APRA survey puts spotlight on retail funds

TheAustralian Prudential Regulation Authority(APRA) will be conducting further research into the poor performance of retail superannuation funds after a survey released today found they have consistently underperformed compared with other industry sectors.

While retail funds were expected to underperform in the strong investment environment from 1996 to 2000 and outperform in the down market of 2001 and 2002, the fact that they have produced the lowest net returns in each of the past seven years has prompted APRA to pursue further research in this area.

The survey investigated the investment performance of all funds and sectors in the Australian superannuation industry from June 1995 to June 2002.

While the survey showed net investment returns for all funds averaged 6.68 per cent per year, there were significant differences between fund types, with retail funds returning a much lower 4.51 per cent per annum on average.

By comparison, corporate funds topped the list with an average net return of 6.96 per cent, with public sector funds returning an average 5.99 per cent and industry funds 5.82 per cent.

In terms of volatility, which varied widely across fund types, retail funds had the lowest levels, but they also showed the highest estimated expenses at 1.32 per cent per annum on an asset weighted basis, compared with the average 1.07 per cent per annum.

The survey also found there was some evidence that the higher the expenses incurred, the lower the expected investment return.

APRA has released for consultation expanded data collection forms that will further refine its analysis of the superannuation industry. The forms will request data on composition of investment portfolios by asset class, expense composition, and entry and exit expenses, and will be finalised for implementation from June 2004.