Funds propose ‘two-hurdle approach’ to super reforms

Investment committee chairs from Cbus, HESTA, QSuper, Rest, and SunSuper made their own submission to Treasury calling for the government to rework its controversial performance benchmarks in order to better represent “the capricious nature of markets” and the effects of risk mitigation strategies. 

“The proposed performance test faces the problem of it being well defined on the one hand, but which is unable to distinguish poorly performing funds (say, because of high fees and bad management on the one hand, or just by the unpredictable nature of markets on the other) from better performing funds,” the chairs wrote. 

“It also does not distinguish underperformance as a result of risk mitigation versus underperformance as a result of endemic problems within the fund.”

They instead proposed a “two-hurdle” process that would include a benchmark test as well as an independent assessment administered by a panel of experts – similar to the Foreign Investment Review Board (FIRB) and the Takeovers Panel – that would determine the appropriateness of the fund’s long-term investment targets, strategic asset allocation, and governance practices. 

“We wish to make it quite clear that our proposal for a two-hurdle approach is not to evade clear accountability. We believe that poor performing funds that do not meet their promise to members should not be entitled to receive funds flow from a government mandated system,” the chairs wrote. 

“Indeed, the second hurdle will be particularly imposing for those funds that are called before the panel. No fund would want to get into that position.”

While the chairs’ respective funds also made submissions to Treasury, they wished to make one of their own informed by “sector investment experience in areas such as private industry, commercial banking, investment banking and advisory, investments, investment consulting and in the financial services industry.”

“Particularly, we understand the nature of investment markets and that they are largely unpredictable and uncontrollable. While it is desirable to have a clearly defined performance test, it is important that the test is sufficiently robust to withstand the vagaries of markets, and not deliver outcomes which were never thought possible in the first place,” the chairs wrote. 

However, most submissions to Treasury on the Your Future, Your Super reforms appear to have fallen on deaf ears, with the legislation recently entering Parliament in a mostly unaltered state.