Six shades of red and yellow for APRA’s heatmap

The Australian Prudential and Regulation Authority’s (APRA’s) heatmap will focus on MySuper underperformers with no overall assessment and will be released sometime during the first two weeks of December.

Speaking at the Association of Superannuation Funds of Australia’s (ASFA’s) conference today, ASFA deputy chair, Helen Rowell said each MySuper product would be assessed against a number of metrics.

The metrics would be illustrated through six shades of yellow and red and Rowell said “it would be entirely possible for a product to be white for some investment performance metrics, yellow for others and red for fees and costs. Going further, each metric is divided into sub-categories”.

“In addition to net returns and net investment returns, the heatmap includes two measures of risk-adjusted investment performance: net investment returns relative to simple reference portfolio, and net investment return relative to a strategic asset allocation benchmark portfolio,” she said.

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“Further, in determining the benchmarks used to assess net return and net investment return underperformance we have also sought to ensure like-for-like comparisons based on the average allocation to growth assets over the appropriate timeframe.”

She said that trustees would not be able to give any excuses regarding metrics that were given poor performance such as investment philosophies, demographics, or whether the used a growth or conservative investments.

“We have adjusted for that with the performance measures. The four investment performance measures reflect the level of growth or defensive assets in each MySuper portfolio and so they can’t use that as an excuse,” Rowell said.

MySuper heatmap covering four different measures of investment performance

Source: APRA

Rowell said the metrics took away the industry’s “apples and oranges” comparison issues but it did make the heatmap more complex.

“The relative performance of each product is measured based on the difference between their performance and the appropriate reference point on the trend line. That takes away any concerns that trustees may have that they are being unfairly compared to products with a higher risk profile,” she said.

Rowell said for the time being the heatmap would be updated annually and would “consider” industry feedback.

She stressed that the heatmap was targeted at industry players and not consumers and said that APRA was also looking to create a similar heatmap for Choice products

Rowell noted the shades had not included green or was a traditional “traffic light” system as APRA had consulted with colourists who suggest that red and green would be difficult for people with colour blindness.