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GESB adopts ASFA’s Standard Risk Measure
West Australian public sector fund GESB has adopted the Association of Superannuation Funds of Australia's (ASFA's) Standard Risk Measure (SRM) to allow funds to better compare the merits and pitfalls of its ready-made investment strategies.
ASFA developed the SRM in conjunction with the Financial Services Council (FSC) to quantify investment options' risk levels as related to the potential for negative annual returns over a 20-year period.
GESB warned its members that the standards were not fail-safe as the SRM did not give an indication of the size of potential negative returns or align the likelihood for positive returns with member's objectives. It said members should still ensure they were comfortable with the risks and potential losses associated with investment decisions.
The $16 billion fund said it estimated the risk of each investment option from assumptions about investment market performance, the likelihood of fluctuations in returns and the relationship between asset classes.
The ASFA/FSC SRM has received criticism from industry players such as the Super Ratings for its failure to address longevity risk.
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