Portfolio details must be disclosed

Super funds will soon list their investments for all to see, writes John Collett.

Super funds will soon list their investments for all to see, writes John Collett.

The Australian Securities and Investments Commission wants superannuation funds and fund managers to disclose the investments they hold.

Disclosure among super funds and fund managers is patchy. Some will list the biggest 10 holdings in their disclosure documents and perhaps on their websites.

But investors are mostly left guessing on how their super is invested - the biggest investment most people will have alongside the family home.

ASIC wants super funds and managed funds to disclose their investments by the middle of next year and will consult with the industry about how it should be done. If the industry does not come up with satisfactory guidelines, the regulator is threatening to ask the government to make it mandatory that they disclose.

The call by the regulator comes as it was reported that the chairman of ASIC, Greg Medcraft, was denied information by his super fund on what investments his fund held.

The 2010 Cooper Review into superannuation recommended that superannuation funds regularly disclose their portfolio holdings.


Disclosure would help shed light on any related-party interests that the funds' trustees may have made. Whether, for example, there are investments being made where there is a benefit to those running the funds.

It would also help researchers and fund members to assess investment risks. During the GFC, some fund members were surprised to learn that the cash option they had switched to had lost money because the cash option was invested in risky corporate bonds and mortgages. Greater transparency would help fund members see the kind of risks that cash options and other investment options have. Help on that score is already on the way, with super funds to introduce a standard risk measure for each investment option by the middle of next year. Each investment option with be given a risk ranking according to how many negative annual returns it can be expected to have over any 20-year period.

Disclosure would also allow fund members who oppose uranium mining, for example, to discover whether their retirement savings are invested in a miner with substantial uranium mining interests.

However, on portfolio-level disclosure the early indications are that fund managers and super funds are not intent on immediately complying with ASIC's request.

John Brogden, chief executive of the Investment and Financial Services Association, which represents most fund managers and retail super funds, says it would add to fund managers' costs and he is not sure there is much demand by consumers for the information. "It would be beneficial to undertake some broad consumer research to work out how many people want this and what they are looking for," he says.

Global laggard

In March this year, researcher Morningstar released a survey of 22 countries that showed, among other things, that Australian and New Zealand fund managers were the only ones not required to disclose their funds' portfolio holdings. Most managed funds do provide their top holdings in their monthly and quarterly investment reports and on their websites but international best practice is to have all of the relevant information in one document.

As for the super funds, most do not produce a list of even their biggest investments on their websites, though there are some notable exceptions.

The 1.8-million-member AustralianSuper gives the names and percentage weightings of the fund's top 20 Australian share investments and top 20 international share investments. It does the same for unlisted property and infrastructure. UniSuper also gives a good level of disclosure. It shows its biggest share holdings and weightings and lists other investments.

Australian Ethical is almost alone is listing every investment it holds on its website, but does not give percentage weightings.

It would be a big help to researchers and financial planners to be able to see exactly what investments super funds hold, the founder of SuperRatings, Jeff Bresnahan, says.

Having portfolio-level information would help researchers and financial planners identify additional investments risks the funds may have. Disclosure of portfolio holdings would also give consumers peace of mind that investments are being made in "recognisable investment entities", Bresnahan says.

Help researchers

The listing of investments would likely have helped researchers identify when a fund's investment option is taking on more risk than the investment option's label suggests, Bresnahan says.

They could see how much of a "cash" option has invested in AAA-rated banks, which AAA-rated banks, and all other investments, including those that are riskier and not as liquid.

The chief executive of the Association of Superannuation Funds of Australia, Pauline Vamos, says: "We fully support transparency however, we do not support disclosure that is not informative."

Super funds have to provide "broad asset allocation" in their product disclosure statements.

This is usually nothing more than a pie chart for each investment option that will also be on the funds' websites.

A fund's balanced investment, where most people have their money, will show a pie chart with a shaded area indicating the investment option has a certain percentage investment in "property", "Australian shares", "international shares" and so on. In addition, super funds list the investment vehicles, such as fund managers and other pooled investments, and show the amount of money with these pooled investments in their annual reports.

Vamos says what is needed is a standard way of telling members how much of their money is invested not just in "property" but, for example, how much of that is invested in shopping centres and how much is in commercial property. But the "balanced" investment options hold hundreds of investments.

Vamos says consumers want to know whether the money is invested in infrastructure, shopping centres, mortgage securities and so on. But listing each security in a portfolio could be just pages of data for most people, which may not be very meaningful. Vamos says that exactly what will be disclosed and how it will be disclosed will be discussed with the regulator as part of the consultation process.

Right to know

The chief executive officer of Morningstar Australasia, Anthony Serhan, says the costs of portfolio-level disclosure, at least for fund managers, are not "material". Of the 3300 unit trusts on the Morningstar database, he says more than 1000 of them already disclose to Morningstar Australasia all their portfolio holdings and percentage weightings.

Some fund managers continue to object to releasing their portfolios, saying they want to protect their intellectual property and keep their portfolio holdings from rival funds.

However, Serhan says the fund managers who disclose do so with a time lag, typically three months, which protects their intellectual property.

"Not all investors are going to be interested in the information [portfolio-level disclosure] but investors have a fundamental right to access it," Serhan says.

"But the industry does need to take some time to think how this information can be provided in the most efficient manner."

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