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“If you had a retail fund PDS in front
of you, what would it tell you about longterm performance objectives?” asks
Warren Chant, principal at super fund ratings agency Chant West. “You’d get
some waffly words, but no figures.” In their PDSs, industry super funds usually
provide long-term investment objectives, for example consumer price inflation
plus 3.5 per cent. But retail funds don’t. For example, according to the AXA Generations
PDS, the manager’s Defensive multi-manager option targets “some growth in the
short-to-medium term with smaller fluctuations in value” than the Moderately
Defensive or Alternative Balanced options.

No specifics here. This is because
retail funds, acting on advice from lawyers, fear legal action sparked by upset
investors who interpret a return objective as a guarantee. “As soon as you
start quantifying something and you don’t achieve it, you open yourself to
being sued,” Chant says. Such a debate – over whether a stated investment return
objective justifies an expectation – could provide investors wounded by big
losses with a legal grey area to exploit in the courtroom.

This is primarily
why longterm return targets, expressed against inflation, are not listed in the
publicly released Chant West or SuperRatings fund rankings. “What would be a
good idea to help people suddenly has a whole lot of disclaimers and
assumptions with it”, Chant says. For example, “most people don’t know what standard
deviation means”. For commissioned reports, Chant West compares investment returns
against long-term return objectives – if they are available.

If these
objectives were the norm across the super industry, the agency would list the
median return for investment options against the average inflation-adjusted targets
for each option, but not compare the specific returns and long-term targets of
individual options. Chant believes that investors would be better-off knowing
the long-term return targets of their fund – and to have it driven home that
these are not guaranteed.

“Retail funds are very conservative about showing
their expectations. We don’t agree with them. Industry funds set it out very
well.” Meanwhile Chant slams the proposed SuperWatch league tables, in which
the aggregate performance of super funds – not their investment options – will
be ranked, as “nonsense and misleading”. Issuing performance figures to the
public is a good thing, Chant says, but basing them on the performance of funds
will be misleading because the vastly different asset mixes and membership
demographics of industry fund default options and retail funds provide uneven grounds
for comparison.

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