Maritime Super, EISS Super and Christian Super are among a handful of funds to be identified by APRA’s much anticipated heatmaps as the worst performers over five years.

Of the MySuper products that flash dark red on the regulator’s gradient colour scheme, Maritime Super, which oversees $6 billion, had a net investment return relative to APRA’s simple reference portfolio of minus 1.1 per cent on a five-year basis. EISS, which also manages $6 billion, came in at minus 0.83 per cent and Christian Super, which looks after $1.6 billion, was minus 0.84 per cent.

While the Australian Prudential Regulation Authority said the results were a major step forward for transparency and accountability, industry groups have warned not to read too closely into the results. Industry Super Australia (ISA) said they had a problem with the methodology used.

“This is a game changer for the superannuation industry,” said APRA’s deputy chair Helen Rowell in a statement. “The heatmap will subject trustees to a new level of scrutiny, and it’s understandable that some in the industry feel uncomfortable.”

Rowell warned last month that APRA was ready to forcibly remove trustees of underperforming funds thanks to the results of the heatmap which she said “nearly jump off the screen.” The graduating colour scheme changes from white to red, with the darker colours indicating the furthest away from the trend line. It also separately measures fees and costs and sustainability of member outcomes.

“We expect all trustees to use the heatmap to reflect on the drivers of their current performance and identify where they can do better,” Rowell said.

The prudential regulator has already been in contact with the trustees of the worst performing products and has requested details on how they plan to address the weaknesses identified by the heatmaps. Rowell said if they don’t improve in “good time” other options will be considered such as pressuring the funds to merge or forcing them to exit the industry.

The median five-year net return for funds with more than 60 per cent allocated to growth assets was between 7.4 per cent and 7.7 per cent, APRA said. Some 55 per cent of those with 60 to 80 percent allocated to growth had performance above the trend line, while 9 per cent overall, or 23 funds, had underperformed.

The Association of Superannuation Funds of Australia (ASFA) has urged stakeholders to proceed with caution when analysing the results, while the Financial Services Council (FSC) said the heatmaps should not be used to rank superannuation products.

“Achieving sound investment performance and broader member outcomes is a long-term journey, it’s not measured in terms of years, it’s measured in terms of decades,” said ASFA chief executive officer Martin Fahy in a statement. “Let’s be careful… not to jump to erroneous conclusions that may impact the entire category, or damage member outcomes with knee-jerk reactions from anti-retirement groups.”

Arbitrary Metrics

FSC chief executive Sally Loane said that the heatmaps were “a point in time analysis, which is a useful tool for APRA in its supervision activities, but it doesn’t tell the whole story when it comes to members’ retirement outcomes.”

ISA said that unlike the Productivity Commission, APRA had failed to give primacy to net returns after fees and costs for performance comparisons. They also excluded the effect of administration fees and used “simplistic and arbitrary metrics” to adjust for risk which could affect the benchmarks that the MySuper products are compared to.

“We expect to see the worst performers called out, but are concerned methodological flaws may cast some products in a poorer light than warranted, while other products appear OK when they’re not,” said ISA deputy chief executive Matthew Linden. “More work is needed to get the detail right.”

Other MySuper funds that came up dark red include LUCRF, Perpetual Superannuation and a number of retirement wrap products managed by BT Funds that includes Westpac Group Plan MySuper.

APRA said it intends to refresh the heatmap at least annually, but it will update the results in the first half of 2020 to assess any early improvements being made.

Sarah Jones is the deputy editor of Investment Magazine. She previously worked for Bloomberg News in London for more than 12 years covering equity markets and global asset management. Prior to moving to the UK, she worked for Australian Associated Press in Sydney covering economics and monetary policy.
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