The Australian Prudential Regulation Authority (APRA) is bracing itself for a surge in the level of superannuation assets as a result of the Government’s ‘simpler super’ proposal, according to the regulator’s general manager, Specialised Institutions Division, S.G. Venkataramani.
In doing so, he renewed the regulator’s warning about hedge funds, first issued in 2003.
Addressing a FINSIA seminar last week, Venkataramani pointed to a likely surge in contributions and said that it would have a number of prudential implications, including trustees feeling compelled to seek higher returns and, therefore, accepting higher risks by investing in alternative asset classes such as private equity and hedge funds.
“Further, there is a risk that there is a ‘race to the bottom’ amongst super funds in terms of asset quality due to the increased competition for the relatively fewer alternative asset investment opportunities, where these assets offer an inappropriate level of reward for the risk taken,” he said.
Venkataramani said that while investment in non-traditional asset classes had not been high so far, APRA was conscious of the high risk, high return options offered by some of the assets and the relative lack of transparency and liquidity.
“It is further noted that super funds are increasing portfolio allocations to these asset classes,” he said.
“Trustees that take on higher risk in their investments should do so consciously and with regard to the appropriateness of the investment for their fund and members,” Venkataramani said.
