PC chastened over fund performance methodology

The Productivity Commission (PC) has again been taken to task over its approach to superannuation investment performance – this time by the Association of Superannuation Funds of Australia (ASFA).

In a submission responding to the PC’s Supplementary Paper on Investment Performance, the ASFA has expressed concern about the commission’s approach, particularly around the benchmarking of individual fund/product performance.

Barely a week after actuarial research house, Rice Warner questioned the PC’s approach, the ASFA submission said it considered that “numerous caveats/limitations stem from the Commission’s data and benchmarking methodology”.

“Together, these caveats/limitations suggest there is a significant margin of error around any threshold for ‘underperforming’ funds or products,” it said. “Nonetheless, the Commission defines underperformance as a very small deviation from what is an approximate threshold.”

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“In addition, in terms of forward-looking performance assessment, the Commission’s current analysis shows that measures of short-term investment returns are not a reliable predictor of long-term performance,” the submission said.

“ASFA considers there would be risks around applying the Commission’s current approach to any selection process for funds or products,” it said. “ASFA is concerned about underperformance and the impact on consumers.”

However, the submission said that given these issues, ASFA considered it would be difficult to draw definite conclusions as to whether particular funds/products were “underperformers”.

“In this regard, there is a risk that funds/products would be designated as ‘underperforming’ despite having the potential to deliver high returns over the long term,” the ASFA submission said.