Annika Bradley.

Labor will subject the sovereign wealth fund to the same portfolio holdings disclosure requirements as super funds, but critics say the previous government’s efforts to “water down” the regime makes the move less impactful.

Minister for Finance Katy Gallagher last week announced the Future Fund would from the end of this year be subject to new disclosure rules, including publishing more information on “the amounts of cash held in financial institutions, the amount and value of shares invested in companies, and the level of investments in properties and infrastructure”.

“This new level of disclosure is broadly consistent with what is required of superannuation funds as set out in the Corporations Amendment (Portfolio Holdings Disclosure) Regulations 2021,” Gallagher added.

The decision comes amid calls for more transparency over where the Future Fund invests on behalf of the Australian taxpayer, especially from the Greens, who argue the public has a right to know how exposed the sovereign is to fossil fuels. 

The $206 billion fund was ranked 32nd in the 2023 Global Pension Transparency Benchmark, an initiative of Investment Magazine sister publication in partnership with CEM Benchmarking, well below that of large domestic super funds such as AustralianSuper and Australian Retirement Trust.

But Annika Bradley, director of manager research ratings at research house Morningstar, says the announcement lacks punch, given Australia’s portfolio holdings disclosure regime is less onerous than those implemented by global peers.

“When we look across the world, our portfolio holdings disclosures are less than … our counterparts – we are a little behind,” Bradley tells Investment Magazine. “So, we were disappointed to see the watering down of those disclosure requirements.”

The previous Coalition government had initially proposed a more robust regime, but after a round of industry lobbying and public consultation agreed to a pared back version, under which funds would have to merely disclose broad allocations to an asset class without further detail. For example, the disclosure documents may specify “bonds” but not the credit quality of those assets.

If it is using external managers, the fund need only reference the firm’s name and the dollar figure contributed, not the relevant asset class, let alone specific investments or underlying assets. It also does not require funds to list specific engagements with companies or project managers on ESG matters. 

“We would love to see it revisited,” Bradley says. “We could definitely go a little further than we’ve gone to make it clear to industry participants [and] members what is held in their fund and what its carried at.”

Morningstar advocates for more transparent disclosure of investments within the fund, and – importantly – relevant valuations of those assets, especially unlisted assets. “At the moment, we just have very limited transparency around what unlisted assets are being carried at,” Bradley says. “That has led to sort of a whole number of doubts around how these assets are marked.”

Safeguarding the special sauce

Notwithstanding criticism of the regime for being too weak, portfolio disclosure for fiduciary investors is controversial given some asset owners believe revealing their intellectual property could weaken the fund’s performance deterring asset managers from offering lucrative co-investments or opening up potential attacks for opportunistic traders.

In 2021, the government proposed exempting the Future Fund from investment-related freedom of information requests after the Parliament heard arguments that such disclosure would result in its portfolio being “compromised”. 

But the then-Labor opposition rejected the move and accused the government of “hypocrisy” by not treating the sovereign the same as other asset owners. 

“Granting the Future Fund an exemption from public disclosure on one hand but requiring public disclosure of superannuation funds on the other hand is stark, and is yet another demonstration of the Government’s hatred of the superannuation system,” said Labor Senator Tim Ayres during a debate in Parliament in October 2021. 

“This desire of the current government to throw a cloak of secrecy over the operations of the Future Fund is even more concerning given the Future Fund is entirely public money, being invested by a public authority.”

Senator Ayres said the then-opposition acknowledged the need to protect “highly sensitive commercial information” and ensure the Future Fund is able to “conduct its commercial operations in a way to maximise the fund’s returns”. 

But two years later, now in government, it has moved to even the playing field with super funds on portfolio disclosure anyway – a move some sources said had been in the works for some time and was argued for by the superannuation industry. 

Asked to respond to the age-old argument that disclosure may result in an actively managed fund losing some of its so-called special sauce, Bradley says reasonable lags in the frequency of valuation disclosures should negate these concerns.

 “It’s not daily. if you have appropriate timeframes and appropriate lags, then that becomes a more difficult argument to run,” she says. 

“I have some sympathy for the [idea] if that it’s sort of a daily disclosure regime, it becomes onerous and perhaps easier to gives away some of that [intellectual property].”

She also rejects the idea that offshore asset managers would be put off by heightened disclosure, given Morningstar’s research suggests Australia ranks last of 26 global markets for “investor-friendly” disclosure. 

The US, where many of the Future Fund’s foreign suppliers are domiciled, is at the top of the list, indicating the fund’s managers will be accustomed to a higher bar of disclosure, Bradley says. 

“Ultimately, transparency to the end investor is definitely the trend globally.” 

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