The big change coming to where your super is invested


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Transparency is crucial when it comes to making an informed decision. But what happens when it comes to your super? Unlike fund members in most OECD countries, those in Australia still have no fundamental right to know what their money is being invested in.

While some funds voluntarily disclose their largest 10 to 20 holdings, Australia has no law to compel them to itemise all the investments they make on their members' behalf. People are left guessing at the source of their fund's returns.

Portfolio holdings disclosure regulation has been repeatedly deferred for years. The industry has argued it is too costly and difficult to implement and there are issues of confidential information having to be disclosed. It has also questioned the benefit to consumers.

the big change coming to where your super is invested

That means members can't tell whether they are doubling up when investing in shares or other assets outside super. Nor can they identify risks. During the GFC, members were dismayed to find their "cash" option had lost money because of toxic assets in the mix.

A new deadline has been set for disclosure in Australia. From December 31, 2020, super funds will have to make information about their holdings available on their website within 90 days. Reporting will take place twice a year, including within 90 days of June 30.

Greg Bunkall, data director at Morningstar, a leading investment researcher, says currently Australia is the only country it operates in that does not have any form of mandatory portfolio holding disclosure.

"Globally, this information is so freely available it's almost commonplace," says Bunkall. "Disclosure has been mandatory in the US since the '40s. It's just been commonplace. We've been collecting holdings for US funds from the start of our company 35 years ago."

He says knowing what's in your super is a pretty fundamental requisite. "People might end up being more over-exposed than they realise to particular sectors or particular stocks. Being able to pull that together is hugely important."

Generally people don't know what they own through their super, says Daniel Brammall, a director of Brocktons Independent Advisory and president of the Profession of Independent Financial Advisers.

"We have clients coming through regularly where the client will come in with half a dozen different managed funds and say, "Look, how well diversified I am?", and half of those fund managers are investing in the same assets. So it's not diversification at all, it's duplication. Disclosure will help the astute adviser and astute investor."

He says it will also expose which active fund managers are really index huggers. Active managers charge more for their stock-picking prowess.

"You never know what they are buying and selling. You automatically know when you invest in an index fund what you're buying. It's very transparent. But it's quite opaque in the active management world."

Even if consumers are disinclined to go through every investment item, the information is invaluable, says Xavier O'Halloran, the director of Super Consumers Australia: "I don't expect every consumer to wade through pages and pages of every single investment their fund is in. But this kind of disclosure plays an important role for third parties in helping to inform consumers what the different risks associated with different types of investment might be."

He's referring to researchers, analysts, financial advisers and consumer organisations. "They can point to the riskier types of investments. It's important with changes to climate and the risks that different businesses are facing as a result of that. It's important to know whether they're heavily invested in an industry that may not have a long future.

"A lot of funds complain they might give away the secret source of their investment strategy if they disclose this kind of information. The fact that AustralianSuper has done it is pretty powerful. They are confident enough to share the information and allow consumers to judge whether they're making good choices in the kind of companies they are investing in."

What disclosure means

While a lot can happen to a portfolio in six months, Morningstar's Greg Bunkall says the changes will be positive. "Typically, fund managers tend to report more frequently than the legislation standards require. Once systems are set up, it's not extra work to do it every quarter, or every month, because you've already created the system," he says.

Super funds will have to disclose information about each investment option and identify each item allocated to that option and the value and weighting of each.

While funds need to disclose any third-party fund managers they use - infrastructure funds, hedge funds and private equity - they don't have to itemise their underlying investments.

"If AMP Super invests in AMP Capital Australian Shares, then AMP Capital Australian Shares will have to disclose. But if it gets its exposure by going to Perpetual Australian Shares, because it's not a related-party company, it doesn't have to disclose its holdings," says Bunkall.

Funds can exempt 5% of their holdings from disclosure in each investment option.

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Vita Palestrant was the editor of the Money section of The Sydney Morning Herald and The Age. She has worked on major metropolitan newspapers here and overseas and has won several prestigious journalism awards including the 2001 Citigroup Award for Excellence in Journalism, Personal Finance Category.

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