The Australian Securities and Investments Commission’s (ASIC’s) Regulatory Guide 97 (RG 97) is likely to detrimentally impact the ability of superannuation funds to allocate more capital to venture capital and private equity, according to the Australian Private Equity and Venture Capital Association (AVCAL).
In a submission filed with the House of Representatives Standing Committee on Economics inquiry into impediments to business investment, AVCAL pointed to RG 97 as being problematic because it is likely to make the private equity and venture capital asset class less attractive to superannuation funds.
It said that while the legislation underpinning RG 97 had been implemented to improve consistency between the terminology of the Stronger Super reforms and the disclosure provisions of the Corporations Regulations and to promote greater fee transparency, it was unlikely to deliver on these objectives.
“AVCAL supports the policy objectives of improving fee and cost disclosure and product comparability across the superannuation and managed fund industries, recognising the importance of accurate, meaningful information being provided to consumers,” the submission said. “However, in our view, RG97, as currently implemented, will not adequately deliver on these policy objectives.”
“Instead, the fee and cost disclosure regulations will make the PE and VC asset class less attractive to superannuation funds at the risk of negatively affecting their portfolio allocation decisions,” it said.
“Apart from the effect of artificially diminishing the attractiveness of PE and VC as an investment option, the regulations could subsequently adversely impact on the super balances of fund members, who would miss out on the strong returns that the PE and VC industry has generated over many years.”
The submission went on to claim that there had been an over-emphasis on fees and costs rather than returns.
“This has resulted in lower allocations to PE and VC that would otherwise make sense from a pure investment return perspective, funds that should increase their allocations, are not doing so, and funds that should commence a PE and VC programme, are not doing so,” it said.
“This means the regime has resulted in investment decisions that are driven by fees and costs rather than maximising returns to investors, which is what Parliament was initially trying to achieve through Stronger Super and related fee disclosure initiatives.”
Mike, this comment is not in response to the article ‘Hamstrung”. But I need to make the comment that something needs to be done to stop ‘experts’ and commentators saying that super payments are taken out of wages. As you know, payments are calculated as a percentage of wages, and come from employers’ revenue. When super was first established under Keating there was a trade-off in portions of wage-rises with employer-paid super. As the years have gone by, this has been lost, eroded, or forgotten. It still may be embedded in some way. I am not expert enough to say, but it is a matter which should be discussed. With almost totally flat wages at the moment, it is hard to see a relationship of trade-off.