been an area of dispute.

AustralianSuper – a typical industry fund asset makeup. Source: AustralianSuper

The dispute is largely between industry and retail, or for-profit, super funds over the shape of their portfolios.

Industry funds use alternative assets like infrastructure and private-equity investments as part of their defensive asset structure, while retail funds rely more on bonds and cash.

Bonds and cash are traditionally what is known as defensive assets because they pay a steady income stream, while direct holdings in assets like shares see their values and income stream vary with the economic environment.

Retail funds have more shares and cash and less infrastructure and alternatives.

However, the growth of direct property and infrastructure investments by industry funds has changed that reality, many argue.

“It’s a perennial argument and a red herring,” said Matt Linden, deputy CEO with Industry Super Australia.

The Productivity Commission rejected that argument and said you need to look at the performance of underlying portfolios in each product, Mr Linden said. 

“Unlisted assets, such as a high-quality building in Canberra with a long- term lease to a government department, could be quite properly described as defensive in nature,” he said. 

“On the other hand, taking a punt on low-grade, high-yield corporate bonds could be considered quite risky and more appropriately a growth asset.”

Ian Fryer, research chief with Chant West, told The New Daily the industry needed to come up with a solution before APRA moved.

“We need to act together and agree on a solution, or APRA will mandate one, and they are not as close to the issue as we are.”

Mr Fryer is chairing a working group made up of retail, industry and public sector funds, which he expects to make recommendations within a month.

SMSF growth flattens

Figures released by APRA on Wednesday show that the period of rapid growth of self-managed super funds is over.

For the year to June 30, SMSF assets grew only 1.7 per cent to $747.6 billion, while the total for pooled funds grew 8 per cent to $1.916 trillion.

Of pooled funds, the industry funds sector rose 13.8 per cent to $718.7 billion while the retail fund sector was flat at $625.7 billion.

The New Daily is owned by Industry Super Holdings

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