ASIC Chair Greg Medcraft has called on all super funds to provide detailed breakdowns of asset allocation in member statements, saying simply reporting major holdings leaves room for cynicism.
The rise of the self-managed super fund (SMSF) does not correlate with the simplistic attitude that the Australian public is not engaged, said Medcraft, speaking at AIST's annual Conference of Major Superannuation Funds (CMSF).
The lack of transparency on exactly how funds are invested is potentially driving members away from the prudentially regulated superannuation sector and towards the SMSF model, Medcraft warned, saying disclosure of portfolio holdings and improving member statements will be in the best interests of all members.
"The compulsory nature of superannuation and its tax advantages arguably raises the threshold of what the community expects in terms of transparency and disclosure and superannuation funds have obligations to their investors to be accountable for their investments," Medcraft said.
"We consider that disclosure of the underlying portfolio holdings of super funds is a key part of this sector's transparency to investors.
Funds should already disclose significant information about the nature of their investments such as providing a strategic or a tactical asset allocation in their PDS, however investors may be unable to access details of specific investments within a range of specific investment options offered."
Enhanced disclosure of portfolio compositions will have an impact on an investor's decision to invest, remain invested or exit a product, Medcraft argued and publicly available information on portfolio holdings in industry, retail and corporate funds is often insufficient to provide an investor with sufficient detail to make a properly informed decision.
While Medcraft acknowledged the efforts of industry bodies such as ASFA and the Financial Services Council working together to progress the issue of underlying portfolio disclosure, he said lack of member engagement should not be used as an excuse by some funds for a lack of transparency.
"Clearly you have full disclosure of portfolio holdings in the United States and the United Kingdom so my view is at the end of the day it should be full portfolio disclosure," Medcraft said.
"I'm always reluctant when someone says we'll only disclose the major assets. It reminds me of the days when I ran securitisation around the world and we had a CDO business and we used to have a 10% bucket which was the minor assets - it's actually where often the riskiest assets were so I'm always cynical about only disclosing major holdings - you then have to determine what's major and what's not.
"I think it's better to come clean and disclose everything," Medcraft said.
Transparency on exact portfolio holdings was not covered in AIST's research on funds' voluntary compliance on guidelines for disclosure released at CMSF, although the organisation said they would be including it moving forward, including in research for 2012.
It is often said by equity managers with a mandate to scour the entire globe for investment ideas that getting the geographic allocation right in any given year is the most important driver of returns.
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