Financial Standard Comments - Super funds to provide standard risk measure

Comment by Spud ()

Spud () — Mon, 01 Aug 2011 13:38:54 +1000

What a crock. On the one hand we say past performance is not indicative of future performance. Now we implement a tool that will scare the crap out of most investors due to the last 3 years of negative performance. Well done to the braine behind this idea.

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Comment by Trevor ()

Trevor () — Mon, 01 Aug 2011 15:16:30 +1000

If Super funds are to be left to implement their own methodologies for measuring investment risk and that it measures "only" the number of negative years, not the actual effect of the severity - How does a member/investor have any chance to make or draw any sort of informed conclusion?
A better solution would be to consider a lump sum of say $100,000 as one scenario and say $6,000 p.a. in regular monthly deposits as another. Then publish rolling 1, 3, 5, 10 15 year "Best & Worst" performance over the last 40 years. This shows the effect of volatility.
Then consider another lot of performance figures with the term ending the close of the immediate last financial year for both the specified amounts over 1, 3, 5, 10 and 15 years. This shows what would have been achieved over the specified periods.

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Comment by David ()

David () — Tue, 02 Aug 2011 10:17:36 +1000

It looks to me like an ex-ante expectation rather than an ex-post description.

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Comment by Very concerned! ()

Very concerned! () — Tue, 02 Aug 2011 15:01:36 +1000

I'm most concerned that this will again give the product providers the upper hand at the expense of the naive end investor. Commercial super funds are in it for themselves not their clients due to the classic misalignment of interests (principal/agent problem). This supposed standard measure just allows these product providers and extra dimension to compete on, given they can use whatever inputs assumptions they like.
Take for example two very funds that have about 60% in equities (30% Aussie and 30% international) and 40% in spread across assets in a very similar manner. One fund uses a realistic average return & standard deviation for their equities of 8%pa and 20%pa, respectively, while the other uses very optimistic inputs of 12% and 10%. These two very similar funds will have very different risk scores!
SO I ASK, WHO IS ENSURING THAT SUPER FUNDS USE SIMILAR CAPITAL MARKET ASSUMPTIONS? If the answer is no one, then this is NOT a standard measure at all!

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