Superannuation funds need to fight short-termism

Superannuation funds can fight short-term investment behaviour in the industry by ensuring the independence of fund managers to invest on a long-term basis, setting realistic expectations for investment returns, and avoiding excessive fund reporting, according to JANA Investment Advisers consultant Denise Healey.

Setting out a strategy to fight short-term investment behaviour at the Responsible Investment Association Australasia conference, Healey suggested that poor incentives could be responsible for short-term investment behaviour in institutional investment.

Compensation based on short-term investments or asset horizons was an example of poor incentives, Healey said.

Catholic Super investment manager Danyelle Guyatt suggested that peer risk among super funds was a major factor in short-term investment behaviour.

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Monthly superannuation fund ratings were pushing members to switch super funds and investment options which simply locked in investment losses, she said.

Ratings were meant to protect consumers but were leading to excessive switching against members' best interests, Guyatt said.

"That is something quite dangerous in the structure of the market system," she said.

Weekly liquidity peer risk pressure could lead to a dysfunctional market, and the Australian economy could suffer, she said.

However, Five Oceans Asset Management chief investment officer Christopher Selth warned that if super funds locked up fund managers so that they sat on their shares and didn't have a long-term view, those few fund managers who were still short-termists would drive share prices up and down.

Aligning the incentive structure can manage short-termism, but there will be abnormal effects that cannot be managed through over-regulation, Selth said.