Controversy over MTAA losses proves the need for more oversight of super funds

Super funds are not obliged by law to disclose detailed investment outcomes, senior executive and board remuneration, and are not even required to provide members with the full set of audited accounts, unlike public companies.

They also aren't required to list when they buy or sell investments, or whether they bought them at market price or sold them at a fire sale price, or who the buyer was.

The latest MTAA controversy to erupt relates to a hedging position it had and the size of the losses its members were subjected to through this investment strategy.

The chief executive of MTAA, Michael Delaney, tried to dismiss the controversy by putting out a statement saying the events are now more than two years old. "Of far more relevance to members is the fund's current performance and its management of currency," he said.

The present situation is important, but so too is a history of what a company or a fund does, and in the case of super funds there is far too little transparency in what they do.

In the case of MTAA it has courted its fair share of controversy over the past few years, taking on a number of legal stoushes. And it isn't the first time it has been on the prudential regulator APRA's radar.

In a Federal Court case in February last year, John Rickus v MTAA Super, the judgment noted that in a prudential review report on November 2, 2004, APRA raised concerns about the trustee's organisational structure and potential for conflicts of interest. It also addressed other corporate governance issues.

If the latest controversy puts a spotlight on the billions of dollars of retirement savings tied up in industry funds, as well as to pressure the government, which has so far been reluctant to go anywhere near transparency and corporate governance issues, it will be a good thing.

Some industry funds are already jumping on the transparency wagon, including UniSuper and Equip Super, but others will be dragged along kicking and screaming.

The MTAA has been quietly selling some of its best-quality assets in the past couple of years to improve its liquidity and make its balanced fund more balanced. On its website. it notes that its target return portfolio at November 2010 was 40 per cent, compared with a 48 per cent actual asset allocation at May 31.

It is in a better position than it was two years ago, but MTAA Super still needs to reduce its exposure to illiquid assets by 8 per cent, which is more than $400 million.

It explains why it has been selling some good assets in the past year. Late last year it sold a 20 per cent-plus stake in Adelaide Airport for more than $150 million, according to industry sources.

It is also believed to be keen to sell a 35.7 per cent stake in Flinders Ports, which owns seven ports in South Australia, at an estimated value of $150 million. The super fund denies it is for sale.

MTAA is a fund that used to be the poster child for industry funds. It topped the performance charts each year until the global financial crisis, which turned it upside-down and made it one of the worst performers in the country.

The same super fund has had three different people sitting in

the chair in the past nine months: Allan Hawke, David Lloyd and, more recently, the former premier of Victoria, John Brumby.

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WITH super funds making decisions on the fourth-largest pool of managed money in the world, largely built from compulsory savings, the Gillard government and APRA need to put the spotlight on governance, board composition, conflicts of interest and the standard of education of board and trustee members.

The Institute of Public Affairs released a report last year that uncovered substantial differences in disclosure by funds, and some

directors on multiple boards. It identified 12 people controlling $188 billion of industry superannuation funds and a complex web of associated entities.

One concern raised about industry and retail funds is that in most cases members don't have control over the people who manage their money.

As a rule, members do not elect the managers or trustees and cannot dismiss them. They also don't know how much they are paid, they have no say over strategy, and industry funds are predominantly default funds. That is, if workers do not choose their own fund, the system requires their money to go to specific funds.

As the number of industry and retail funds consolidate over the next few years and asset bases expand, there will be a heavier concentration of retirement savings being controlled by a smaller number of financial managers and trustees. The time for change is now.