Are industry funds ‘under-reporting’ their exposures?

Many superannuation funds with unlisted assets are effectively ‘under-reporting’ the extent of their growth asset exposures, according to NAB Wealth.

In what appears to be a direct reference to the practices of some industry funds, NAB Wealth has used its submission to the Productivity Commission (PC) inquiry into superannuation competition and effectiveness to question the practice of funds self-classifying assets into growth and defensive categories.

It said many funds classified their unlisted property and infrastructure assets as entirely or partially defensive while those funds with listed exposure to the same asset classes classified them entirely as growth assets.

“This results in inconsistent classification of growth exposures across funds,” it said. “As such many funds with unlisted assets are effectively ‘under-reporting’ the true extent of growth asset exposure in their portfolio, and as a consequence are being grouped in the same risk categories as lower growth funds,” the submission said.

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The submission said this was occurring despite the fact that such funds had higher growth exposures as well as higher illiquidity risk.

“Due to the diverse range of products available and the differing services and insurance options available to fund members, this impacts on the ability to appropriately compare like-for-like superannuation products,” it said.

The submission said that Australian Securities and Investments Commission (ASIC) Class Order 14/1252 and RG97 had introduced significant changes to the manner in which fees and costs would need to be treated and disclosed but suggested it would take time to determine whether the changes succeeded in addressing concerns of under-disclosure of fees and costs in super and managed investment scheme products.