Funds are being accused of gaming the success of their MySuper products by understating the level of growth assets.

Analysis by PwC of the strategic asset allocations for 30 funds in the SuperRatings SR 50 Balanced (60-76) index per cent survey has shown a wide variety of interpretation for growth assets.

The implications are large. Trustees might be misrepresenting funds to their members and over-rewarding investment teams for top quartile performance. For this reason, PwC believe APRA or ASIC need to step in and provide a definitive classification of assets to growth and defensive.

Using a strict measure of risk where everything other than cash and investment grade fixed interest is classified as a growth asset, PwC says the true growth asset holdings of funds in the SuperRatings SR 50 Balanced (60-76) index range from 62 per cent to 97 per cent.

The disparity is caused by funds making their own subjective calculations of what defensive and growth assets are. Some are splitting their holdings of infrastructure, property and alternatives assets to growth and defensive on a 50/50 basis, while others are describing all such assets as defensive. The underlying information for PwC’s analysis is sourced from the websites of each fund.

Stephen Jackman, director of investment consulting at PwC, says that property with a long term lease has some characteristics of a bond, as does infrastructure where pricing is regulated and demand is predictable. Whereas property that is still being built and new infrastructure with development risks, pricing uncertainty or leverage is more like an equity investment.

Jackman’s sense is that the survey is being gamed by some funds keen to be seen as top quartile performers.

“The 30 funds we analysed were heavily skewed to the top end of the 60–76 per cent growth assets range, with one-third of the funds reporting 75 or 76 per cent growth assets,” he said. “When considered with the subjective nature of the growth/defensive classification supplied by the funds, it is hard not to conclude that the growth/defensive split is being influenced by the survey grouping.”

He added that not only are members choosing funds on the basis of such surveys, but awards and remuneration are also set by such results.

“Trustees should be looking closely at the underlying investments in their funds to ensure that they are comfortable with the level of risk being taken, the classification of their fund in the survey and any variable remuneration based on survey results,” said Jackman.

PwC has spoken to both APRA and to SuperRatings about this issue.

SuperRatings has spent time trying to resolve the growth/defensive definition debate, but has been unable to get industry consensus.

Jackman said: “SuperRatings’ view is that legally this is what the funds tell members and hence this is a fund’s position in the event of legal action occurring due to members believing they have been misled.”

The position of APRA is that the industry needs to find agreement before it can issue standards of classification. However, Jackman thinks the onus is now on APRA to resolve the issue.