The Treasury still has much more detail to provide on portfolio disclosure requirements before it can be viewed as workable, according to Unisuper’s head of investment law and compliance.
Luke Barrett, who is responding to the Better Regulation and Governance discussion paper from the Treasury, is working with the Law Council of Australia’s superannuation committee on the issue and says ways of making meaningful disclosure of derivatives, cash, fixed income and term deposits is still needed.
Derivatives pose a particular problem.
“While it is easy to visualise shareholdings in terms of the number of shares held and the price per share, derivative holdings do not lend themselves to that kind of disclosure – for example, what is more important: the economic exposure to a particular company which the derivative creates, or the exposure to the counterparty on the other side of a derivative trade?,” he said.
He also urged for a common sense solution to ways of aggregating fixed interest, cash and term deposit holdings from the same corporate provider.
Valuation disclosure sensitivity for unlisted assets such as private equity, especially when a transaction is imminent or already underway, is another unresolved issue, says Barrett.
One of the proposals for more limited disclosure is for funds to reveal their 50 largest holdings as a percentage of their overall portfolio. This is favoured by Unisuper and in the Treasury paper such limits to disclosure are referred to as the ‘materiality threshold’.
“This kind of list could potentially even be included in the product dashboard, if the list was a manageable size,” said Barrett. “This would be meaningful to more people than a 250 page list of 15,000 ticker codes specifying the number of shares and the price per share, which in most cases will be in foreign currencies.”
The Treasury paper refers to another materiality threshold where a fund is only forced to disclose 95 per cent of its assets. It sees this as problematic, as potentially it would allow trustees to decide which 5 per cent not to disclose.
Barrett thought this was an unnecessary concern.
“Intuitively, it seems unlikely that funds would go to the trouble of creating artificial holding structures simply to avoid a disclosure obligation,” he said. “The introduction of an anti-avoidance provision in this particular context would seem to involve an over-abundance of regulatory precaution which is surplus to need, and would create an unnecessary risk of legitimate structures being questioned.”
Barrett concluded that while most superannuation funds are keen on a measure of portfolio disclosure to members, it should not be detrimental to the interests of members or contrary to any confidentiality arrangements in place.
