HomePolicy and ResearchInvestment Issues

The ASFA Policy unit has produced investment-related articles of interest for superannuation funds and their service providers.

Contact: David Graus, General Manager, Policy and Industry Practice

March 2009: Classification of asset (Growth/Defensive)

Since 2007 ASFA has been working to encourage the superannuation industry to be more transparent and consistent in order that “like” can be compared with “like” in relation to investment portfolios. Whilst we have been working on this issue for some time, in the light of the Global Financial Crisis it is important that the industry reaches agreement on this issue in the near future. If this is not achieved we believe that the Regulator may impose standards upon us. There are many issues in this area including the definition of a balanced portfolio. However as a first step we need to have consistency across the superannuation and investment industry in relation to the definitions of asset categories. In this regard ASFA has been focussed on the categorisation of growth and defensive and the definition of cash. In August 2008 ASFA issued a background paper (see below). In this paper it was proposed that private equity, listed equities, listed infrastructure, listed property and unlisted opportunistic property be categorised as growth assets; and that cash and fixed income be classified as defensive assets and that unlisted core property, unlisted infrastructure, timber and (certain) hedge funds be classified as 50% growth / 50% defensive. In March 2009, after a meeting with asset consultants and IFSA, ASFA circulated a draft paper putting forward the position that only cash and fixed interest investments be classified as defensive and all other assets be classified as growth. The meeting also came up with a definition of "cash" and "fixed interest/bonds". ASFA has received extensive feedback on the draft paper and is currently reviewing this feedback. ASFA expects to issue a further discussion draft shortly.

August 2008: Classification of assets

Download: ASFA Background Paper: Classification of assets Ratings agencies provide a valuable role in the superannuation industry. However there is some inconsistency in how ratings are determined, how returns are portrayed and what disclosures are provided. ASFA is investigating all these factors. As a first step ASFA has examined the area of comparing “like with like” superannuation portfolios’ returns. Ratings agencies produce tables of investment returns of superannuation funds segregated by the proportion of “growth” and “defensive” assets in portfolios. However, there is inconsistency amongst market participants as to which assets should be classified growth and which should be classified as defensive. This has led to some superannuation funds stating that they are not being compared with “like” portfolios by some returns surveys. ASFA has prepared the “Classification of Assets” paper in order to assist in providing “like with like” comparisons of returns for superannuation portfolios.

August 2008: Super Returns - putting them into perspective

Download: ASFA Background Paper: Super Returns - putting them into perspective There has been a lot of turmoil in the Australian and overseas investment markets over the past year or so. This has resulted in many members experiencing negative returns for their super over the year to 30 June 2008. ASFA has prepared a paper that puts the most recent returns on super into perspective and shows how super funds have performed outright and relative to inflation and wage increases over the past 40 years.

June 2008: Securities lending and superannuation funds

Download: ASFA Policy Paper: Securities lending and superannuation funds There has been commentary in the media recently about superannuation funds’ participation in securities lending. To assist in the understanding of securities lending issues, ASFA has prepared the following brief paper. The final section of the paper outlines ASFA’s policy position on the issue.

April 2008: Effect of tax on superannuation fund investment returns

Download: Executive Overview Background Paper Taxation plays a significant role in the investment process and there is ongoing debate in Australia about the need for investment managers to report on a post-tax basis. This paper reviews some of the key issues involved in determing post-tax returns for equity portfolios. It also poses the question of whether there is any added value to trustees and funds from receiving this information and over what timeframe. ASFA supports the disclosure of post-tax returns of investment managers’ portfolios and seeks to have the practice increasingly adopted throughout the superannuation industry.

July 2007: Standardised investment reporting

Download: Introduction Excel Spreadsheet Templates Superannuation funds receive requests for information such as returns/unit prices and asset allocations from numerous ratings agencies. In many cases the formats for the provision of the data varies and superannuation funds spend undue time and effort in providing this information. ASFA has developed standardised investment reporting spreadsheet templates in order to improve the efficiency of the process. The templates may be used as a base for the provision of data in the same format to the agencies.