Australian funds lagging on disclosure

Australia has been a laggard for many years on the question of fund holdings disclosure, according to Centre for International Finance and Regulation (CIFR) chief executive, Professor David Gallagher.

Gallagher has made his views known within a CIFR submission to the Commonwealth Treasury which has called for a better standard of transparency and disclosure for fund managers "that brings Australia up to date with world's best practice".

The submission said that while CIFR supported the introduction of biannual reporting requirements to come into effect from July, next year, the organisation's work and evidence suggested further benefits to transparency and competition could be possible with more frequent reporting than biannual or quarterly intervals.

It claimed Australia had seriously lagged behind other developed financial markets such as the US and Canada in regards to fund holdings transparency and that a suitably frequent periodic disclosure regime was needed to improve reporting, bolster compliance, and enhance investor outcomes.

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"An enhanced disclosure regime could be motivated in terms of verifying the self-reported portfolio management practices of fund managers, including style tilts (i.e. factor risks) and risk management (i.e. non-salient tail-end risks)," the submission said.

It said the first part of the study undertaken by CIFR had confirmed that monthly and even quarterly disclosure significantly improved the accuracy with which reported holdings reflected fund performance, compared to the required 6-month interval that funds would be required to disclose their portfolio holdings starting next year.

"Also, reporting at longer frequencies significantly underestimates both the excess performance and volatility of top-tier funds, which may lead investors to undervalue these funds or misjudge the additional risks these funds bear," Professor Gallagher said.

He claimed that given technological advances and developments in markets, including database systems that assist with reporting and compliance, any investments made by firms to comply with new disclosure requirements would ultimately ensure longer term efficiencies.