QSuper has questioned whether removing the 5% asset exemption rule provided for under current portfolio holidays disclosure legislation is in the best financial interests of superannuation members.
In its Senate Standing Committees on Economies submission on the Your Future, Your Super bill the super fund said it fundamentally believed in transparency and the need to provide an appropriate level of information to its members.
The proposed exemption provided for up to 5% of investment option assets not to be disclosed if the investment items were commercially sensitive and making the information publicly available would be detrimental to members’ interests.
This exemption would allow super funds to exercise discretion around assets which were under negotiation, such as unlisted assets.
QSuper said it strongly questioned:
- Whether the provision of additional information as envisaged would lead to better member outcomes; and
- Whether removing the current exemption would result in outcomes that were in the best financial interests of members.
“By requiring full disclosure of all assets, the bill widens the information asymmetry (already opened by portfolio holding disclosure rules) that allows other market participants advantages in transacting,” it said.
“Many funds have sought investment in private asset classes (real estate, infrastructure, private equity) as they can offer key diversifying benefits to members. The long-term, stable returns (often linked to CPI) with lower sensitivity to broad economic activity provide opportunities to generate strong investment returns for members.
“Publishing a specific value against these assets is unlikely to provide meaningful disclosure to members, but is likely to limit the ability of funds to competitively transact in those assets.”
The super fund said any distortion in pricing that this information asymmetry gave rise to was not in the best financial interests of members and could potentially impact members’ retirement incomes.
The submission recommended that:
- The current 5% asset exemption (provided for in the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1 Act 2019) be retained in the portfolio holding disclosure rules;
- The portfolio holding disclosure rules be amended to allow a progressive implementation of the legislation, with a prioritisation based on those disclosures which were considered most likely to lead to more informed decision-making;
- Allowing publishing to occur at asset class level information (i.e. providing a breakdown of fixed interest holding by type and strategy – sovereign/corporate/credit, duration, credit rating etc. was likely to be more meaningful than listing out all individual securities held);
- Applying a materiality threshold to disclosable items i.e. publishing exposures over a certain defined threshold; and
- Allowing funds to publish a value range for unlisted assets rather than the precise value – i.e. $1 million to $5 million, $5million to $10 million, $10 million to $20 million, etc.