Will APRA name super underperformers?

The chairman of the Australian Prudential Regulation Authority (APRA), Wayne Byres is predicting a backlash in the event the regulator was to publish data detailing underperforming superannuation funds.

Byers made the comments while noting that APRA’s earlier efforts with respect to under-performing funds had resulted in around half of them exiting the industry while the remaining half had picked up their act.

“So later this year, starting with MySuper products, we plan to publish a selected set of performance-related measures and benchmarks,” he said. “Our initial focus will be investment returns, fees and charges, and measures of sustainability/viability. We will subsequently expand that to include insurance costs.”

Byers said that the regulator had in mind a simple heat map or traffic light approach giving a snapshot of the performance of each MySuper product against a range of benchmarks with this approach being expanded to include choice products over time as better, and more reliable, data became available. 

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“Our goal here is pretty simple: to identify those trustees that, when looked at across a range of dimensions, do not seem to be delivering value-for-money outcomes,” he said. “It will add to the pressure on trustees to address persistent underperformance, or reconsider their continued presence in the industry.

“We have already undertaken one round of this work where, based on the data available to us, we identified a number of funds that seemed to potentially be generating poor outcomes. Given the limitations of the exercise, we didn’t publish the data, but did share it with the trustees concerned. It resulted in reduced costs for a number of funds or, in about half the cases, those funds being wound up.

“If I thought that new data collections would generate cries of protest, they may well be muted relative to the likely reaction to the publication of the heatmap. No doubt there will be fierce complaints – particularly from those at the wrong end of the scale – that the data is wrong, the metrics we use are wrong, or that the benchmarks we choose are wrong. No doubt some people will claim all three,” Byers said.

“Our view is: let’s have the debate. We do not intend to issue pass/fail marks to trustees. Nor will their status hinge on a particular metric beating a particular benchmark. Rather, we will be looking to highlight those funds who seem to persistently, across a range of metrics, produce poor returns and who, looked at in various ways, appear to have high costs.

“It is important to stress we are looking at the issue of member outcomes holistically. Debate about the merits of a particular data point or metric are therefore far less important when we are looking at the broader picture. A single measure is inevitably going to be imperfect. Consistently poor outcomes across a range of measures will be more difficult to defend.”