Are industry funds ‘under-reporting’ their exposures?


Many superannuation funds with unlisted assets are effectively ‘under-reporting’ the extent of their growth asset exposures, according to NAB Wealth.

In what appears to be a direct reference to the practices of some industry funds, NAB Wealth has used its submission to the Productivity Commission (PC) inquiry into superannuation competition and effectiveness to question the practice of funds self-classifying assets into growth and defensive categories.

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It said many funds classified their unlisted property and infrastructure assets as entirely or partially defensive while those funds with listed exposure to the same asset classes classified them entirely as growth assets.

“This results in inconsistent classification of growth exposures across funds,” it said. “As such many funds with unlisted assets are effectively ‘under-reporting’ the true extent of growth asset exposure in their portfolio, and as a consequence are being grouped in the same risk categories as lower growth funds,” the submission said.

The submission said this was occurring despite the fact that such funds had higher growth exposures as well as higher illiquidity risk.

“Due to the diverse range of products available and the differing services and insurance options available to fund members, this impacts on the ability to appropriately compare like-for-like superannuation products,” it said.

The submission said that Australian Securities and Investments Commission (ASIC) Class Order 14/1252 and RG97 had introduced significant changes to the manner in which fees and costs would need to be treated and disclosed but suggested it would take time to determine whether the changes succeeded in addressing concerns of under-disclosure of fees and costs in super and managed investment scheme products. 

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Compare the Pair - My union fund (with 80% growth assets) beat your retail fund (with 60% growth assets). My fund also discloses lower fees, so that must be the reason for the outperformance. It is staggering to think our regulators have allowed the public to be brainwashed with such nonsense for more than a decade.

Sad but true Ben, but the longer you do this the more you realise that regulators in all forms can't be relied on to protect anything - they are lip service and political footballs - we are the only defence mechanism most clients will ever have.

Another question to ask? How often are the unlisted assets re-valued? Is it convenient that they are valued during high value periods and then not during low value periods?

Exactly Melinda. There is no mark-to-market valuation as there is no market. As we all know, one generally gets the valuation they pay for -- Independent Experts' reports are a classic example -- and this directly impacts reported performance.

Valuations are linked to the risk-free rate Melinda, so they are positively impacted by declining interest rates. In that context I would guess pretty regularly over the last ten years. However going forward it will be very interesting to see what they do. Unlisted assets have given them a nice little boost in recent times. But they will be like a ball and chain around their ankle for the next decade I would think. Any wonder they are fighting new laws which would force them to reveal their real costs. Declining returns coupled with higher costs wouldn't be a good look. Our stupid regulators and even the media might figure them out!

Glad this is being raised at the PC level and not ASIC, perhaps we will get someone who will actually care about the public information and transparency of reporting as obviously ASIC(k joke) doesn't. Even admitting they don't know and have never looked into the ISA union donations and 'fees' was beyond belief... ASIC(k joke) have a lot to answer for since it has been under the mis-leadership of Kell & Medcraft

CBus states in their commercials that they invest in "Companies and projects that employ our members". Is that not beaching sole purpose test? Please explain what benefit Host plus members enjoy by sponsoring football teams? etc etc

Not sure about members, but employees of the Trustees enjoy the box at the footy....

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