APRA’s heatmaps got it wrong says industry fund

28 January 2020

A key parliamentary committee has heard industry funds concerns about the accuracy of the Australian Prudential Regulation Authority’s (APRA’s) superannuation fund performance heatmaps.

TWUSuper has used its submission to the Senate Economics Legislation Committee inquiry into the Government’s proposed changes to choice of fund to claim that the APRA heatmaps involved some significant classification errors which led to the fund comparing unfavourably with other funds.

The industry fund said that it was supportive of efforts to improve transparency in the superannuation sector and welcomed APRA’s decision to publish comparative data, but added “we are concerned the heatmap published by APRA misrepresents TWUSuper’s investment performance”.

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“APRA’s initial heatmaps classified TWUSuper’s infrastructure and property assets as 100% listed when in fact they are almost entirely unlisted,” it said. “TWUSuper’s investments in unlisted infrastructure and property were classified as 100% growth when compared to some funds whose infrastructure and property assets were classified 75% growth and 25% defensive.”

The superannuation fund claimed this, and other classification errors had skewed TWUSuper’s investment risk rating, giving it a growth rating of 78%, when in fact it should be 71% growth.

“Without these misclassifications TWUSuper would compare favourably in APRA’s heatmaps,” it said.

The TWUSuper submission also suggested that the majority of its members would not be impacted by the Government’s changes to superannuation scheduled to come into force on 1 April because the majority would be covered by the dangerous occupation exemption.

“TWUSuper has consulted with its actuary to determine the feasibility and likelihood of the application of the exemption in relation to its membership. An analysis of the occupations of TWUSuper members indicates that the vast majority (95%) are in manual occupations,” it said.

“Occupation data collected from the fund’s largest employers provides evidence that the majority of the manual occupations are likely to be in dangerous occupations and covered by the dangerous occupation exemption.

“This means that the majority of members may continue to be covered by default insurance on an opt out basis and TWUSUPER will be unique in its ability to continue to provide the financial protection to its members and their families in the event of a death or serious illness or injury that prevents the member returning to work.”

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There needs to be some consistency across the industry as to how assets are classified so that consumers can actually understand. I'm old enough to remember the unlisted property crash in the 1990s. There was nothing defensive about that debacle, millions of dollars were lost. This is why most retail funds don't hold much in the way of unlisted assets - there is a liquidity issue if there is a market downturn which represents more risk for the investor, not less.
How can anyone claim that property is a defensive asset; listed or unlisted? I think any growth asset should be categorised as such, otherwise, how can investors properly compare funds? Maybe APRA could provide some guidance and leadership in this area to protect investors from 'hidden' risks.

I went to this presentation by a CFO of an industry find a few years ago. They had started classifying property, infrastructure and credit as separately growth and defensive by asset, and were planning on doing it with their equities portfolio as well. They were proud of it. They felt that asset class descriptors was stifling, basically. Later that year, the share price of Woolworths fell by a third. Naturally, we never heard about this idea to classify listed equities this way ever again.

and this extends to the press reporting of returns -"comparing "balanced' fund returns with up to 20% difference in growth assets. But what do we expect from our lazy and failing traditional media.

The left wing journalists will report whatever makes Union Super funds look good, and consistently fail to report high performing super funds available via choice platforms. If most of these journalists were caught under the FASEA Code of Ethics, they would be charged for unethical bias. At least Money Management is prepared to offer an open forum, and may the best person/fund/group win in the debate.

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