A multi-asset head has called for the Your Future, Your Super review to update the benchmark used for multi-asset funds to reflect risk levels.
The YFYS test had now seen two iterations and was being reviewed by Treasury for potential improvements.
Simon Doyle, head of multi-asset and chief investment officer, Australia, at Schroders said one improvement would be a clearer benchmark for multi-asset funds. Its current position was deterring superannuation funds from investment as they couldn’t track the risk level.
Speaking to Super Review, he said this had been an unintended consequence of the test and good investments which may have outperformed were being excluded in favour of meeting the test.
“The problem is the benchmark for multi-asset funds and objective-based funds is very blunt and doesn’t take risk into account. It is just 50/50 bonds and equities benchmark, it doesn’t adjust for whether a fund is low or high risk or whether they are constructed for a specific outcome.
“This makes it difficult for super funds to use alternative strategies because it is difficult to control the risk and the tracking error. If you are a fund that is close to failing [the performance test] then you need to be laser-focused on risk and multi-asset cannot always provide that.
“A more developed performance metric which accounted for risk would be welcomed.”
Removing barriers for superannuation funds to transition to modern investment products would result in members retiring with cumulatively $16 billion more by 2050, according to an FSC report.
Fund managers believe the move to internalisation has meant a greater focus on internal teams and less on the chief investment officers, according to Frontier, as it identifies internalisation as a challenge for them.
Months into potential merger talks at the request of significant shareholders, the two industry super fund-owned firms have now offered an update on the state of affairs.
Over 65 per cent of flows into the $4.3 trillion funds management industry come from superannuation, according to a report by KPMG and the FSC, but unintended consequences have arisen from the performance test.