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Peak body says performance test must evolve with system
ASFA has highlighted that regulation should not be “set and forget” and calls for a modernised test to meet future needs.
The Association of Superannuation Funds of Australia (ASFA) has welcomed the Treasurer’s review of the super performance test, with CEO Mary Delahunty saying modernising the regime will provide both certainty and flexibility for funds.
Following the conclusion of the three-day roundtable event on 21 August, Treasurer Jim Chalmers said he would take "another look" at special investment vehicles to ensure they are "doing the job we need them to do", including venture capital and other parts of the economy.
Delahunty told the superannuation investment community that the review will build on the test’s success in keeping members in well-performing funds, while giving trustees greater scope to diversify and innovate their investment strategies.
She said this was why ASFA had strongly advocated for a review during the Economic Reform Roundtable.
Speaking at the opening of the ASFA Investment Summit, she emphasised that strong measures of performance are essential in a compulsory super system.
“It is crucial that in a compulsory system, we have measures of performance.
“The performance test has been an important part of the way super does business for half a decade now, it exists as a tool to help members make good decisions about where to put their money and to ensure that underperformance can be dealt with at a system level.
“When we have strong regulation and good transparency, members will have confidence in our system,” Delahunty said.
She added that the existing test has also created “unintended consequences”, including benchmark hugging and convergence of investment strategies.
“The opportunity exists to modernise this test, to ensure that it is fit for purpose for future opportunities. Regulation should not be ‘set and forget’.
“As the people in this room well know, the performance test has given rise to unintended consequences, including benchmark hugging and encouraging investment strategies that are increasingly similar,” she added.
Additionally, Delahunty argued that reforms should enable funds to pursue more innovative, differentiated strategies, such as backing specialist managers, taking advantage of underrepresented opportunities outside benchmarks, or considering appropriate early-stage investments.
“Modernising the test should give funds the confidence to pursue innovative, more differentiated strategies – including backing specialised managers, investment opportunities that arise but may be underweight in the benchmark or even appropriate early-stage opportunities in an array of sectors and asset classes.
“This is not about pursuing particular agendas or meeting government investment priorities – it's about meeting the priority of our members – the best, risk-adjusted returns.”
She said Australia’s investor base is highly skilled, and reforms should empower them to act in members’ best interests and noted that while member outcomes are the central goal, there may at times be alignment with broader policy priorities.
“We have a brilliant cohort of investors in the country, and it is right that they – you – are enabled to do your jobs to the best of your ability. Modernising the performance test will allow you to do that.
“At times, what is in members' best interests will align with broader policy goals, such as increasing the supply of housing, or catalysing clean energy at scale. High-return asset classes often deliver positive externalities – but those will be incidental outcomes, not the reason for reform in the first place,” she said.
AUTHOR
Adrian Suljanovic
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